Pennsylvania's new lien law could monkeywrench REO sales in 6 ways
A lien on one becomes a lien on all
A new law in Pennsylvania requires that delinquent taxes on one property will create liens on all of owners' other properties in that county, and real estate agents and lenders are worried it will put a kibbosh on business.
“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,” said one HousingWire tipster, located in Pennsylvania. “I can only imagine that they didn't see it coming or couldn't conceive that the legislators would give it credence or didn't understand the full complexity of unintended consequences.”
In November 2013, Act 93 of 2013 was signed into law by the Pennsylvania Legislature. The act amends the Municipal Claim and Tax Lien Law to provide for the collection of delinquent property tax claims through judgment liens as opposed to a municipal lien.
When a title is searched, real estate professionals are now required to discover all real estate owned by the vested owner in the county. Then they must check to see if there are any liened delinquent property taxes owed and 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.
Municipal liens stay with the property, while judgments stay with the person. If an owner does not pay the real estate taxes on his Pennsylvania property, that judgment will now attach to any and all other property he may own in the same Pennsylvania county.
“The system already in place for collection of delinquent property taxes in PA works just fine. I hear that the impetus behind this law was Philadelphia. I fail to see why the entire state must suffer for the failure of Philadelphia to manage its business,” said the source.
Our source outlined for HousingWire their thoughts on the potential impact of this new Pennsylvania law:
1) It can jam up a sale needed to raise capital to remove a lien
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) It can jam up other sales
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) Institutional investors, REO are looking at major headaches
Large entities who take title to real estate following foreclosure such as 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, however, even in this case, we will have to live through a period of transition that might be crazy.
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