E. Matos & S. Cruz v. Berks County Tax Claim Bureau & A. Castillo

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Emelyn Matos and Samuel Cruz, :
Appellants :
:
v. : No. 534 C.D. 2019
: Argued: December 12, 2019
Berks County Tax Claim Bureau :
and Alba Castillo :
BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge
HONORABLE P. KEVIN BROBSON, Judge
HONORABLE ANNE E. COVEY, Judge
OPINION
BY PRESIDENT JUDGE LEAVITT FILED: April 13, 2020
Emelyn Matos and Samuel Cruz (Tenants) appeal an order of the Court
of Common Pleas of Berks County (trial court) dismissing their exceptions to the
upset tax sale of a residential property. Tenants challenged the sale as not complying
with the strict notice requirements of the Real Estate Tax Sale Law (Tax Sale Law).1
They asserted standing to challenge the tax sale on the basis of their lease agreement
that included an option to purchase; as of the tax sale date Tenants had paid $18,000
toward the purchase price. The trial court held that Tenants lacked standing to
challenge the tax sale because their lease agreement expired before the tax sale. We
vacate and remand.
The property at issue in this appeal is a residence located at 111 West
Oley Street in Reading, Pennsylvania, that was sold at an upset sale on September
21, 2018. On November 9, 2018, Tenants filed “Exceptions/Objections to Tax Sale”
asking the trial court to set aside the tax sale. Reproduced Record at 1a (R.R. __).
Tenants averred that they had entered into a “rent-to-own lease agreement” with Rig
1
Act of July 7, 1947, P.L. 1368, as amended, 72 P.S. §§5860.101 – 5860.803.
Home Solutions, whereby they paid $850 per month to rent the property and an
additional $250 per month toward the purchase of the property. R.R. 2a. Tenants
further averred that they paid Rig Home Solutions $10,000 as a deposit for the
property. Tenants attached to their petition a copy of the lease agreement and a copy
of a check dated March 22, 2016, made payable to Rig Home Solutions in the amount
of $7,000 for a “down payment.” R.R. 11a. Tenants asserted that the Tax Claim
Bureau failed to comply with the notice requirements in Sections 601(a)(3), 602(a)
and 602(e)(1) of the Tax Sale Law, 72 P.S. §§5860.601(a)(3) (written notice by
personal service on owner-occupant), 5860.602(a) (published notice),
5860.602(e)(1) (notice by certified mail to owner, return receipt requested).
On December 20, 2018, the trial court convened a status conference.
Alba Castillo (Purchaser), who purchased the property at the tax sale, made an oral
motion to dismiss Tenants’ action for lack of standing. Purchaser pointed out that
the lease agreement had expired on March 30, 2018, nearly six months before the
tax sale. Tenants’ counsel rejoined that the lease agreement incorporated by
reference an option agreement. He acknowledged Tenants lacked a copy of the
option, but they were trying to obtain it.2 Tenants’ counsel acknowledged that the
lease agreement stated that the document could not be recorded. The trial court
reserved judgment until Tenants’ counsel could file a brief, which he did on
December 27, 2018.
At a subsequent status conference on March 18, 2019, Tenants’ counsel
informed the trial court that his efforts to obtain a copy of the option agreement from
2
On December 19, 2018, Tenants filed a notice of intent to serve subpoena on Rig Home Solutions
to secure a copy of the option agreement.
2
Rig Home Solutions were to date unsuccessful.3 Counsel stated that he had
scheduled a deposition of the record owners of the property, Carmello and Ivonne
Bonet, for March 27, 2019, to question them about their relationship with Rig Home
Solutions and their knowledge of the purchase option agreement. The trial court
granted Purchaser’s motion to dismiss on the ground that Tenants lacked standing to
challenge the tax sale. Tenants appealed to this Court.
In its opinion filed pursuant to Pa. R.A.P. 1925(a), the trial court
analogized its order dismissing Tenants’ action to an order granting summary
judgment to Purchaser. The trial court explained that Tenants lacked standing to
object to the tax sale because the lease agreement on which they relied to assert an
interest in the property had expired by its own terms nearly six months before the
tax sale. Any interest Tenants had expired with the agreement. Concluding that
Tenants lacked standing and that there were no issues of material fact, the trial court
granted Purchaser’s motion to dismiss.
On appeal,4 Tenants argue that the trial court erred in holding that they
lacked standing to object to the tax sale. They also argue that the trial court erred in
dismissing their objections without a hearing and before discovery was complete,
which denied them due process of law.
Tenants first argue that the trial court erred in dismissing their
exceptions to the tax sale for lack of standing. Section 607 of the Tax Sale Law, 72
3
Counsel stated that he “sent the constable to a couple of addresses, and it’s come back with no
service on them for the subpoena I issued to them [for] the agreement. I have contacted their
number, and every time it’s just a run around.” Notes of Testimony, March 18, 2019, at 3; R.R.
77a.
4
“In tax sale cases, our review is limited to determining whether the trial court abused its
discretion, rendered a decision without supporting evidence, or clearly erred as a matter of law.”
Husak v. Fayette County Tax Claim Bureau, 61 A.3d 302, 306 n.6 (Pa. Cmwlth. 2013).
