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Tax sale vs. sheriff’s sale: What investors need to know

If you’re a real estate investor, you’ve probably heard of a tax sale and sheriff’s sale. Both deal with properties that have been ceded to the judicial system in a distressed sale — the homeowners are not paying real estate taxes, making mortgage payments, or both. As a result, mortgage lenders or the taxing authorities attempt to sell the property to recoup some of the losses. As a result, these properties can be purchased for much less than fair market value, making tax sales and sheriff’s sales hotspots for investors like you.

Though tax sales and sheriff’s sale are similar, it’s vital to understand the differences. Read below to be sure you know exactly what you’re getting into before you purchase a property at a tax sale or sheriff’s sale.


Sheriff’s sales: The wild west of real estate

When a lender takes a debtor to court for a loan that has not been paid off, that lender becomes a “judgment creditor.” In a real estate scenario, the debtor is the property owner. The lender, after obtaining a judgment in mortgage foreclosure, becomes the judgment creditor.  As such, the lender may have the option to expose the debtor’s property for sale to the highest bidder at a sheriff’s sale in order to recoup the monetary loss caused by the debtor.

Thus, you’ll find properties on which judgment creditors have foreclosed, most commonly mortgage foreclosures, at sheriff’s sales. The scheduling of sheriff’s sales is different in each county in Pennsylvania, usually occurring every other month, such as the practice in York, Lancaster, and Adams Counties — you can find York’s Sheriff’s Sale listings here.


Tax sales: A twofold tale

Tax sales, on the other hand, are a bit more complex. They involve properties put up for sale because the property owners have not paid his/her/its real estate taxes.


The ‘Upset Sale’

The first phase of a tax sale is the “Upset Sale,” held annually in September or October. In this phase of the sale process, all liens that encumber a property are transferred to the bidder at the sale. As a result, the buyer or investor would be responsible for:

  • Liens, which give creditors conditional ownership of the property to secure the payment of an obligation or the repayment of a debt; i.e. creditors would be able to sue the new owner and possibly take back the property if its lien is not repaid or otherwise satisfied
  • Mortgages
  • Judgments

… and anything else that affects the title to the property (think IRS Tax Liens, Commonwealth Tax Liens, unpaid Inheritance Tax, Medicaid or Department of Human Services Liens, and this list goes on).


The ‘Judicial Sale’

The second phase of a tax sale is the “Judicial Sale,” usually held in June. Properties that failed to sell at the Upset Sale will move on to this phase. Almost all liens, mortgages, judgments and secured interests in the property, if properly notified of the Judicial Sale, will be “divested” if the property is sold. In other words, the strings attached to the properties will be cut, as long as the string holders have received proper notice of the date and time of cutting. Still, it’s important to remember that not all properties make it to this phase — in some cases, you might not want to wait to bid. Conversely, if the property does not sell at the Judicial Sale, it goes on a Repository List, available at the County Tax Claim Bureau Office. Different rules apply to bids from the Repository List, so it’s important to contact the county prior to making any offers.


Potential pitfalls

Though sheriff sales and tax sales are fundamentally different, there are some potential problems common to any scenario where the investors are often purchasing properties sight unseen. For example:

  • The true condition of the property will remain more or less a mystery until after purchase. Investors do not have the right to inspect the interior of the property prior to the sale, and in some scenarios, you may only be allowed to view the property by driving past it.
  • You’re not guaranteed a right to possession. The property owners may file objections to the sale, claiming a failure in the procedure, which if successful, could void the sale. Likewise, the property owners, or someone else altogether, may continue to inhabit the property after it’s been sold, in which case you’d have to file a suit to have the inhabitants removed.
  • Each county in the Commonwealth of Pennsylvania conducts sheriff’s sales and tax sales differently and according to local rules and practice. Whether it’s the registration requirements before the sale, what amount needs to be paid at the sale, whether cash, certified funds or personal checks are appropriate means of payment, or even bidding practice at the sale itself, it’s best to check with the county or a local legal professional to avoid walking blindly into the sale.

Fortunately, these issues can be worked through with the right support system. An attorney can check to make sure that the procedure leading up to the sale was properly completed and spot potential pitfalls and issues before you make the bid.

To make sure you’re secure in your sheriff’s sale or tax sale investment, contact Stock and Leader’s Real Estate team today.



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