Dirt lawyers understand that South Carolina appellate courts will overturn tax sales on the flimsiest of technicalities. Our courts require strict compliance with the tax sale statutory requirements. In an August 21 Supreme Court case*, a tax sale was overturned because the tax collector failed to post the required conspicuous notice.
Alvetta Massenberg inherited a 2.54-acre undeveloped tract of land near the rural community of Alcola in Clarendon County in 1997. She paid taxes through 2015 but failed to pay taxes in 2016. The tax sale process began.
The property is densely forested and triangular in shape. One side faces a two-lane paved secondary road known as Plowden Mill Road. This road is marked with a double-yellow center line and solid white fog lines. The second side of the property faces a one-lane dirt road known as Robert Rees Durant Road. This road has very little shoulder area and the surrounding vegetation crowds the one lane of travel.
The tax collector sent the required “notice of delinquent property taxes” by regular mail to Massenberg’s permanent address in Charlotte and sent another notice by certified mail. The certified mail notice was returned, and the tax collector turned to the required alternative notice of South Carolina Code §12-51-40(c). That subsection requires the tax collector to “take exclusive physical possession of the property…by posting a notice at one or more conspicuous places on the premises.”
The tax collector hired a private contractor to post the notice, but gave the contractor no instruction and no guidance on how to—or ever whether to—post the notice in a “conspicuous” place. The contractor posted a “Notice of Levy” printed on an 8.5 x 11-inch sheet of paper on a tree facing the one-lane road.
Testimony indicated traffic on the paved road would be 100 times more than traffic on the dirt road.
The Master found the posting was appropriate. The Court of Appeals affirmed.
On appeal, the Supreme Court focused on the very narrow question before it, that is, whether the notice was posted in a conspicuous place. The Court stated that the statute does not require that the notice be posted in the most conspicuous place, only that it be posted at “one or more conspicuous places.”
The Court held that the process of selecting a conspicuous place is necessarily comparative and a judgment call. The Court found it critical that the Clarendon County tax collector exercised no judgment at all. Rather, she entrusted the responsibility to a private contractor without instruction. And there was no evidence that the contractor even knew of the “conspicuous place” requirement.
The Court held that the posting was clearly not in a conspicuous place.
*Massenberg v. Clarendon County Treasurer, South Carolina Supreme Court Opinion 28234 (August 21, 2024).
Chicago Title recently published an update on an IRS regulation, and I wanted to make sure readers of this blog have the most current information. Dirt lawyers know that cash payments greater than $10,000 must be reported to the IRS through form 8300.
For a primer on this requirement, review IRS Publication 1544 here. The government’s stated goal in imposing this requirement is to detect money laundering and to catch tax evaders, terrorists and those who profit from the drug trade.
Effective January 1, 2024, the IRS updated its regulations to require businesses that file 10 total information returns (such as 1099, W2 and, now 8300) to files these forms electronically unless the business requests and receives a waiver each tax year. You can view the revised regulations here.
The preacher started his sermon on Sunday by saying: “I love a good story.” I love a good story, too, and even though this one is about a South Carolina tax sale, not a twin’s stolen blessing from Genesis, it makes for a pretty good tale.
I’ve often said that our courts of appeal will overturn a tax sale on the flimsiest of technicalities. The technicalities in this case are not flimsy, and a claim of slander of title gives us a different slant on the typical tax sale case.
The opinion in Gleason v. Orangeburg County* starts, “This story began with a flawed tax sale, but there were several mistakes for years after.” It’s not a John Grisham-worthy beginning, but it’s not bad for a South Carolina Court of Appeals case.
Bank of America began foreclosure proceedings in 1998 on property owned by Debra Foxworth. When the foreclosure was finalized, the bank sold the property to Wilton Gleaton. The opinion refers to Wilton Gleaton as “Wilton” because his wife will become a later player in the story. When Wilton bought the property, the 1998 taxes had not been paid.
In a classic tale of the left hand not knowing what the right hand is doing, Orangeburg County began proceedings in March of 1999 to collect the delinquent taxes. The County sent Foxworth notices for failing to pay taxes in March and May, shortly before the foreclosure sale to the bank, but long after the bank began foreclosure proceedings. The County sold the property at a delinquent tax sale to James Fields in February 2000.
The County sent three required “Dear Property Owner” letters to give notice of the redemption period. Two of the letters were addressed to Foxworth and the third was addressed to Wilton but mailed to Foxworth’s address.
