Tax sales and title defects in Harrisburg, PA

I wrote earlier about tax sales, and the likelihood that an increase in property taxes and related expenses would lead to more properties being exposed to tax sales, as owners abandoned their already marginal properties in the face of these new and higher expenses.

Once a property has been sold at a tax sale, that property suffers from a title defect. The former owner can file suit to recover his old property at any time, claiming that he did not receive proper service of process of the then pending tax sale. Service of process is a constitutional issue that can not be eliminated by city ordinance or other local measure.

Once a tax sale takes place, the only way to eliminate with certainty the resulting title defect is to file a quiet title action against the former owner (or have the former owner sign a deed in favor of the buyer). These curative actions are expensive and uncertain. It is impossible to determine how much such an action will cost because it is unknown whether the former owner will fight or whether the buyer can even find the former owner.

For this reason many former tax sale properties sit with title defects unresolved. With unresolved title defects, such a property usually can not be sold or financed. Without financing, the property cannot be fixed or renovated. The properties continue to deteriorate, contributing to blight within the city.

Every year a few investors take the necessary steps and spend the money required to clear their tax sale properties of title defects. They clear these properties one lawsuit (or one quitclaim deed) at a time. Meanwhile, hundreds more properties are exposed to new tax sales (and new title defects) every year. Every year the city gets deeper in the title defect hole, as more tax sale defects are created than are resolved.

The City of Harrisburg owns hundreds of properties that were unsold at prior tax sales. Countless more have been purchased at tax sale and remain burdened with the same title defect(s). Increasing the tax rates will only compound the problems. Fewer investors will attempt to purchase these properties and undertake the expense involved in clearing the title after the cost of such ownership has been drastically increased, as the City's consultant now proposes.

Tax sale title defects will now be made more burdensome, and will contribute more to the downward spiral in the real estate market.