How Do Tax Sales Work?

Agent 99 has a report concerning the upset tax sale in Northampton County, which just occurred on Tuesday. I thought I'd share the story with you, but to do so, I need to explain tax sales. 

Most county governments conduct annual tax sales against property owners who have fallen behind on their real estate taxes. This can only happen if the property owner has allowed two years or more to elapse without paying his taxes. If the owner makes payment arrangements or has a hardship that excuses his nonpayment that year, the matter is removed from the sale list.

The first of these tax sales, as I've already mentioned, is what is known as the Upset Sale. The properties are sold to the highest bidder after the overdue taxes are deducted. But in addition to getting the property, the successful buyer gets all of its headaches. If there are three mortgages and twenty municipal liens, the winning bid just bought them, too 

That's why most properties aren't sold at the upset sale. After that, though, comes the real sale, which is called the Judicial Tax Sale. It is called that because a court order is obtained, authorizing the Tax Claim Bureau to sell the property free and clear of all liens, excepting the underlying taxes  All lien creditors who wish to protect their interest are notified. A property worth $1,000,001 with a $1 million mortgage will be sold free and clear of that mortgage.

I know several people who make a good living by buying and selling properties at tax sales. But I try to discourage friends who think they can get rich that way. Too many things can go wrong. Courts are very quick to invalidate sales if a property owner raises a legitimate issue about service, posting or advertisements. Also, a bank or other lien creditor who gets no notice will succeed if the sale is challenged. 

Agent 99 is a fellow title searcher and one of my spies. She was at Tuesday's upset sale, looking to see if there were any bargains. She saw none of those, but did encounter a property owner who got up and demanded a stay of the sale of her property. Her argument was that she would be able to pay her tax bill once she wins a lawsuit she has filed. 

I won't mention her name because I have no desire to embarrass her. As she droned on, one of the bidders told her, "Lady, nobody's gonna' buy your property because you got a mortgage." She shut up and nobody bid on her property. The room applauded her and she left. 

I hope she makes payment arrangements before the judicial sale. 

In most cases, people who lose their property at tax sale abandon them long before that fateful day. But there are people who sometimes lose their property because they get forgetful as they age. This actually happened to an aging attorney I know. He managed to convince himself that he had sought and obtained a stay, but nothing was filed. He lost his home, despite having a decent pension which he could have used to pay his bill. 

Before taking someone's home away at a judicial tax sale, it might be helpful to have a social worker visit the homeowner to serve notice of the sale and make a report, not just about service, but the condition of the property owner.