In an interesting twist, Wilton’s wife, Sara, visited Orangeburg County in January 2001—before the redemption period expired—and went there precisely because she had not received a tax notice in the mail. She paid the 2000 property taxes. That tax bill listed a Charleston address at which neither Sara nor Wilton had ever lived. Sara gave the County her correct address and asked if any other taxes were owed. The County initially told her that no other taxes were due but later informed her the 1999 taxes had not been paid. She paid those taxes the next month, February 2001. In an “asleep at the wheel” move, the County employee did not inform her of the 2000 tax sale to Fields or of the right to redeem the property.
The redemption period expired in February 2001, not long after Sara paid the 2000 property taxes, but before she paid the 1999 taxes. In May 2001, The County issued a tax deed to Fields. The tax deed listed Foxworth as the defaulting taxpayer and “record owner against whom warrant was issued.” The tax deed made no reference to the Gleatons.
The Gleatons paid subsequent taxes as they came due.
In 2006, the County discovered Wilton—the record owner at the time of the 2000 tax sale—had not been noticed. In another interesting twist, the tax collector had Fields convey the property back to Foxworth via quitclaim deed in an effort to “reverse” the tax sale. The Gleatons were not notified about any of this.
In 2007, the Gleatons listed the property for sale. (Dirt lawyers, this is where the facts get “real” for us.) In October 2009, Donnie and Connie Hall contracted to buy the property for $33,000. It’s shocking, I know, but the Halls discovered a title problem! The County’s attorney offered to bring a declaratory judgment on the Hall’s behalf seeking rulings that the tax sale and quitclaim deed were void.
Wilton filed this suit against the County after the Halls backed out of the sale. In December 2014, the master issued an order finding the tax sale was flawed and invalid and the tax deed to Fields was improper. But the master left open the issues of liability and damages and ordered the Gleatons to attempt to sell the property within four months. Wilton died shortly after this order and Sara was substituted as a party. The property did not sell, and the master issued a final order in 2019. He found that the County’s actions were not malicious and “made no publication” that was intended to harm the Gleatons and made no statement that was knowingly false or in reckless disregard of its truth or falsity.
The master found that the only statement slandering Wilton’s title was the quitclaim deed from Fields to Foxworth, and that this deed was done for the purpose of returning the property to the defaulting taxpayer, not for the purpose of damaging Wilton’s title. The master also found that a proper title search would have revealed the 1998 taxes were due and owing at the time of the Gleatons’ purchase.
On appeal, Sara argued:
The tax deed and subsequent deed to Foxworth disparaged the title.
The County knew Wilton owned the property because the deed and mortgage were recorded before the tax deed.
The master erred in failing to find malice because malice, in a slander of title action, includes publications made without legal justification.
The Halls plainly refused to purchase the property because of the cloud on the title.
Citing an earlier case, the Cout of Appeals set out the elements of slander of title as:
The publication
with malice
of a false statement
that is derogatory to plaintiff’s title and
causes special damages
as a result of diminished value of the property in the eyes of third parties.
The Court held the master’s findings that the County’s actions did not result in any publication and did not contain any statement that was knowingly false or made in reckless disregard of the truth were not supported by the evidence. The Court also disagreed with the master’s finding that malice requires an intent to injure. The County’s numerous missteps were at least reckless, according to the Court, stating that the situation should have been resolved in a logical and reasonable manner when the mistakes were discovered.
The case was remanded for the master to consider each element in a slander of title action and the proper standard for malice.
Please note that more than 20 years have passed since this tale of woe began. The County should have discovered and fixed its mistakes when Sara visited in 2001 with the express purpose of paying taxes. And there is no excuse for the County’s continued failure to correct its errors in 2006 when the tax collector discovered Wilton’s ownership of the property.
*South Carolina Court of Appeals Opinion 6003 (July 26, 2023)
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)
South Carolina real estate lawyers who represent developers or clients who sell land to developers deal with the issue of rollback taxes routinely. But lawyers who don’t deal with this issue on a regular basis should be aware of it to avoid stepping into what can amount to a very expensive trap.
Rollback taxes are assessed when the use of property that has been taxed as agricultural rate changes. Under prior law, rollback taxes were accessed for a five-year period. South Carolina Code Section 12-43-220 was amended in this year’s shortened legislative session to reduce the lookback period to three years. The amendment is effective January 1, 2021. In the year the use of the property changes, the difference between the tax paid under the agricultural use classification and the amount that would have been paid (typically under a commercial designation) is charged at full fair market value.
