SC courts will overturn tax sales on the flimsiest of technicalities

Standard

But apparently not when the claimant has no interest in the property

South Carolina courts don’t respect tax sales!

For that reason, tax sales have always been problematic for title examiners and real estate closing attorneys. Any concern about service of process or naming proper parties can result in the return the property to the owner of record. Historically, we would simply not close in the face of a tax sale in the chain of title.

In recent years, title insurance companies and real estate lawyers have attempted to take a more liberal approach. A rule of thumb might be that a tax sale that is at least ten years old where one person or entity has held title for a ten-year period since the tax sale may not result in an aborted closing. The title may not be marketable, but it may be insurable.

A recent Court of Appeals case* made me laugh. (Remember I am an easily amused title nerd.) The plaintiff, Scott, was “renting to own” the property in question under a 1998 oral agreement with her uncle, McAlister. Scott took possession of the property after making an initial down payment of $4,000 and agreeing to pay the remaining $31,000 purchase price in monthly installments of $300. That’s her story, at least. McAlister testified that Scott agreed to obtain a loan to make a second payment of $31,000.

After Scott failed to make the $31,000 payment, McAlister told Scott that her monthly payments would be considered rent only, and the parties agreed to reduce the monthly payment to $200. In 2007, McAlister began eviction proceedings, but the circuit court vacated the order of ejectment when Scott asserted that she occupied the property under a land purchase agreement. McAlister moved and changed the mailing address for tax purposes. The taxes for 2011 were never paid, and the property was sold in a tax sale in 2012.

Scott claimed she was unaware of the mailing address change, the delinquent taxes, the tax sale or the opportunity to redeem the property until the purchaser’s surveyor showed up! In 2015, Scott filed a complaint alleging that tax sale technicalities were not followed because notices were never posted on the property. The tax collector claimed her office posted the property notice on the property in August of 2012.

The circuit court granted summary judgment after it determined Scott lacked standing and that the tax authorities owed her no duties because she was not the record taxpayer, property owner or grantee. The Court of Appeals cited cases for the proposition that a tax execution is issued against the defaulting taxpayer, not against the property. The summary judgment decision was upheld on the theory that while due process is owed to a property owner, it is not owed to a person who whose only interest is based on an oral agreement.

I love it when our appeals courts answer real estate questions correctly. Overturning this tax sale would have resulted in serious consequences for title examiners and closing attorneys!

*Scott v. McAlister, South Carolina Court of Appeals Opinion 5897 (March 9, 2022)

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