All Forum Posts by: Kalman G Szabo

@Peter Walther, on the appraisal question: think about it, all the pressure is on you as the owner of the property: you either face the silent inheritance tax problem when you are trying to sell it and you can't give marketable title to the buyer because of the lien or when you are buying title insurance right after the sale (or any time in between). The DOR can take their sweet time deliberating whether your assessment is fair or not costing you a ton of money as opportunity cost even if you do succeed in the end - very unlikely (lost seller, longer turnaround, etc.) You have an easy out though: go by the already established route of County assessed value x CLR.  Guess what you'll end up choosing?

To sum it up: the letter of the law is sometimes just that, a script, that's why the experience of practitioners is all what counts in debates such as this. (Btw, this is true for all industries which have high transaction costs, a.k.a inefficient from a market efficiency perspective. This inefficiency is what also gives you the opportunity to get those insanely good deals - take the stock market on the other hand, you are unlikely to buy Amazon shares at or below 50% FMV at any point in time. So let's just accept it as it is and calculate it into our total cost).

@David Krulac, I disagree with the NEVER having any notice on Dept of Revenue - in fact there is a notice EVERY SINGLE TIME within the laundry list of boilerplate parties, whether there is a deceased owner or not, at least in my area. It might be because my area is Allegheny County (Pittsburgh), which along with Philadelphia is different from the rest of the state.

@Steve Babiak, @Chris K., would this mean that the free and clear tax sale would also not be free and clear any more even if the PA Department of Revenue was properly served? That would then negate what the Municipal Claims Act says.

On a separate note: if the sheriff sale distribution on a free and clear tax sale doesn't explicitly pay off the inheritance tax even though there would be available funds, but returns the sum to the estate, which then gets escheated to the Commonwealth (say because there are only unknown heirs), would the Inheritance Tax lien then prevail? You might think this is a made-up example, yet it isn't.

Thank You @Steve Babiak, @David Krulac, @Greg Wilkins for the answers, all very useful! Sorry for the late reply, my BP account had some glitches the last 2 days.

I looked further into this and it appears that the plaintiff's lawyer did mail both the county's Register of Wills and the Bureau of Individual Tax Inheritance Tax Division in Harrisburg informing them of the foreclosure before the sheriff sale, so after the defendant passed away (already a year before at that point). I see 2 options:

A., Do you know if in this case these 2 institutions should respond back with their tax liens that would then be attached to the distribution of the sale proceeds or else these liens would be wiped out? My understanding is that this is the case with the Free and Clear Tax sales - as long as other lien-holders are properly notified, the lien is wiped out. Wondering how it works in the case or mortgage foreclosures.

B., Or is it that finding out if there is inheritance tax due is the plaintiff's due diligence - they might end up as the high bidders on the auction after all (obviously not because of worrying about the quality of the title a 3rd party bidder would get). If this is the case, would it make any sense to contact the plaintiff (bank) or their lawyer to rectify it afterwards (e.g. by paying off the taxes due from the sheriff sale distributions)? Now this is obviously a long shot but some of you might have such experience or know certain paragraph from, say a foreclosure act. 

Obviously, if neither of the above 2 is the case then I am stuck with paying off the balance, which apart from the money aspect, poses some challenges: not knowing the deceased's DOB or SSN, neither the exact mortgage balance at the time of death to be able to determine the tax base (an amortization schedule won't help here because there are already penalties, legal fees, etc. involved)

Thanks in advance for any insight!
 

Thanks @David Krulac for the quick reply! 

Couple more questions:

- Is it 15% even if the deceased had lineal heirs at the time of her death? I was told before that I will need to pay the taxes that were due at the time of the deceased's death and the heirs were the children which would suggest a tax rate of 4.5%. I am aware that interest accumulates on the dues after the 9 months grace period expires after the death.

Thanks for the suggestion of the Recorder of Deeds for the paperwork, somehow even the rep at the Register of Wills failed to mention them. 