How expensive can the difference be? Agricultural use valuation is based upon crop yield and was frozen in 1991. For coastal and many other counties the difference between the agricultural use fair market value and the commercial fair market value can be enormous. In addition, many, but not all, agricultural use properties are taxed at a four percent assessment ratio versus the commercial designation’s six percent assessment ratio, and the millage is different. This alone can contribute to a large rollback tax. Rollback taxes can easily amount to thousands if not tens of thousands of dollars.
When agricultural property is sold, the rollback tax issue comes into play. There is no norm in South Carolina as to who pays the rollback taxes. If the parties and their lawyers are aware of the issue, payment of the additional tax should be covered by contract. I’ve seen the issue arise for the first time at closing, however, and the typical tax proration contract provisions just don’t do the job to cover this issue. The buyer will argue that the decision to change the use of the property was not the buyer’s concern, and the seller will argue that the buyer had the advantage of the lower tax rate. Negotiations can get heated quickly.
When agricultural property is sold, the purchaser is required to sign an affidavit within thirty days of the sale stating under penalties or perjury that the property continues to qualify as agricultural. If that affidavit is not filed, the assessor will automatically apply rollback taxes. Note that if the issue is not handled at closing, the purchaser will have the ultimate responsibility, and you do not want to be the lawyer who failed to notify your purchaser client of this trap.
Fee-in-lieu completely eliminates rollback taxes and this should be a consideration for any large commercial project. A minimum investment of $2.5 million is required for a fee-in-lieu but many urban counties will not approve a fee-in-lieu for the statutory minimum. As always, contact a tax expert for assistance with these sticky matters.
A case* from the South Carolina Court of Appeals on August 26 concerns South Carolina Code Section 12-17-3135 which allows a 25% property tax exemption when there is an “Assessable Transfer of Interest” of real estate. The issue was one of timing, whether a property owner must claim this exemption during the first year of eligibility.
The Administrative Law Judge had consolidated two cases. In both cases, the property owner had purchased property during the closing months of 2012. Neither taxpayer claimed the ATI Exemption in 2013, but both claimed it in January of 2014. The Dorchester County Assessor denied the requests, but the ALJ decided the exemptions had been timely claimed.
The statutory language in question provides that the county assessor must be notified before January 31 for the tax year for which the owner first claims eligibility. The taxpayers argued that the plain meaning of this language allows them to choose when to claim the exemption. The Assessor argued that the exemption must be claimed by January 31 of the year following the transfers.
The Court looked at taxation of real property as a whole and held that the legislature intended that all purchasers would have a meaningful opportunity to claim the exemption. Under the Assessor’s interpretation, there would be a much less meaningful opportunity for taxpayers who purchase property later in the calendar year.
The Court also stated that the ATI Exemption is not allowed to override the appraised value set in the statutorily required five-year reassessment scheme, so there would be a built-in time limit for claiming the exemption.
*Fairfield Waverly, LLC v. Dorchester County Assessor, Opinion 5769 (August 26, 2020)
Interesting question discussed on SC Bar’s Real Estate Law Listserv
The South Carolina Bar maintains a great listserv for members of the Real Estate Practices Section through which lawyers can ask questions and share information via email. I recommend that South Carolina real estate practitioners join the section and the list. Both provide opportunities for staying in touch with fellow practitioners and keeping up with news and trends.
Last week, a practitioner from the Fort Mill area was advised that the county would not allow the 4% owner-occupied assessment ratio for his clients who had Hispanic names but who presented South Carolina driver’s licenses and vehicle registrations as evidence of their permanent addresses. He asked other practitioners how to appeal.
Several lawyers, mostly from the Charleston area, responded that they were well aware of this issue. Apparently, Charleston County takes a hardline approach on the issue and requires that persons who are not United States citizens be resident aliens/permanent residents to obtain the 4% ratio.
My friend and excellent Charleston real estate practitioner, Beth Settle, pointed us to this Attorney General’s opinion on the topic.
The opinion is dated June 21, 2019 and is addressed to Jerry N. Govan, Jr., a member of the South Carolina House of Representatives. Mr. Govan’s question noted that some county offices are requiring individuals to present proof of U.S. citizenship as a requisite of receiving the special ratio and asked whether South Carolina law, specifically §12-37-10 et seq., requires proof of citizenship. The legislator then asked whether counties are authorized to use investigative methods to determine citizenship.