3
P.S. §5860.607, imposes requirements upon a tax claim bureau that it must follow
after a tax sale. It requires the tax claim bureau, inter alia, to publish notice to the
public that an owner or lien creditor has 30 days to object to a tax sale. Section
607(b) states:
(b) The bureau shall, at the expense of the county, within ten
(10) days after confirmation nisi of the consolidated return,
publish a general notice once in a newspaper of general
circulation published in the county, and in the legal journal, if
any, designated by rules of court for the publication of legal
notices, stating (1) that the consolidated return of the bureau with
respect to any such sale for taxes has been presented to the court,
(2) giving the date of confirmation nisi and (3) that objections or
exceptions thereto may be filed by any owner or lien creditor
within thirty (30) days after the court has made a confirmation
nisi of the consolidated return or that the return will be confirmed
absolutely.
72 P.S. §5860.607(b) (emphasis added). Section 102 of the Tax Sale Law defines
“owner” as follows:
[T]he person in whose name the property is last registered, if
registered according to law, or, if not registered according to law,
the person whose name last appears as an owner of record on any
deed or instrument of conveyance recorded in the county office
designated for recording and in all other cases[5] means any
person in open, peaceable and notorious possession of the
property, as apparent owner or owners thereof, or the reputed
owner or owners thereof, in the neighborhood of such property;
as to property having been turned over to the bureau under
Article VII by any county, “owner” shall mean the county.
5
In this definition, the phrase “and in all other cases” includes a county where deed registry laws
do not apply. Shipley v. Tax Claim Bureau of Delaware County, 74 A.3d 1101, 1105 n.5 (Pa.
Cmwlth. 2013). This language does not apply to Berks County.
4
72 P.S. §5860.102 (emphasis added). Tenants acknowledge that they do not meet
the definition of “owner” set forth in Section 102 of the Tax Sale Law. They argue,
however, that Pennsylvania courts have not applied this definition of “owner” to the
question of what persons have standing to object to a tax sale. We agree with
Tenants.
In Shipley, 74 A.3d 1101, the trial court held that Rochelle Shipley
lacked standing to challenge the judicial tax sale of the subject property, which her
husband had purchased during their marriage and deeded in his name. On appeal,
this Court observed that “whether Mrs. Shipley had standing, as an equitable owner,
to file the Petition to Set Aside pursuant to Section 607 of the [Tax Sale] Law is a
question separate from whether she was entitled to notice.” Id. at 1105. We
concluded that she had a legally recognized, equitable interest under the Divorce
Code6 because the property was acquired during the marriage. As further indicia of
Mrs. Shipley’s interest, we noted that the property had been purchased with joint
funds, and she had paid taxes, contributed to maintenance, and operated a business
on the property. Thus, even though she was not entitled to notice of the tax sale,
“pursuant to Section 607 of the [Tax Sale] Law and this Court’s decision in Husak
[61 A.3d 302], she had standing to challenge the judicial tax sale of the [p]roperty.”
Shipley, 74 A.3d at 1107.
Husak is also instructive. In that case, the owners acquired the subject
property by quitclaim deed, which they did not record until after the upset sale. The
purchasers contended that the owners were not “owners” under Section 102 of the
Tax Sale Law and, therefore, could not file objections. The trial court, and this
Court, disagreed; we held that the owners “acquired, at the very minimum, equitable
6
23 Pa. C.S. §§3101-3904.
5
title, a legally recognized interest in the subject property” and “were clearly
aggrieved for purposes of standing to challenge the tax sale.” Husak, 61 A.3d at
310.
Purchaser construes the statutory directive to the tax claim bureau to
publish notice in a newspaper that an “owner” has 30 days to object as having a reach
far beyond tax claim bureaus. Purchaser reads Section 607(b) as meaning that only
an owner has 30 days to file an objection to a tax sale; all other persons are prohibited
from pursuing exceptions. Had the legislature intended that only a defined “owner”
has standing to object to a tax sale, it would have so stated. Section 607(b) does not
address the subject of who has standing to object to a tax sale. Purchaser’s
construction of Section 607(b) has been rejected in Shipley and Husak, and those
cases are dispositive here.
Under the above precedent, a legally recognized equitable interest
confers standing upon an individual to challenge a tax sale, even if that individual
was not entitled to notice of the sale under the Tax Sale Law.7 See, e.g., Sections
601(a)(3) and 602(e)(1) of the Tax Sale Law, 72 P.S. §§5860.601(a)(3),
7
Purchaser’s reliance on Appeal of Yardley, 646 A.2d 751 (Pa. Cmwlth. 1994), is unpersuasive.
In that case, real estate owned by a corporation was sold at an upset tax sale to one of its 50%
shareholders. The other 50% shareholder, Yardley, filed exceptions to the tax sale, asserting that
her co-owner breached his fiduciary duty to the corporation and seeking to compel the tax claim
bureau to apply the tax sale proceeds to the corporation’s tax bill. This Court held that Yardley
lacked standing under the Tax Sale Law because “by her own admission, [she] was not an owner,
nor did she claim she was a lien creditor of the property assessed in the name of [the corporation]
and sold at the tax sale.” Id. at 755. Purchaser contends that because Tenants acknowledge they
do not qualify as “owners” under the Tax Sale Law, they have no greater interest in the property
than did Yardley. Yardley is inapposite because the interests of Tenants and Yardley are different.
