Court: Mixed-Use Property May Be Redeemed After Tax Sale

Written by: Alan Nochumson

As the real estate market in Philadelphia continues its upper trajectory, the city of Philadelphia has been aggressively selling tax ­delinquent properties through tax foreclosure ­proceedings under the Municipal Claims and Tax Liens Act in order to continue ­development of these typically under-utilized properties.

In City of Philadelphia v. Phan, 2016 Pa. Commw. LEXIS 448 (Oct. 24, 2016), the Commonwealth Court for the first time specifically addressed whether a mixed-use property which had been sold at a tax sale pursuant to the act could be redeemed by the former property owner as a matter of right under the act.

Under 53 P.S. Section 7293(c), there is no right to redeem a “vacant” property after the date of the acknowledgement of the sheriff’s deed. Section 7293(c) specifically provides a “property shall be deemed to be ‘vacant property’ unless it was ­continuously occupied by the same individual or basic family unit as a residence for at least 90 days prior to the date of the sale and continues to be so occupied on the date of the acknowledgment of the sheriff’s deed therefor.”

In Phan, DMB Investments submitted a successful bid to purchase the mixed-use property located in Philadelphia. At the time of the tax sale, the property was rented as a barber shop on the first floor and a ­residential apartment unit on the second floor.

Soon after the sheriff’s deed transferring the property to DMB was acknowledged, Thuy Phan, the former property owner, filed a petition to the Philadelphia Court of Common Pleas requesting, among other things, the relief of redemption of the ­property pursuant to the act.

In the petition, the former property owner alleged that the residential apartment unit located on the second floor of the property was continuously occupied for at least three months prior to the tax sale and, for that reason alone, the property should be redeemed.

In response, DMB argued that the property could not be redeemed under the act because, among other things, the property is zoned and utilized as a commercial mixed use and commercial properties could not be redeemed under the act.

At the hearing held on the petition for redemption, the ­parties stipulated that the residential apartment unit was occupied by tenants during the requisite statutory time period.

The trial court ­ultimately granted the petition for redemption.

DMB then appealed the trial court’s ­ruling to the Superior Court of Pennsylvania, which appeal was subsequently transferred to the Commonwealth Court.

Judge Patricia A. McCullough issued the written opinion on behalf of the Commonwealth Court, addressing, among other things, DMB’s contention that the property could not be redeemed because the property was partly commercial in ­nature and, therefore, was not subject to redemption.

On appeal, DMB argued that the ­property’s use and classification as a mixed-use commercial property precluded redemption under the act, as commercial properties cannot be redeemed because there is no occupancy “as a residence” pursuant to Section 7953(c) of the act. In other words, DMB maintained that the entire property must be occupied as a residence in order to qualify for redemption.

McCullough first examined the language of the Act to ascertain and effectuate the intent of the Pennsylvania Legislature in enacting the act.

In examining the language of the act, McCullough could not discern any ­requirement in the redemption statute requiring that the entire property must be occupied “as a residence.” Instead, McCullough pointed out that Section 7293(c) merely provided that “a property is deemed vacant unless it is occupied as a residence.” In her opinion, McCullough stated that “had the legislature intended to preclude residentially-occupied properties from being redeemed when all units of those properties were not residentially occupied, it could have easily done so.”

McCullough emphasized that this ­conclusion was supported by the multifactor test enunciated by the Commonwealth Court in Brentwood Borough School District v. HSBC Bank USA, 111 A.3d 807 (Pa. Cmwlth. 2015).

In Brentwood, the Commonwealth Court held that “whether a property is ­’continuously occupied by the same individual or basic family unit as a residence’ is a factual determination that must be ­resolved on a case-by-case basis.”

As noted by McCullough, in Brentwood, the Commonwealth Court established that the following factors should be utilized in determining whether a property is ‘nonvacant'”: “whether anyone was habitually physically present at the property, i.e., regularly sleeping and eating there and using it as a place to dwell; whether any lack of physical presence was due to temporary illness, travel or renovation; whether the property was unsecured, damaged or ­uninhabitable; and whether the basic and necessary utilities such as water, electric and gas were operational.”

Thus, according to McCullough, “if any person is residing at the property, that factor weighs in favor of a determination that the property is occupied ‘as a residence.'”

McCullough emphasized that the ­”property is residentially occupied and the presence of the commercial tenant does not obviate satisfaction of the residential occupancy requirement” and, for that reason, the Commonwealth Court in Phan rejected DMB’s argument that the trial court erred in granting the petition for redemption ­because the entire property was not occupied as a residence.

McCullough was also unpersuaded by DMB’s reliance upon the Superior Court’s decision in Lamm v. Fisher, 903 A.2d 1259 (Pa. Super. 2006), for its argument that a mixed-use property is ineligible for redemption under the act.

In Lamm, the former property owner filed a petition for redemption describing the property as “a three-story bar/tavern,” even though the upper floors of the property were residential in nature. During the proceedings related to the petition, the former property owner also admitted that the property was not occupied for the statutory period of time under the act.

On appeal, after the trial court in Lamm denied the petition for redemption, the former property owner for the first time indicated that the property contained ­mixed-use, highlighting the residential nature of the property.

McCullough stated that the Superior Court in Lamm concluded that the former property owner waived the argument about the residential nature of the property ­because that argument was first raised on appeal.

Further, McCullough noted, unlike Phan, the alleged residential floors in Lamm were not occupied for the statutory period of time and, thus, would be deemed “vacant” and ineligible for redemption under the act.

McCullough also rejected DMB’s contention that the property should be deemed vacant because it was not occupied “by the same individual or basic family unit.” On appeal, DMB argued that the property ­cannot be redeemed because neither the former property owner nor her family ­occupied the property and the commercial and residential tenants were unrelated.

In a footnote, McCullough brushed aside DMB’s reliance upon a recent ruling handed down a trial court judge in City of Philadelphia v. Gardiner, 2015 Phila. Ct. Com. Pl. LEXIS 124 (C.C.P. Phila. May 5, 2015), who concluded that a ­residential rental property should not be considered occupied by the owner or his family and, thus, deemed “vacant” and not subject to redemption under the act.

McCullough stated that “there is no ­requirement that a property must be ­owner-occupied to be eligible for redemption.” Rather, McCullough emphasized that Section 7293(c) requires that the property must be “continuously occupied by the same individual or basic family unit as a residence.” By utilizing the broader term “individual” rather than the “owner,” which term is actually defined in Section 7101 of the act, McCullough concluded that “the legislature did not require property to be owner-occupied.”

Reprinted with permission from the November 14, 2016 edition of The Legal Intelligencer © 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, or visit

Alan Nochumson