The opinion agreed with the questioner that South Carolina law provides no “bright line” rule to determine whether a non-citizen is or is not a domiciliary for the purposes of the special ratio and pointed to court decisions from multiple jurisdictions with varying results on this issue. Some courts have held that illegal aliens cannot form the requisite intent to achieve domicile in the United States. Other courts have indicated the determination must be made on a case-by-case basis. Some aliens, according to an opinion from Alaska, are allowed in the country only if they do not intend to abandon their foreign residence. Those restricted aliens would jeopardize their legal presence in the United States if they seek to establish domicile here. Others are not so restricted and may be able to form the intent to remain here without jeopardizing their legal alien status.
No decisions from South Carolina appellate courts have addressed this issue, but the Administrative Law Court considered the question* and concluded that establishing domicile is ultimately a question of fact and largely one of intent. A distinction was drawn between “actual residence” and “legal residence”, and the court stated that an individual remaining in the United Stated without documentation cannot form the requisite intent to make property in South Carolina the domicile for the purposes of the discount.
The burden of proof on this issue falls on the taxpayer. The Attorney General’s opinion concluded that in order to receive the four-percent special assessment ratio, the property in question must be the legal residence of the taxpayer. The determination must be made on a case-by-case basis after investigation by the county officials and ultimately the courts. Generally speaking, the opinion continued, those aliens who are here illegally are deemed unable to establish domicile in the United States. Where the alien is in the United States as a result of DACA, that person cannot qualify. And a tourist without a permanent visa cannot be a permanent resident.
*Richland County Assessor v. Herrera, 2018 WL 5114185 (18-ALJ-17-0006-cc)(October 9, 2018).
This blog reported on May 29 that South Carolina Governor McMaster signed House Bill 3243 into law on May 16. This legislation, called the Predictable Recording Fee Act (S.C. Code §8-21-310), will streamline document filing in ROD offices by creating predictable fees for many commonly recorded documents such as deeds and mortgages. The new law will take effect on August 1, 2019. You and your staff will no longer have to count pages for documents to be recorded!
My friend and colleague, Jennifer Rubin, was instrumental in the creation and passage of this legislation. Jennifer drafted the legislation and spearheaded Palmetto Land Title Association’s efforts to get the bill passed. Since the legislation was enacted, Jennifer has worked with members of South Carolina Court Administration, as well as leaders in ROD offices throughout the state, to draft a uniform recording fee schedule. Attached is the newly created official recording fee list.
This law should simplify and streamline your practice and result in significant time and money savings for you and your clients.
New Court of Appeals case demonstrates this fact again
A South Carolina Court of Appeals case* decided on June 20 demonstrates once again how precarious real estate titles coming through tax sales can be in South Carolina.
The unfortunate facts are not unusual. Bessie and Willis Thompson owned a residence in Bamberg County. They died in 2004 and 2005, respectively. The residence was devised to three grandchildren, one of whom, Corretta McMillan, was involved in this case through the appeal. The estates of Mr. and Mrs. Thompson were not probated, leaving the Thompsons as the title holders of record.
Corretta McMillan paid the 2005 property taxes, but she did not notify Bamberg County of the deaths of her grandparents, nor did she provide a substitute address for tax notices. The 2006 property taxes were not paid, resulting in a letter to the residence from Bamberg County in the spring of 2007. In May of 2007, Bamberg County sent a second notice to the residence via certified mail. The letter was returned undelivered with the receipt marked “Deceased” above the names of Mr. and Mrs. Thompson. McMillan never received the notices, and she rented to house to Bernard Hallman in the summer of 2007.
Bamberg County referred the property to the Delinquent Tax Office which held a tax sale in November of 2007. The tax office submitted a minimum bid on behalf of the Forfeited Land Commission (FLC), a commission within each county which exists to bid on real properties not otherwise sold at tax sales. Following this tax sale, however, Ralph Johnson contacted the tax office with an offer to purchase several dozen tax sale properties. The tax office assigned to Johnson the bids it had submitted on behalf of the FLC, allowing Johnson to purchase 39 tax sale properties, including the residence involved in this appeal.
In January of 2009, McMillan paid a portion of the outstanding property taxes. Bamberg County sent her a notice acknowledging receipt of her payment and informing her that there were still delinquent taxes due. No mention was made of the tax sale.
Johnson acquired a deed to the property in February of 2009, at which time he learned the property was still occupied by Hallman. Johnson asked Hallman to move out and later filed an eviction action. Hallman notified his landlord, McMillan, of the eviction action.
