Recently someone asked me what would happen if they purchased a tax deed in an “upset” tax sale in Pennsylvania that had a mortgage on it; would they be liable for the mortgage? Pennsylvania actually has three different tax deed sales and while most liens do not survive the judicial sale and the repository sale, all liens do survive the upset sale. This means that if you purchase a tax deed at the upset sale you are liable for any other liens on the property. You would have to pay these liens or risk losing the property. If you bought this deed in your own name, your credit would also be affected if you do not satisfy these liens.
A person is this situation has made three costly mistakes that many first time deed purchasers make. Their first mistake was not checking into the state laws for deed sales. Each state has different laws regarding tax foreclosure sales. In most states other liens are wiped out by a tax sale, but this is not true for every state and this is something that you need to know about before you bid on a property in a tax deed sale. Even in states where most liens are extinguished by a tax sale, some liens may survive the sale. You need to know what liens survive a tax deed or tax foreclosure sale in your state and you need to know how to check for these liens.
The second mistake made in this situation was not having done proper due diligence on the property and checking for other liens. While this step is not always necessary when you’re investing in tax liens, it is critical when you’re buying a tax deed. After you’ve purchased a tax lien certificate on a property, if you decide that you’ve made a mistake and the property is not worth it, you can always walk away and only loose your initial investment. You are not the owner; therefore, you have no liability. If however, you purchase a tax deed on a property, you become the owner of the property. You are now responsible for any liens on the property that survived the tax sale as well as for current taxes and assessments on the property.
The third costly mistake made in this situation was buying the property in the investor’s name instead of in the name of a business entity. Because the tax deed was purchased in the investor’s name, they became personally liable for the property and any other liens held against it. As the owner of record, they would also be liable if anyone got injured or hurt on the property, and as mentioned in the previous chapter, they are also responsible for current taxes and any other assessments or association fees if the property is in a community. If they decide that the property isn’t worth it, they cannot just walk away and only loose their original investment. Now there is more at stake. If they had purchased the deed in the name of a business entity that they had previously set up for this purpose, however, they would not be held personally liable for all of these things.
To learn more about asset protection and business entities for tax deed investing you can download this free recording of a teleseminar interview that I did with Texas attorney and tax deed expert Darius Barazandeh. To download the replay of this teleseminar, just right click on the following link and choose “save target as’ to save it to your computer and listen to it any time you like. Here is the link: http://tinyurl.com/yabhn2.