In a statement dated 21 August in Massenberg v. Clarendon County Treasurer (Op. No. 28234), the Supreme Court of South Carolina invalidated the tax sale of property in Clarendon County because the delinquent taxpayer argued that the notice placed on his property as part of the pre-sale notice process was not placed in a “conspicuous location.” The issue of placement is likely to be raised in other cases and could impact investors’ tax lien portfolios in the future.(1)
background
The dispute arose from a 2017 tax sale involving the delinquent taxpayer’s 2.54-acre undeveloped property in rural Clarendon County. Because the mailed notice of the 2017 tax sale had returned undeliverable, the tax collector hired a third-party company to post the notice of the tax sale on the delinquent taxpayer’s property pursuant to S.C. Code Ann. § 12-51-40(c). The tax collector did not provide the company with instructions on how or where to post the notice on the property and did not even require that it be posted “in one or more conspicuous locations on the property,” as required by state law.
As shown on this map, which was introduced as evidence at the non-jury trial, the company placed the notice on a tree on the property. This tree bordered a lightly used dirt road on the northeast property line. Whether this tree or the notice attached to it was visible from the dirt road was questionable. The company that placed the notice did not provide any information about why this location was chosen or why the company did not place the notice on the portion of the property bordering the two-lane paved road on the west side of the property.
The delinquent taxpayer’s uncle testified in court that he lived near the property and that the dirt road where the property was marked had fewer than ten cars per day. He also testified that although he used the dirt road at least three times per day, he had not seen the sign.
Despite the posting and other notices to the delinquent taxpayer, the taxes remained unpaid and the property was sold to the highest bidder. After the tax deed was issued, the delinquent taxpayer sued to set aside the tax sale. The Master in Equity dismissed his challenge and the Court of Appeals affirmed in an unpublished opinion in 2022.
The court’s decision
The Supreme Court overturned the Court of Appeals’ ruling and declared the tax sale invalid. The court ruled that while the question of whether a notice is conspicuous is “context-dependent,” the record confirms that the notice in this case did not comply with state law:
“Here, the notice of seizure – a single sheet of printer-sized paper – was posted on a tree facing the much less traveled gravel road. The tree is indistinguishable from the surrounding woods, the sides of the gravel road were covered in unkempt foliage and shrubbery so passersby could not see the notice from a certain angle, and nothing was done to draw attention to the area where the notice was posted – or to the notice itself.”
However, the court explained that while “there may be more than one conspicuous location on a property, and that some of those locations are more conspicuous than others,” the tax collector is not required to post the notice in the “most conspicuous location”—the law only requires that the posting be in a “conspicuous location.” The court explained that the decision of where to post the notice is a “discretionary decision,” but that in this case the tax collector did not exercise any discretionary decision about the notice. This fact was “critical” to the court’s reasoning. The court emphasized that the tax collector did not provide advance instructions to the posting company and then failed to review the notice after the fact to ensure that it complied with Section 12-51-40(c). Therefore, the court voided the tax sale.
The consensus
Although the outcome was unanimous, the Chief Judge and Justice James wrote a concurring opinion to express their disagreement with two parts of the opinion. First, they disagreed that section 12-51-40(c) requires the notice-posting firm to use a comparative approach in selecting the location for the notice. That is, the concurring opinion disagreed with the majority opinion’s assumption that the notice-posting firm must have compared potential posting locations on the property to identify a conspicuous location with respect to each property. Second, they disagreed that the law requires the tax collector to make a judgment, but agreed that the notice was not posted in a conspicuous location.
Therefore, the question whether the exercise of the tax collector’s discretion as to the place where the notice is posted, or the comparison of possible places where that notice may be posted, can protect a tax sale from challenge by accessory actions may be left for another day.
Impact on your tax lien portfolio
The court’s opinion highlights important risks that bidders must factor into their bids at tax auctions and that property owners who are at risk of having their property foreclosed must also consider.
State law requires tax collectors to strictly follow statutory tax auction notice requirements if those requirements are intended to protect the delinquent taxpayer. However, the tax auction bidder has no control over the process the tax collector uses to provide the required statutory notices. As this tax auction challenge demonstrates, there are a variety of ways a delinquent taxpayer can challenge the manner in which the notice was mailed, posted, or published to challenge the validity of the tax auction. In almost all cases, the tax collector’s actions (or inactions) are beyond the tax auction bidder’s control. Because the posting occurs before the tax auction, there is nothing the tax auction bidder could have done to correct the defective posting. For this reason, tax auction bidders must consider this risk when bidding on property at a tax auction and carefully analyze this risk if litigation is filed against the tax auction.
(1) Our client alert regarding an unrelated, unpublished Court of Appeals opinion discussing the duty of conspicuous publication in connection with a Lexington County tax auction can be found here.