The magistrate held Johnson’s eviction proceeding in abeyance when the FLC filed suit against Johnson alleging the tax office had inappropriately assigned its bids to Johnson without FLC’s authority. This suit also alleged the tax sales had not been conducted in compliance with the “rigid statutory structure.” Johnson answered, cross claimed and counterclaimed. One of his theories was the two-year statute of limitations on challenging tax sales set out in South Carolina Code §12-51-160.
During a November 2013 hearing, McMillan appeared and informed the court that she was an heir of the Thompsons. The FLC abandoned its suit and the circuit court dismissed the FLC’s complaint and Johnson’s counterclaims with prejudice. The circuit court then entered a default judgment in favor of Johnson on his cross claims to quiet title.
On April 8, 2014, McMillan filed an answer and counterclaim to Johnson’s quiet tile action. Johnson maintained McMillan could not contest the validity of the tax sale because the claim was barred by the two-year statute of limitations. At trial, there was no evidence that the property was properly posted with a notice of the tax sale once the second notice was returned marked “Deceased”. The circuit court granted the quiet title demand.
On appeal, the Court of Appeals reversed and remanded, discussing the two-year statute of limitations and the technicalities required for a successful tax sale. The Court sited earlier cases which held that defects in quiet title actions are jurisdictional and may prevent the statute from running. Other cases have suggested that even in the absence of strict compliance, the statute of limitations will begin to run when the purchaser at the tax sale takes possession of the property.
In this case, the purchaser never took possession because he was unable to evict the tenant. That fact, and the fact that the property was not properly posted with a notice of the sale, led to the Court’s conclusion that the two-year statute did not run.
The moral to this story is simple: always discuss tax sale titles with your friendly and smart title insurance company underwriter. They generally keep up with these cases, no matter how tedious. **
*The Forfeited Land Commission of Bamberg County v. Beard, South Carolina Court of Appeals Opinion 5570 (June 20, 2018).
**Please see footnote 5 in this case. It’s rare that a footnote in an appellate case can make a lawyer cry (unless the lawyer lost the case), but this footnote summarized the exemplary career of the late Tanya Gee, who died in 2016. This case would have been her first case as a temporary justice on the Court of Appeals. After her death, the appellate process had to begin again. Rest in peace, Justice Gee!
Just in time for tax season, the IRS announced on April 4 that it will begin using private debt collectors pursuant to federal law enacted late in 2015.
The IRS said that it will begin this month sending around 100 letters per week to taxpayers who have accumulated years-overdue tax debt. If the process goes smoothly, the number of letters will be increased to 1,000 per week.
Outsourcing debt collection will likely provide scammers with new opportunities, so the IRS has provided some advice for the safety of taxpayers.
The taxpayer will hear from the IRS first by letter. The letter will provide the name and contact information for the debt collection firm. After that initial contact, the debt collection firm will send its first letter confirming that it will handle the case. Neither initial contacts will be by telephone.
At this point, only four firms have been identified: CBE Group of Cedar Falls, Iowa; Conserve of Fairport, New York; Performant of Livermore, California; and Pioneer of Horseheads, New York. Each taxpayer’s account will be assigned to only one of these firms.
None of the firms will ever ask for payments to be made to anyone other than the United States Treasury. If a taxpayer is asked to make payment to anyone else, this is a scam.
In the case of mistreatment under this new program, taxpayers are urged to file complaints with the Treasury Inspector General for Tax Administration and the Consumer Financial Protection Bureau. The IRS and Congress have indicated they will be monitoring this situation carefully.
On a related topic, real estate lawyers should be reminded that the IRS may issue a levy, which is a legal seizure, of a taxpayer’s property to satisfy a tax debt. When a levy is issued, it applies to real property, money, credits and bank deposits. A levy can also reach property held by third parties, such as retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivable, the cash loan value of life insurance policies and commissions.
The IRS issues a levy only after it has exhausted other means to collect a tax debt.
From time to time, a settlement agent will receive a levy for a party involved in a closing. The taxpayer should be sent a notice in writing of the receipt of the levy and should be directed to consult with his or her tax advisor. Remember that a real estate lawyer who is not also competent as a tax lawyer should never offer tax advice. Typically, after the taxpayer has time to seek tax advice, the settlement agent should comply with the levy.
(If I received a levy, however, I would also seek my own tax advice prior to disbursing any funds!)
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