Real Estate Tax Foreclosure Proceedings in the Time of COVID

In Pennsylvania, real estate tax foreclosure proceedings are governed by either the Municipal Claims and Tax Liens Act (MCTLA), 53 Section P.S. 7101 et seq., or the Real Estate Tax Sale Law (RETSL), 72 P.S. Section 5860.101.

Distinctions Between MCTLA and RETSL

The MCTLA applies only to Philadelphia and Allegheny counties, respectively, while the RETSL applies to the remaining counties in Pennsylvania.

Unlike the RETSL, the MCTLA permits delinquent taxpayers to redeem property sold at a tax foreclosure sale by paying the delinquent taxes and other related costs within 9 months from the occurrence of the tax sale.

The Constitutional Challenge in Lohr

In Lohr v. Saratoga Partners, 200 Pa. LEXIS 5162 (Pa. Oct. 1, 2020), the Pennsylvania Supreme Court determined whether the availability of post-sale redemption under the MCTLA, but not under the RETSL violated the constitutional right to equal protection under the U.S. or Pennsylvania Constitutions.

In Lohr, the property owners owned two parcels of land in Lincoln Township, Huntingdon County that they utilized as their primary residence, the opinion said.

When the property owners fell behind on the payment of their real estate taxes for these properties, the local government ultimately sold the properties at a real estate tax sale pursuant to the RETSL, the opinion said.

After the tax sale took place, they filed a petition to redeem the properties sold at the tax sale, the opinion said.

Arguments for Equal Protection

While acknowledging that the RETSL does not allow for such post-sale redemption, unlike the MCTLA, the property owners argued that the difference in these state statutes results in citizens falling under the RETSL being treated less favorably than citizens of Philadelphia and Allegheny counties, in violation of the equal protection provisions of the U.S. and Pennsylvania Constitutions.

In doing so, the property owners asserted that property rights are fundamental rights subject to strict scrutiny, which requires any statutory classification to be narrowly tailored to support a compelling government interest.

Trial Court Analysis

The trial court in Lohr acknowledged that the distinction between the MCTLA and the RETSL resulted in property owners in some counties, having a right to redeem their properties within 9 months of an upset tax sale, while those in less populated counties, such as the property owners in Lohr who reside in Huntingdon County, not having that opportunity.

When analyzing the constitutional validity of the RETSL, the trial court in Lohr applied the rational basis test, which requires that the statute promote a legitimate state interest and that the classification be “reasonably related to accomplishing that articulated state interest.”

The trial court in Lohr looked first to the state’s interest in enacting the RETSL without a redemption provision, recognizing the “dominant purposes of the [RETSL] were to provide speedier and more efficient procedures for enforcing tax liens and to improve the quality of titles obtained at a tax sale,” which, in turn, promoted the state’s interest in tax collection.

Commonwealth Court Ruling

On appeal to the Pennsylvania Commonwealth Court, the property owners in Lohr argued that the trial court erred in applying rational basis scrutiny.

The Commonwealth Court viewed the property owners’ asserted right to post-tax-sale redemption as included within the broader right to “freely hold and dispose of one’s property,” which it previously held was subject to rational basis review because it did not involve a fundamental right.

Furthermore, the Commonwealth Court in Lohr reasoned that rational basis review was appropriate because the applicability of the MCTLA rather than the RETSL derived from the population size of the county.

The Commonwealth Court in Lohr emphasized that this criteria “implicated neither a suspect class nor a sensitive classification,” which would have triggered a higher level of scrutiny.

The Commonwealth Court referred to our Supreme Court’s ruling in Curtis v. Kline, 666 A.2d 265, 269 (Pa. 1995), to determine the application of the rational basis test to an equal protection challenge.

Rational Basis Test Affirmed

In Curtis, the Supreme Court stated that the rational basis test generally requires courts to “determine whether the challenged statute seeks to promote any legitimate state interest or public value” and then to “determine whether the classification adopted in the legislation is reasonably related to accomplishing that articulated state interest or interests.”

Applying these principles, the Commonwealth Court in Lohr affirmed the trial court’s ruling in denying the property owners’ petition to redeem the properties after the tax sale occurred, concluding the legislative classification between more populated counties, with the right of redemption under the MCTLA, and less populated counties, without the same remedy under the RETSL, was rationally related to the legitimate legislative purpose of a more efficient tax collection process.

Supreme Court’s Final Decision

On appeal to our Supreme Court, the property owners maintained their argument that strict scrutiny review should be applied because the lack of a right to redemption under the RETSL violates the equal protection clause of the U.S. Constitution and Article I, Section 1 and Article 3 of the Pennsylvania Constitution.

The Supreme Court in Lohr first noted that the property owners carried a heavy burden challenging the constitutional validity of the RETSL’s prohibition against post-sale redemption because “all duly enacted legislation enjoys a strong presumption of validity, and will only be declared void if it violates the Constitution clearly, palpably and plainly.”

Ultimately, the Supreme Court in Lohr determined the right to redemption under the RETSL is a statutory remedy, not a fundamental constitutional right and, thus, rational basis review of it applied to the equal protection challenge raised.

Applying the rational basis analysis outlined in Curtis, the Supreme Court focused its attention on whether the state legislature had a legitimate state interest in enacting the RETSL’s prohibition against redemption.

The Supreme Court in Lohr highlighted that tax collection statutes serve the legitimate and critical purpose of funding government by providing “prompt and certain availability” of assessed taxes and that the purpose of the RETSL is “to expedite the collection of delinquent real estate taxes, to retain the productivity of the real estate, and to maintain economic value.”

The Supreme Court in Lohr then considered whether the legislative decision to include a redemption remedy in the MCTLA, but exclude it from the RETSL, was rationally related to the legitimate government purpose of expediting the collection of delinquent real estate taxes.

The Supreme Court in Lohr found that the lack of a redemption provision in the RETSL promotes the legislative interest in facilitating the collection of delinquent taxes by ensuring certainty and finality for tax sales, which, in turn, encourages higher bids based on the greater security provided to the purchaser.

In addition, the Supreme Court in Lohr emphasized “the time, the mode, and the measure of taxation, are committed altogether and exclusively to the legislative discretion.”

Conclusion

In the end, the Supreme Court concluded that the dichotomy between those property owners subject to the RETSL, rather than the MCTLA, did not violate equal protection, under either the federal or state constitutions, because the choice is rationally related to the legislative determination of which system will maximize the collection of delinquent taxes for different types of counties.

—Clementa Amazan, an associate at Nochumson P.C., is the co-author of this article.

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