Yardley stands for the proposition that a corporation’s owner does not have a personal equitable
interest in the corporation’s real estate for purposes of standing to challenge a tax sale under
Section 607 of the Tax Sale Law. Pennsylvania case law recognizes such an interest in the holder
of an option to purchase real estate.
6
5860.602(e)(1). Thus, the salient issue in the case sub judice is whether an option
to purchase leased property creates an equitable interest in a tenant who holds such
an option.
Pennsylvania courts have long held that an option to purchase land
conveys a substantial and legally recognized equitable interest in the optionee. For
example, in Detwiler v. Capone, 55 A.2d 380 (Pa. 1947), the plaintiffs entered into
a written lease of property with an option to purchase. When the owner refused to
comply with their requests to exercise the option, they commenced an action in
equity against the owner seeking specific performance of the option agreement and
praying that any claim of right, title or interest by the owner’s wife be extinguished.
The trial court sustained the preliminary objections of the owner and his wife. In
reversing the decree, which required an analysis of the interest the owner’s wife
acquired through marriage, our Supreme Court observed:
An option to purchase is analogous to a contract for the sale of
land; it is in nature an encumbrance on the land pledged. In such
case the [optionor] is a trustee of the legal title for the benefit of
the purchaser…. Equity regards the person bound to convey as
having done what he should have done, i.e. made the
conveyance, and treats him as trustee for the optionee. Where an
option is exercised the title of the optionee relates back to the
date of the option and his interest is regarded as real estate of that
time[.]
Id. at 383 (internal quotation marks and citations omitted). See also Guido v.
Township of Sandy, 880 A.2d 1220 (Pa. 2005) (optionee in lease-to-purchase
agreement had a property interest sufficient to support a division-in-fact of the
property, which occurred when optionee exercised the option and related back to
date of option).
7
Based on the above precedent, Tenants assert a substantial, immediate
and direct interest in the property if, as they claim, they hold an option to purchase
the property and have paid $18,000 toward its purchase. There is partial evidence
of record in the form of a $7,000 check made payable to Rig Home Solutions for a
“down payment.” R.R. 11a. The trial court erred by focusing on the expiration of
the lease agreement, which did not extinguish Tenants’ equitable interest in the
property. The equitable interest created by the option agreement will relate back to
the date of the option. See, e.g., Shaffer v. Flick, 520 A.2d 50 (Pa. Super. 1987)
(tenants of farm property with option to buy were entitled to proceeds of fire
insurance policy with extended coverage, notwithstanding fact that option was not
exercised until after loss occurred, because transfer of equitable title related back to
date of option contract).
This brings us to Tenants’ second issue, i.e., whether the trial court
erred in dismissing their objections for lack of standing while they were still
conducting discovery on that issue. At the time the trial court dismissed their
exceptions, there was an outstanding subpoena for the production of the option
agreement and a deposition of the owners had been scheduled to ascertain their
relationship to Rig Home Solutions and knowledge of Tenants’ option agreement.
Tenants assert that the existence and terms of the option agreement are factual issues
related to their standing; therefore, they were entitled to a hearing to develop a record
on these issues. Finally, Tenants argue that the trial court erred in denying their
exceptions on summary judgment grounds because the Rules of Civil Procedure are
inapplicable in tax sale proceedings. See Battisti v. Tax Claim Bureau of Beaver
County, 76 A.3d 111 (Pa. Cmwlth. 2013).
8
Beginning with Tenants’ last point, we discern no error in the trial
court’s analogy to summary judgment principles to explain its analysis.
Nevertheless, the trial court erred in granting Purchaser’s motion to dismiss on the
ground that Tenants lacked standing because the lease agreement had expired and
no issues of material fact remained. As explained above, the equitable interest
Tenants have by virtue of the option agreement relates back to the date of the option.
The expiration of the lease agreement is irrelevant. The existence and terms of the
option agreement and the amount paid by Tenants toward purchasing the property
are all factual issues that are material to their standing. The trial court should have
let discovery proceed, especially since a deposition of the owners was scheduled to
occur within ten days of the status conference. The court erred by dismissing
Tenants’ exceptions “on the pleadings.”
For all of these reasons, we vacate the order of the trial court and
remand for further proceedings on Tenants’ exceptions to the upset tax sale.
_______________________________
Mary Hannah Leavitt, President Judge
9
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
Emelyn Matos and Samuel Cruz, :
Appellants :
:
v. : No. 534 C.D. 2019
:
Berks County Tax Claim Bureau :
and Alba Castillo :
ORDER
AND NOW this 13th day of April, 2020 the order of the Court of
Common Pleas of Berks County filed April 2, 2019, is VACATED and the above-
captioned matter is REMANDED for further proceedings consistent with the
attached opinion.
Jurisdiction is relinquished.
_______________________________
Mary Hannah Leavitt, President Judge