Constitutionality of Lack of Right to Redemption under the Real Estate Tax Sale Law

Fouse v. Saratoga Partners, L.P., 204 A.3d 1028 (Pa. Cmwlth.) allocatur granted Sept. 4, 2019 sub nom. Lohr v. Saratoga Partners, L.P., appeal docket 67 MAP 2019

The Supreme Court will consider whether exclusion of a post-sale right to redemption under the tax sale law for less populous (second class-A through eighth) counties violates the Equal Protection Clause of the United States Constitution and Article III of the Pennsylvania Constitution in light of the inclusion of a post-sale right of redemption clause in the tax sale law of more populous (first and second class) counties.

Fred Lohr and Jolene K. Fouse (the Fouses) are record owners of two parcels of real property (the Property) located in Lincoln Township within Huntingdon County.  Huntingdon is a sixth class county. The Huntingdon County Tax Claim Bureau (Tax Claim Bureau) conducted an upset tax sale of the Property pursuant to the Real Estate Tax Sale Law (RETSL), 72 P.S. § 5860.101 et seq. Saratoga Partners, L.P. was the highest bidder at the sale and paid the Tax Claim Bureau a sum of $ 27,795.45 for the Property. After the Property was sold pursuant to the RETSL, the Fouses filed their Petition to Redeem with the trial court, attempting to avail themselves of the post-tax-sale right of redemption contained in the Municipal Claims and Tax Liens Act (MCTLA). In their Petition to Redeem, the Fouses claimed that, as “owner[s] of the Property,” they “have the right to redeem [it] pursuant to [53 P.S. § 7293], and [to] extinguish any right, claim, or title held by Saratoga Partners upon payment of any actual costs incurred in connection to the sale.” Slip Op. at 3. The Fouses argued that RETSL’s lack of a post-tax-sale right of redemption impinges on due process and equal protection rights under the United States Constitution and the Pennsylvania Constitution, in addition to violating the Uniformity Clause of the Pennsylvania Constitution. The trial court denied the Fouses’ Petition to Redeem, finding that the RETSL’s lack of a post-tax-sale right of redemption does not violate either the Equal Protection Clause of the United States Constitution or Article III of the Pennsylvania Constitution.

The Fouses appealed to Commonwealth Court arguing that “’[t]he Pennsylvania Constitution classifies the acquisition and possession of property as a fundamental right’ implicating a strict scrutiny standard” and that “’[t]he classification of citizens based upon the population of the municipality in which they live does not serve a compelling governmental interest.’” Slip Op. at 7-8. The Fouses further argued that Pennsylvania’s tax sale scheme could not withstand even rational basis scrutiny because the object of Pennsylvania’s tax sale laws is the collection of delinquent taxes and that ‘“[t]he infringement on the protected property rights of citizens living in [second A] through [e]ighth class counties does not bear any relationship to the ends of collecting delinquent taxes, let alone a substantial one[.]’” Slip Op. at 10. Saratoga countered that the Fouses mischaracterized the right at issue, but, even if the Fouses’ characterization were correct, one’s right to hold and enjoy property is not a fundamental right subject to strict scrutiny and the Fouses failed to show that the differential in treatment lacked a rational basis.

Commonwealth Court held that, in an issue of first impression, RETSL’s lack of a post-tax-sale right of redemption provision does not violate the right to equal protection under the law. The court determined that rational basis review was appropriate because the right to freely hold and dispose of property was not fundamental right and the Fouses’ asserted right to post-tax-sale redemption was subsumed by the right to freely hold and dispose of property. Commonwealth Court concluded that because it was “able to conceive of plausible reasons for the statute, and the legislative classification does not rest on grounds wholly irrelevant to the achievement of the state’s purpose,” the RETSL survived rational basis review, reasoning:

The Supreme Court of Pennsylvania has declared that “the purpose of tax sales [under RETSL] is not to strip the taxpayer of his property but to [e]nsure the collection of taxes.” Tracy v. Chester Cty., Tax Claim Bureau, 507 Pa. 288, 489 A.2d 1334, 1339 (1985) (quoting Hess v. Westerwick, 366 Pa. 90, 76 A.2d 745, 748 (1950) ). Further, this Court has held that “[t]he dominant purpose of [RETSL] is to provide speedier and more efficient procedures for enforcing tax liens and to improve the quality of title of the property sold at a tax sale.” Pacella v. Washington Cty. Tax Claim Bureau, 10 A.3d 422, 428 (Pa. Cmwlth. 2010). Thus, it is established that RETSL promotes a legitimate government interest. Further, we find the General Assembly’s classification—withholding the right of post-tax-sale redemption from property owners in second A through eighth class counties under RETSL while according such a right to property owners in first and second class counties under the MCTLA—bears a rational relation to the governmental objective. As we are “free to hypothesize reasons the legislature might have had for the classification,” Curtis, 666 A.2d at 268, we posit that Pennsylvania’s first and second class counties have larger pools of prospective buyers at tax sales. These larger pools of prospective buyers make it more likely that a property will be sold at a tax sale. Under these circumstances, the need for owner protection is greater, and that need is met by the equity of redemption in the more populous counties. Further, as these counties have a higher population and, therefore, a larger taxable base from which to derive revenue, the General Assembly could have reasoned that these counties can afford a less efficient process for collecting delinquent taxes by providing a post-tax-sale right of redemption.

Slip Op. at 12-13 (footnote omitted).

In dissent, Judge McCollough noted that there are “no significant substantive or procedural differences between the RETSL and the MCTLA, except for the automatic right to redemption in the MCTLA” and that “’[w]hether the judicial sale is effected under the MCTLA or the RETSL the intent of the legislature is the same: to return real property to productive use under new ownership.’” Slip Op. at PAM-2, quoting City of Allentown v. Kauth, 874 A.2d 164, 169 (Pa. Cmwlth. 2005). Judge McCollough, “unable to decipher how the exclusion of a right of redemption from the RETSL bears a reasonable relationship to a legitimate state purpose, or how the denial of this right promotes the purpose of classification based upon county size,” reasoned that:

Through its operation, the MCTLA grants a privilege and benefit upon one class of individuals as a matter of right and, apart from a mere preference for one group over another, I cannot ascertain why the General Assembly has not afforded the same right to the class of individuals covered under and subjected to the RETSL.

Slip Op. at PAM-5. Thus, Judge McCollough would “conclude that the RETSL fails the rational basis test and would declare that the statute, on its face, violates the rights of equal protection under the United States and Pennsylvania Constitutions.” Id.

The Supreme Court granted allocatur to determine:

Whether the lack of a right to redemption under the Real Estate Tax Sale Law (RETSL) 72 P.S. § 5860.101 et seq., violates the Equal Protection Clause of the United States Constitution and Article III of the Pennsylvania Constitution?

As part of the courts’ ongoing Covid 19 response, the Supreme Court will hear oral argument in this case via video conference:

For more information, contact Kevin McKeon or Dennis Whitaker.