There are many reasons real estate taxes go unpaid. In the Commonwealth, a taxing district – the County, School District and Municipality – may seek to recoup taxes via tax sales. Following an Upset Sale, which takes place annually in September, properties may be sold under Judicial Sale. Find out more about this type of tax sale and what to do if your property is up for sale or you’re an investor looking to take advantage of low cost property.
Upset Sale vs. Judicial Sale
Some properties will not be sold at the initial Upset Sale, and it is usually because there are mortgages or other encumbrances which exceed the value of the property. While Upset Sales can be continued until the end of the year without additional advertising efforts, the Tax Claim Bureau may, and eventually will be required to, submit the property to a Judicial Sale by filing a Petition for Judicial Sale with the court.
Judicial Sales are different from Upset Sales in that the property will be sold to the highest bidder, at a price initially set by the Tax Claim Bureau. In addition, property sold will be divested of all liens and encumbrances, except those preserved by another law, separately taxed ground rents, and senior tax liens of the United States.
Mortgages, judgments, and other liens are wiped out by a Judicial Sale. Judicial Sales further differ because creditors now stand to have their liens divested, and as such they are now interested parties and are entitled to notice of the Judicial Sale. Many savvy investors will wait until the Judicial Sale to bid on a property. 
Notice requirements for a Judicial Sale in PA
If the Petition requesting a Judicial Sale is presented within three months after the Upset Sale, there are no additional advertising requirements. All that must be served in this instance is a “Rule to Show Cause” – legalese for an Order directing a time and place for a hearing
on the Petition to determine if the property should be subjected to Judicial Sale. The Rule must be hand delivered to the owner by the Sheriff, but if the Sheriff cannot affect service, he or she is permitted to send the Rule by registered mail, return receipt requested, postage prepaid. Curiously, there is no requirement in the law that the mail be delivered, and the Sheriff satisfies PA Real Estate Tax Sale Law (RETSL) by simply sending the notice in the mail.
If the Petition is presented after three months, in addition to service of the Rule, the Tax Claim Bureau is required to advertise the date of the Judicial Sale in one of the newspapers used to advertise the Upset Sale at least thirty (30) days before the sale. The advertisement must explain:
- the time and date of the sale,
- that it is a Judicial Sale,
- and make reference to the previous advertisements for the Upset Sale.
Any challenge to a Judicial Sale should be filed within six (6) months of the sale. In practice, notice requirements of a Judicial Sale are less onerous than that of an Upset Sale, and challenging a Judicial Sale can be difficult.
Notice defects and jurisdiction in Judicial Sales
Challenges to a Judicial Sale should be filed within six (6) months. However, in the case of In re Sale of Real Estate by Lackawanna County Tax Claim Bureau 255 A.3d 619 (Pa. Cmwlth. 2021), the Commonwealth Court held, among other things, that failure to follow the notice requirements of RETSL prevents the Court of Common Pleas from exercising jurisdiction over a property. In other words, if notice is not perfected according to RETSL, then a court never had the right to approve the sale of the property. The sale in that case is treated as void ab initio – or in normal speak, never having happened.
Lackawanna is significant from many perspectives, including purchasers, taxpayers, and even title insurance companies. The outer bounds of how long ago a Judicial Sale must have taken place in order to confidently say it is immune from challenge has not been tested. At some point it would seem that the equities of the case will require a challenge to be dismissed as untimely.
A sale from twenty (20) years ago with several conveyances throughout that time certainly seems like it should immune from challenge, but this portion of the Lackawanna decision is based on concerns of constitutionality and the government selling private property without due process, and it cannot be said for certain that such a sale would be immune.
The Lackawanna court distinguishes the jurisdictional challenge it held is available in Judicial Sales from time barred challenges in Upset Sales on several grounds, including:
- the six (6) month limitation of challenging a Judicial Sale and the six (6) year limitation on challenging an Upset Sale,
- the requirement of a valid court order for a Judicial Sale,
- and the Judicial Sale extinguishing the interest of the property owner as well as lienholders and mortgagees.
Legal support for a Judicial Sale in PA
Unlike an Upset Sale, challenging a Judicial Sale may be difficult, as notice requirements are less onerous. Purchasing a property at Judicial Sale may be less complex and less risky than an Upset Sale for an investor.
No matter which side you’re on – seeking to prevent a Judicial Sale or make a purchase – an attorney with experience in tax sales and all facets of residential and commercial real estate can help you navigate these challenges.
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