Inman

New Pennsylvania law will affect many real estate transactions

Vacant home image via Shutterstock.

Under a new Pennsylvania law that will affect many real estate transactions, property owners who get behind on their taxes on one property will have a lien slapped against all their other properties in that county.

I admit to being blindsided by this new law. I can’t comprehend how it was passed without being blocked by Realtors, mortgage lenders and title insurers.

I can only imagine that they didn’t see it coming, or couldn’t conceive that the legislators would give it credence. Maybe they didn’t understand the full complexity of its unintended consequences.

The system that was already in place for collection of delinquent property taxes in Pennsylvania worked just fine. I hear that the impetus for this law was Philadelphia. I fail to see why the entire state must suffer for the failure of Philadelphia to manage its business.

The implications of this new law are still being digested.

In short, when a title is searched, we are now required to discover ALL real estate owned by the vested owner in the county. We then must check to see if there are any liened delinquent property taxes owed, and then ALL of the liened delinquent property taxes owed for ANY properties owned by this entity will be considered a LIEN against ALL property they own in that county.

Here are some thoughts on how that might impact Pennsylvania residents:

1. A seller in a purchase transaction who is in financial distress having delinquent taxes on more than one piece of real estate in a county will have difficulty liquidating individual properties, as there may not be sufficient equity in one transaction to cover all outstanding delinquent tax obligations. In these cases, buyers of the property would not be able to complete their transaction and by the time this information has been discovered are likely to have spent significant time and money on the potential purchase.

2. A borrower in a refinance transaction who is in financial distress having delinquent taxes on more than one piece of real estate in a county will have difficulty liquidating individual properties, as there may not be sufficient equity in one transaction to cover all outstanding delinquent tax obligations.

3. Large entities who take title to real estate following foreclosure — including Fannie Mae, Freddie Mac, HUD, VA, and lots of mortgage lenders — are likely to have delinquent property taxes outstanding on multiple properties. I can only imagine the complexity of the search process, competing transactions taking place at the same time and deciding who has paid what at what time. I just can’t conceive of how these entities will cover shortages to pay all taxes as these REO properties close.

Perhaps they will simply advance funds to clear delinquent taxes on all properties as they acquire them. Even so, we will have to live through a period of transition that might be crazy.

4. Increased search time and costs, which will be passed on to consumers in some fashion yet to be determined.

5. Pennsylvania businesses — including real estate offices, mortgage lenders, and title insurance agents such as myself — will suffer loss of productivity and, more importantly, loss of out-of-pocket funds expended for transactions that might have otherwise closed if not for this new law.

We had a good system in place for collection of delinquent property taxes. Allowing a transaction to close always results in the delinquencies for each property to be resolved individually.

Now, with this new law, you are likely to see LESS collection of delinquencies as people are unable to move properties due to lack of equity sufficient to cover delinquencies on multiple properties.

Diane Cipa is general manager of The Closing Specialists in Ligonier, Pa.