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In re County of Carbon Tax Claim Bureau Judicial Sale of Land in County Of Carbon Free

Commonwealth Court of Pennsylvania

May 18, 2018

In Re: County of Carbon Tax Claim Bureau Judicial Sale of Land in the County of Carbon Free and Discharged from all Tax and Municipal Claims, Mortgages, Lien Charges, and Estates Whatsoever, Held November 6, 2015
v.
Carbon County Tax Claim Bur. Lehighton Area School Dist., Appellant In Re: County of Carbon Tax Claim Bureau Judicial Sale of Land in the County of Carbon Free and Discharged from all Tax and Municipal Claims, Mortgages, Lien Charges, and Estates Whatsoever, Held November 6, 2015 Lehighton Area School Dist., Appellant
v.
Carbon County Tax Claim Bur. Franklin Township In Re: County of Carbon Tax Claim Bureau Judicial Sale of Land in the County of Carbon Free and Discharged from all Tax and Municipal Claims, Mortgages, Lien Charges, and Estates Whatsoever, Held November 6, 2015 Panther Valley School Dist., Appellant
v.
Carbon County Tax Claim Bur.

          Argued: April 12, 2018

          BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge HONORABLE P. KEVIN BROBSON, Judge HONORABLE CHRISTINE FIZZANO CANNON, Judge

          OPINION

          MARY HANNAH LEAVITT, President Judge

         In these consolidated appeals, Lehighton Area School District and Panther Valley School District (collectively, School Districts) appeal an order of the Court of Common Pleas of Carbon County (trial court) that denied their exceptions to the Carbon County Tax Claim Bureau's (Bureau) petition for confirmation of judicial sales and distribution of proceeds. The trial court held that because the School Districts contracted with a private entity to collect delinquent real estate taxes under what is commonly referred to as the Municipal Claims and Tax Liens Act (Tax Liens Act), [1] the delinquent amounts owed to the School Districts were not entitled to distribution as "taxes" under Section 205(d)(2) of the Real Estate Tax Sale Law (Tax Sale Law).[2] Rather, they were to be assigned a fourth priority status as "liens, " to be paid only after all prior claims were paid in full. For the following reasons, we reverse and remand.

         Background

         The parties stipulated to the following facts. At all relevant times hereto, the School Districts contracted with Portnoff Law Associates (Portnoff) to collect delinquent real estate taxes owed to the School Districts, using the procedures authorized by the Tax Liens Act. On November 6, 2015, the Bureau exposed the following three properties to judicial sale: (1) tax parcel number 83-35-B71, located at 426 Jamestown Road, Mahoning Township, Carbon County; (2) tax parcel number 70C-12-72, located at 1100 and 1096 Main Road, Franklin Township, Carbon County; and (3) tax parcel number 123A-24-J33, located at 4 West Abbott Street, Lansford, Carbon County. Stipulation of Facts ¶4; Reproduced Record at 130a, 132a, 134a (R.R.__). The judicial sale was conducted in accordance with the Tax Sale Law, and all three properties were sold to the highest bidder. Following the sale, the School Districts submitted a claim for their share of the proceeds for delinquent real estate taxes due on each property plus commissions, attorney fees, and other costs and expenses.[3] Stipulation of Facts ¶5; R.R. 131a, 133a, 135a.

         On April 29, 2016, the Bureau filed petitions for confirmation of the judicial sales along with proposed schedules of distribution of the proceeds of the sales. Each distribution schedule included the county and the township's property tax claims but not the School Districts' tax claims.

         The School Districts filed exceptions to the Bureau's petitions for confirmation of distribution, contending that proceeds generated by a sale under the Tax Sale Law must be distributed "to the respective taxing districts in proportion to the taxes due them." Exceptions to Bureau's Petition for Confirmation of Distribution, ¶10; R.R. 31a, 41a, 51a. By not treating the delinquent amounts owed to the School Districts as taxes, the proposed schedules of distribution violated Section 205(d) of the Tax Sale Law. Alternatively, the School Districts argued that the face amount of the tax, penalty, and interest plainly constituted "taxes, " even if attorney fees and commissions did not qualify as such. The School Districts provided an itemized breakdown for the delinquent balances for each of the properties, including "face/penalty, commission, interest, attorney's fees, costs, and notice expense." Exceptions, ¶6; R.R. 30a, 40a, 50a.

