April 4th, 2018
You service a mortgage loan secured by real property in South Carolina. The loan goes into default. You refer the loan to local foreclosure counsel to review title and then initiate foreclosure proceedings against the property.
Bad news: your attorney informs you that the county tax collector previously sold the property at a tax sale for non-payment of county taxes.
What do you do? Don’t panic, take a deep breath, and find out whether redeeming the property is still an option. In South Carolina, there is a one year period after the date of the tax sale during which the defaulting taxpayer, a mortgagee, or any other lienholder can redeem the property by paying the delinquent taxes, penalties, and costs.
More bad news: the redemption period has expired.
What now? Still not panicking, still breathing deeply. Now you want to find out whether the tax collector has already issued a tax deed to the tax sale purchaser. If a tax collector discovers or is informed of any error in the tax sale process prior to the issuance of the tax deed, the tax collector has the authority to unilaterally void the tax sale. If you or your attorney can identify any defects in the tax sale, a simple phone call to the tax collector may be able to get the tax sale voided.
But…bad news again: the county tax collector has already issued a tax deed to the tax sale purchaser.
Now you can finally panic, right? Wrong. You’re still calm and collected because you remembered the following two key words to recovering property lost at a tax sale in South Carolina: strict compliance.
South Carolina’s tax sale statutes dictate the procedures that county tax collectors must follow leading up to, during, and following county tax sales of real and personal property. They are designed to afford full due process to interest holders of the property and provide them with every opportunity to save the property from tax sale. Because South Carolina, as a matter of public policy, abhors the notion that the nonpayment of a few thousand dollars in taxes can result in the government seizure of property worth a hundred times more, our state courts hold county tax collectors to a strict statutory compliance standard. What this means is that any instance of statutory non-compliance by the tax collector, no matter how technical or minor, could be grounds for overturning a tax sale. This is very high bar, and often results in South Carolina tax sales being overturned when challenged through a lawsuit.
For example, a tax sale has been overturned where the tax map number listed in the newspaper advertisement for the tax sale was one digit off. A tax sale has been overturned where the tax collector did not mail the notice of delinquent taxes to the “best address available” for the property owner. A tax sale has been overturned where the court decided that the notice of delinquent taxes required to be physically posted somewhere on the property was not placed in a conspicuous enough place. A tax sale has been overturned where the tax collector closely paraphrased, rather than directly quoted, the language required by statute to be included in the notice of delinquent taxes posted on the property. There are multiple other grounds recognized under South Carolina law for overturning a tax sale.
Have your attorney analyze the tax collector’s entire file to see if the tax collector strictly complied with each and every statutory requirement.
If you or your attorney discover a defect and decide to file a lawsuit to overturn the tax sale, there is normally a two year statute of limitations for doing so that runs from the date of the tax sale.
Just when you thought the news could not get any worse: the two year limitations period for challenging the tax sale has expired.
OK, now you can panic, and even sweat a little. But all hope is not lost. There is a gray, little-explored area of South Carolina tax sale case law holding that the two year statute of limitations does not bar a lawsuit challenging a tax sale based on a “jurisdictional” defect in the tax sale proceedings. Consult your attorney as to whether your tax sale challenge falls within the exception to the statute of limitations.
Otherwise, be thinking about how much you are willing to pay the tax sale purchaser to purchase the property back or whether you are content with merely recovering the surplus funds, if any, generated by the tax sale.