A Commonwealth Court ruling earlier this month, in City of Philadelphia v. Manu, 2013 Pa. Commw. LEXIS 363, may have a significant effect on the City’s procedures in tax sales, and the success of owners and lienholders in setting aside or staying such sales if statutory requirements are not followed.
In January 2011, the City filed a petition seeking to sell a rental property owned by Agnes Manu free and clear of all encumbrances, pursuant to the Municipal Claims and Liens Act (the “Act”), 53 P.S. §7101, et seq. The City first alleged the amount of delinquent water and sewer rents was $0.00 and attached to its petition an “amended” claim of $657.54, plus interest and penalties for “City taxes”. In addition to the property owner and other tax lien holders, several mortgagees had an interest in the property. However, the show cause order that issued on the petition was only directed to the property owner. Further, service of the petition and rule was made only by posting on the property.
Although Manu filed a motion to stay the proceeding, the trial court issued an order authorizing the City to sell Manu’s property free and clear, stating that the service of the rule to show cause was properly made “upon all parties” and that no answers had been filed “by the respondents or any of them”. Manu subsequently filed a motion for clarification of whether the City was seeking to collect to collect delinquent water and sewer rents or delinquent real estate taxes as the trial court’s order did not specify the amount she owed to the City. Manu also filed a motion to strike or vacate the Court’s order due to defective service of the petition and the rule to show cause, arguing that the order authorizing the sale was void ab initio. After the trial court denied the motion to strike or vacate and the motion for clarification, Manu appealed the denial.
In the meantime, one of the mortgagees filed a petition to intervene and open the judgment, alleging that it had not been served notice of the underlying lien and that the City failed to join it in the petition as an indispensable party.
On appeal, the Commonwealth Court noted that the Act provides a specific procedure that the City must follow to collect on a municipal lien. The Commonwealth Court determined that “there was not even substantial, let alone strict, compliance” with these steps by the City. Among other things, the Act requires that when a city of the first class files its petition, it must list all tax and municipal claims, mortgages and other charges or estates in the land. But, the City failed to do so in its petition; significantly, it intended to collect on its actual lien amount of $14,702.99. Also, the rule to show cause was required to be issued upon all interested parties, and properly served. The City was not able to show that proper service had been made.
Moreover, the Act required the trial court to hold a hearing to make a determination that service of the rule was properly made upon all interested parties, that there was contemporaneous publication of the rule, and the facts stated in the petition are true and accurate. The Commonwealth Court found that failure to strictly comply with these requirements deprived the trial court of jurisdiction to authorize the sheriff sale of the property and vacated the trial court order authorizing the sheriff sale, due to the “manifest and multiple violations of the mandatory procedures” of the Act.
As purchasers at tax sales are likely aware, a tax sale deed is uninsurable by title companies immediately following the tax sale, unless the purchaser files a quiet title action to give the prior owner and any other parties with interest in the property an opportunity to raise any claims they may have, and extinguish claims in favor of the new owner. In part, this procedure is due to the issues identified above where grounds may exist to challenge the tax sale deed and/or set aside the tax sale. As such, for first mortgagees of properties with tax delinquencies, curing the delinquency and proceeding with a foreclosure action remains a preferred option.