- What they did tell me though is that I need to open an Estate for which I need the SSN (and so does all the paperwork I have seen), which I don't have. What do you do in situations like this? Do you try to find the SSN through some search?

- Finally, since this was a mortgage foreclosure, @Chris K. mentioned in another thread that there are specific forms that the mortgagee should file with the the Department of Revenue, which I believe is this document, which I have seen in other sheriff sale filings (where the bank didn't forget to do it): 
https://www.revenue.pa.gov/FormsandPublications/FormsforIndividuals/InheritanceTax/Documents/rev-1839.pdf
Now, is there any regulation that requires the filing of this by the mortgagee? What happens if they intentionally or unintentionally fail to do so? I understand that in general the sheriff sale is the land of caveat emptor but there might be more stringent laws for the process of a mortgage foreclosure than for a tax sale (judicial or not). One could argue that the buyer at the sheriff sale expected the inheritance tax to be taken care of from the sale proceeds and was bidding accordingly. This might be wishful thinking on my part - if it was a tax sale, I would not even bring it up.

(this is really just an extra: since the bank wasn't aware of the deceased's passing they didn't bring the heirs to the foreclosure either, causing me having to do a quiet title. Do you think there is any recourse on this?)

Sorry for the many questions, but I think this case is educational for many investors.

adding @Steve Babiak, @David Krulac, @Chris K.

@Chris K., I am facing a very similar situation right now with a property bought at a mortgage foreclosure. You say above that there are specific forms that the mortgagee should file. In my case they haven't done this. Is there any recourse I have against the mortgagee at this point?

By not being aware of the passing of the deceased the mortgagee hasn't named the heirs in the foreclosure process either which caused me having to do a quiet title. Do you know if I have any recourse on this?

Dear Fellow BPers,

Here is the gist of a recent sheriff sale acquisition that I would need some help with and it might be educational to some of you.

I acquired the property at a PA Sheriff sale through a mortgage foreclosure. During the foreclosure process (that took years as it was stopped, writ reissued, etc.) the defendant passed away. 

I wasn't aware of this (mental note: always check for obituaries), neither was the foreclosing bank, so they did not open an Estate for the deceased. Neither did the heirs but as an investor you should not rely on that anyhow. Now of course I need to pay off the PA Inheritance tax to transfer ownership. 

It's not a large amount, however I cannot find the correct way to do it: there are forms available for heirs and mortgagees (banks) to file a return, however I could not find any that would fit my situation. Especially considering I don't have some necessary information, such as the SSN of the deceased.

Called up the Allegheny County Register of Wills where to rep told me to call the Department of Revenue in Harrisburg to ask for a so-called Commonwealth Release of Lien. Well, they haven't been overly responsive so far...

I'm pretty sure many of you have encountered situations such as this since errors in foreclosures are a dime-a-dozen, especially hoping if PA foreclosure experts, such as @David Krulac and @Steve Babiak could chime in!

Thank You in advance,

Kalman

Hi, I have a question about the reverse 1031 exchange that I haven't yet found an answer to on this otherwise amazing forum. Namely, would it be possible to acquire a property on a sheriff sale and use it as a replacement property in a reverse 1031 exchange?

As I understood sheriff sale and similar auction properties aren't viable as replacement properties through a straight 1031 exchange because of operational difficulties - e.g. the funds from the property sold should be held by the Qualified Intermediary (QI) who could not possibly release it on time to pay the sheriff sale dues - which are depending on your jurisdiction an up-front part and the rest be paid in a very short notice. There might be additional limitations but the short timeline is by itself prohibitive. 

But how about reverse 1031 exchanges? What would stop an investor from taking title to the sheriff sale property through an LLC set up ahead of time by a QI acting as Exchange Accommodating Title Holder and transferring ownership of the LLC itself after the property intended for sale closed?

Or is there a way to make this work even through a straight (as in, non-reverse) 1031 exchange?

@Dave Foster, I believe this question would be right up your alley!

Thanks in advance!