Alan Nochumson of Nochumson P.C. ()
Every month, in every county of the commonwealth, a sheriff’s sale typically takes place where third parties can bid on real estate in that county which is subject to tax or mortgage foreclosure proceedings.
These properties are sold in “as is, where is” condition and most bidders are generally not given the opportunity before the sheriff’s sale occurs to inspect the property beforehand. In doing so, these bidders take an extreme leap of faith in the hopes that any money they save by purchasing the foreclosed property through these foreclosure proceedings will outweigh the cost of remediating any of the issues with it.
In a recent decision issued by the Superior Court of Pennsylvania in Commonwealth of Pennsylvania v. Investment Resource Holding, 2017 Pa. Super. LEXIS 583 (Aug. 1), a successful bidder of a foreclosed property in Lebanon County discovered the hard way the risks associated with maintaining a property before the deed so transferring the property is even issued.
In Investment Resource Holding, William Hartman, on behalf of Investment Resource Holding, Inc. (IRH), attended the sheriff’s sale of the property that was being sold by way of tax foreclosure proceedings initiated by the city of Lebanon, the opinion said.
When he registered for the sheriff’s sale on IRH’s behalf, Hartman was given a copy of the terms and conditions of the sheriff’s sale, which, among other things, provided that “the Tax Claim Bureau will issue a deed to the purchaser upon confirmation of the sale by the Court of Common Pleas” and “No sales will be canceled or money returned after the property is struck down by the auctioneer,” the opinion said.
Hartman, acting on IRH’s behalf, was the winning bidder of the property for the amount of $3,500 and thereafter he executed, on IRH’s behalf, “the agreement of sale and receipt of payment for the property” which stated that “This sale is final and the buyer is bound by the terms and conditions of the sale attached hereto,” the opinion said.
A deed transferring the property to IRH was subsequently prepared and recorded, the opinion said.
A couple of weeks after the deed was recorded, a fire resulted in extensive damage to the property, the opinion said.
The day after the fire occurred, IRH was mailed a copy of the deed via certified mail, the opinion said.
After the deed was placed in the mail, the Tax Claim Bureau received a letter from an attorney representing IRH indicating that IRH had not received the deed and would not accept it and did not want to be considered the owner of the property, the opinion said.
The deed mailed to IRH was returned to the Tax Claim Bureau as unclaimed as IRH refused to pick it up, the opinion said.
After the fire occurred, the city’s code enforcement unit issued notices of violation to IRH regarding the unsafe condition of the property which remained untended.
The city eventually initiated a lawsuit against IRH based upon these notices of violation to the magisterial district judge maintaining jurisdiction over the property.
In front of the magisterial court judge, IRH did not dispute that it did not comply with the directives issued by the city, but rather asserted that it was not the owner of the property and could not, thus, be held responsible for the violations so alleged.
The magisterial district judge nonetheless found IRH guilty on all but one of the citations.
IRH then appealed the magisterial district judge’s ruling to the Lebanon County Court of Common Pleas.
After a summary appeal hearing and written submissions, the trial court judge also found IRH guilty on all but one of the citations and sentenced IRH to pay fines and restitution.
IRH then appealed the trial court’s ruling to the Superior Court.
IRH argued that it could simply avoid the sale of the property by refusing receipt of the recorded deed, relying upon the rational employed in Tate v. Clement, 176 Pa. 550 (1896), In re Rouse, 48 B.R. 236 (Bankr. E.D. Pa. 1985), and Russell v. Equibank, 8 B.R. 342 (Bankr. W.D. Pa. 1980).
In response, the Superior Court pointed out that “none of these cases allow a purchaser of real property at a tax sale, after complying with all terms of the sale, and after the deed has been recorded in the purchaser’s name, to disclaim the property to avoid an unexpected debt by refusing to accept delivery of the deed.”
Rather, according to the Superior Court, the Federal District Court in Russell emphasized that “a purchaser of real property at a sheriff’s sale acquires, at the fall of the hammer, a vested interest in the property” and such interest becomes complete upon the purchaser complying with the terms and conditions of the sheriff’s sale.
In a footnote in the opinion, the Superior Court found that IRH’s reliance upon Conlen v. Girsh, 56 A.2d 231 (Pa. 1948) as misplaced.
In Conlen, the purchaser failed to comply with the terms and conditions of the sheriff’s sale and the purchaser of the property was, therefore, not provided the deed to the property.
While “the fact that the purchaser had been the equitable owner did not entitle it to legal title,” the Superior Court also stated that the reasoning set forth by the Supreme Court of Pennsylvania in Conlen “did not allow a purchaser to abandon a transaction, after payment and recording of the deed to avoid an unpleasant responsibility.”
Since IRH complied in all respects with the terms and conditions of the sheriff’s sale, the Superior Court in Investment Resource Holding concluded that IRH was bound by its bargain, including, but not limited to, the facts that all sales were final and no sale could be cancelled.
The Superior Court in Investment Resource Holding, equated “the purchaser’s position prior to the delivery of the deed is that of a purchaser by the articles of a private sales agreement.”
Citing to another one of its panel’s holding in Byrne v. Kanig, 332 A.2d 472 (Pa. Super. Ct. 1974), the Superior Court noted that, upon an unconditional agreement for the sale of the property, the contemplated purchaser becomes the equitable owner of the property and bears the risk of any loss which may happen to the property between the agreement and the conveyance.
Similarly, the Superior Court in Investment Resource Holding stated that IRH, as the equitable owner of the property prior to delivery of the deed, was responsible for the liabilities attendant to its purchase of the property, including taking action outlined in the notices of violation and its subsequent refusal to accept the deed did not relieve it of those responsibilities.
In other words, the Superior Court held that IRH was “properly found guilty of violating local ordinances regarding the safe upkeep and maintenance of real estate.”
The Superior Court’s ruling in Investment Resource Holding should be treated as a cautionary tale for every successful bidder at a sheriff’s sale. From the time the bid is accepted by the sheriff, the successful bidder has the responsibility to conduct himself as the owner of the property, whether he or the former property owner likes it or not. •