PA Tax Sale and title insurance

[Matt Lord]

Planning to look at a property in a town where I have other rentals. Long story short, the current owner recently purchased this property at a tax sale 2 months ago. Seller claims it’s a clean title, a new title search will be done regardless. My issue is that I don’t believe I’ll be able to get title insurance on this place for 12 months after the auction date. So I’ve got 10 months left. That’s 10 months of pretty high risk to me. Granted, this is a cheaper C class property, so it’s not like having 100,000 on the line. But still, I’d hate to purchase it, rehab it and potentially lose it due to the “Right of redemption” or some other law.

So I guess my question is this? Is it true I can’t get title insurance for 12 months?

How risky is not having it in a situation like this? How often are title insurance policies actually used anyway?

[David Krulac]

I have used/employed many PA attorneys and spoken with many others, over this long journey, since buying my first Tax Sale property in 1986.  We have never found a PA attorney that would write a title insurance policy.  Somebody once told me there was an attorney in Lancaster that would write title insurance policies on Tax Sale properties, but the name of such attorney has been elusive and never detected.  There was a company in Los Angeles that said they would issue tax sale title insurance for $5,000.  They would conduct an investigation as to the viability of the notice procedure and if they were satisfied, they would then issue title insurance.  I did contact them with a PA case and after they did an initial research, came back and said they would NOT issue title insurance.  The problem is with "notice" there are many cases of property in PA being sold at Tax Sale where the "notice" to the former owner is incomplete, such as there are multiple owners and only one has provable notice, or no notice at all in the case of the owner being deceased and unlocatable.  WE had one case where the owner called the Tax Office before the Tax Sale, but refused to tell the tax personal what his correct address.  There was some unknown reason why he did not want to say where he was out of state.  I speculated that he was wanted by the law, was involved in a nasty divorce, or owed money to some money source that does not recognize Federal Bankruptcy, take your pick.  Therefore the "notice" was no valid as there was no written proof that he knew about the sale before it was sold by the government for taxes.  The title companies don't want to insure Tax Sales, because the former owner can come back and say that they did not have notice, or proper notice and overturn the tax sale years after the tax sale happened.  In another case we had, the wife had proper notice but testified in court under oath that she never told her husband, who was living in the same house as her of the sale, so he did NOT have notice. The judge sided with the former owner and overturned the tax sale.  And with out having good title you can not sell the property or finance the property.  And for some people that's ok because they just want to hold and rent out or just hold for future appreciation.  In PA the requirement for Adverse Possession is 21 years so if you buy at Tax Sale and hold for 21 years in PA, you can then claim Adverse Possession and the statute of limitations for appealing the Tax Sale has expired.  The Statute of limitation for Adverse Possession varies in every state, in CA it is 5 years, in Louisiana 30 years, Texas 25 years and Costa Rica 6 months.  I've taught an 8 hour course in Tax Sale where I can't go over everything involved in that time, so obviously can't go over everything in a BP post.  I am not an attorney and am now giving legal advise.

David Krulac Bigger Pockets Podcast #82