Unpaid Real Estate Tax Can Become a Lien on All of a Property Owner’s Real Estate in Pennsylvania

The basic notion that unpaid real estate taxes may become a lien against property for which those taxes have been assessed and gone unpaid is commonplace to many. The framework for this process is contained in statutes such as the Real Estate Tax Sale Law (72 P.S. §§ 5860.101 to 5860.803), which is effective in all counties except Allegheny and Philadelphia, and the Municipal Claim and Tax Lien Law (53 P.S. § 7101 et seq.) (MCTLL), which is effective throughout the Commonwealth. Section 3 of MCTLL was amended by the Act of November 27, 2013, P.L. 1075, No. 93, effective January 26, 2014 (Act 93), to provide that a "claim for property taxes that has been reduced to judgment shall be enforceable as a lien against real property in the same manner and to the same extent as a judgment for money under generally applicable laws of this Commonwealth." 53 P.S. § 7106(a)(2).

Act 93 provides that a tax claim is "reduced to judgment" when it is rendered absolute under section 311 of the Real Estate Tax Sale Law (72 P.S. § 5860.311), or given the effect of a judgment in accordance with MCTLL. For a tax claim to be rendered "absolute" pursuant to the Real Estate Tax Sale Act, the tax claim, which shall have been properly noticed as set forth in that Act, must (i) go unpaid; and (ii) have no exceptions filed through January 1 following the date of the notice. A tax claim is given the effect of a judgment in accordance with MCTLL when a judgment has been entered against the taxpayer pursuant to a scire facias proceeding on the tax. There is a question of whether Act 93, being later in time, is deemed to overrule the restriction contained in section 23 of MCTLL (53 P.S. § 7274) to the effect that the unpaid tax claim portion of a judgment on a writ of scire facias (as opposed to costs) "shall be de terris only, and shall be recovered out of the property bound by lien, and not otherwise."

Act 93 does not, without more, make a tax claim that has been reduced to judgment a lien against real property. An additional step must be taken. The "judgment" must be entered in the judgment index by the prothonotary pursuant to rule 3012 of the Pennsylvania Rules of Civil Procedure. When that is done the property tax judgment becomes a lien on real property in the county in which it is entered to the same extent as a general money judgment would, and may be enforced against real property in the same manner as a general money judgment.

Previously, to obtain a general judgment against a taxpayer in connection with a real property tax claim, taxing bodies had to file an independent civil action and pursue the same to judgment. The Pennsylvania legislature, by enacting Act 93, drastically streamlined the process through which a tax claim can reach a taxpayer’s other real estate.

This has several, significant implications with respect to the enforceability of unpaid real estate tax claims that have been reduced to judgment and entered in the judgment index. First, the tax claim becomes a lien on all real estate owned by the taxpayer in the county where the judgment is docketed. The result is a cost-effective mechanism which allows taxing bodies to efficiently pursue a more wide-ranging judgment against the taxpayer – that is, a judgment against all of the taxpayer’s real estate in that county, rather than a tax claim judgment that is limited to the real property at issue. Second, as a general judgment, the judgment can be transferred into other counties, and will attach as a lien to any real estate owned by the taxpayer in those counties. The general judgment lien remains separate and distinct from the tax lien. As such, the general judgment must be revived every five years, pursuant to rules 3025 to 3048 of the Pennsylvania Rules of Civil Procedure, and, consistent with the norm for general judgments, lien priority of the general judgment is based on the date of filing (i.e., the general judgment is not afforded special lien priority by virtue of the fact that it is derivative of a tax claim).

It is unclear to what extent the statute has improved the collectability of delinquent property taxes, or the incentive for timely payment of property taxes. It seems that the statute was, at least in part, aimed toward delinquent taxpayers who own numerous low-value rental properties. These taxpayers were often able to insulate their personal assets from the reach of property tax liens, because the process to convert a tax claim lien into a general judgment was more cumbersome for taxing bodies prior to the enactment of Act 93. The collectability of the delinquent property taxes vis-à-vis these subject properties also presents unique challenges because taxing bodies have a limited interest in displacing tenants from low-value real estate areas. The amendment’s attempt to provide additional reach to the taxpayer’s real property assets, in theory, seems to provide relief and additional leverage with respect to such taxpayers. However, if various properties are each owned by remote entities, such as separate LLCs which own no assets beyond the subject property, the statute’s ability to resolve this conundrum is largely diminished, because a general judgment against a property owner in that instance would avail the taxing body of no additional assets.