         The Bureau responded that the School Districts opted out of the Bureau's collection of real estate taxes under the Tax Sale Law when they hired Portnoff to collect delinquent taxes under the Tax Liens Act. The "unavoidable consequence, " the Bureau maintained, was that the School Districts' "[Tax Liens Act] liens - which also include Portnoff Law Associates' commissions, legal fees and costs - do not qualify as taxes under [the Tax Sale Law], and therefore, are not payable as second-priority taxes under [Section 205(d)(2) of the Tax Sale Law]." Bureau's Response to School Districts' Exceptions at 3; R.R. 92a (emphasis in original). The Bureau contended that the School Districts' claims are payable only "to the extent that there are any excess funds available for payment of fourth-priority liens under [Section 205(d)(4) of the Tax Sale Law]." Id. (emphasis in original). In support, the Bureau pointed to Section 102 of the Tax Sale Law, which defines "taxes" as "all taxes, with added interest and penalties, levied by a tax district upon real property, including improvements." 72 P.S. §5860.102. The definition does not include commissions, attorney fees, and costs. To give the School Districts' "inflated liens" the priority of "taxes" under Section 205(d)(2) of the Tax Sale Law, the Bureau argued, would cause the county and the township "to subsidize the additional costs of [the School Districts'] independent collection efforts under [the Tax Liens Act] by reducing their shares of the excess proceeds by the amount of [Portnoff's] various additional commissions, attorney fees, and costs under that statute." Bureau's Response to School Districts' Exceptions at 4; R.R. 93a. The Bureau maintained that such distribution would cause "a fundamental unfairness" upon the county and the township. Id.

         Trial Court Decision

         The parties stipulated to the material facts, and on November 18, 2016, the trial court heard oral argument. By opinion and order dated June 20, 2017, the trial court denied the School Districts' exceptions.

         The trial court acknowledged that the tax collection scheme set forth in the Tax Sale Law was optional, not mandatory, for the School Districts. However, it concluded that once they elected to "opt out of the Bureau's collection services [under the Tax Sale Law], " the Bureau "is not authorized to act as the School Districts' agent for tax collection purposes." Trial Court op. at 7-8.

         The trial court also concluded that the School Districts' delinquent balances against the three properties were not "tax claims" because the commissions, attorney fees, costs and expenses included therein are not "taxes" under Section 102 of the Tax Sale Law. The trial court noted that Section 1 of the Tax Liens Act defines "taxes" to include "reasonable attorney fees." 53 P.S. §7101. Nevertheless, the trial court reasoned that this definition had no application to a judicial sale conducted under the Tax Sale Law. Trial Court op. at 11 (citing Gordon v. City of Harrisburg, 171 A. 277, 278 (Pa. 1934) (holding that "[w]hen a tax sale is commenced under a particular Act of Assembly, the procedure therein prescribed must be followed and under that act alone must the validity and effect of the sale be tested.")).

         The trial court held that the delinquent taxes owed to the School Districts were not entitled to distribution as a second priority claim under Section 205(d)(2) of the Tax Sale Law.

         Appeal

         The School Districts appealed to this Court.[4] The trial court issued an order directing them to file a statement of errors complained of on appeal. See Pa. R.A.P. 1925(b).[5] The School Districts filed the statement on August 8, 2017, asserting that the trial court erred in holding that the School Districts' decision to collect real estate taxes under the Tax Liens Act "transformed [their] taxes into something other than taxes for purposes of second priority status" under Section 205(d)(2) of the Tax Sale Law. School Districts' 1925(b) Statement at 1-2 (emphasis in original). The School Districts further argued that the trial court ignored their alternative argument that, to the extent the commissions, attorney fees, and costs are not "taxes, " the remainder, i.e., the face amount of the tax, together with penalties and interest, must be given second priority status under Section 205(d)(2) of the Tax Sale Law. Id. at 2. To hold otherwise would not "effectuate a just and equitable result." Id. at 3.

         The trial court issued an opinion pursuant to Pa. R.A.P. 1925(a)(1), [6]reiterating that the taxes owed to the School Districts, along with penalties and interest, were not entitled to distribution as tax claims under Section 205(d)(2) of the Tax Sale Law. Emphasizing that the School Districts chose to retain Portnoff to collect their delinquent real estate taxes, the trial court explained that "[w]ithout the authority that is granted when a taxing district elects to utilize a tax claim bureau, the bureau could not collect any amount of tax for the School Districts on those properties." Trial Court 1925(a) op. at 10 (citing City of Allentown v. Kauth,874 A.2d 164, 168 (Pa. Cmwlth. ...


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