In an unpublished opinion released this week in Cutter & Company, LLC v. Stafford Funding Group LLC (Op. No. 2024-UP-016), the South Carolina Court of Appeals upheld the tax sale of property in Orangeburg County over the objection of the delinquent taxpayer and a mortgage holder. The appeal touches on South Carolina’s tax-sale mailing requirements, divisibility of property sold at tax sale, and excessiveness of the sale under state statute. Although the opinion is unpublished and not binding in other cases, the divisibility and excessiveness issues are likely to be raised in other cases and could impact investors’ tax-lien portfolios in the future.
Background
The dispute arose from a delinquent tax sale of two separate parcels in Orangeburg County both owned by the same delinquent taxpayer, Cutter & Company. The Master-In-Equity voided the tax sale of one of the properties, but upheld the tax sale of the second parcel, causing the delinquent taxpayer and the mortgagee holding an interest in the property to appeal.
Divisibility of the Property
The delinquent taxpayer argued that the second parcel was readily divisible, so the tax collector was obligated to divide the parcel before selling. The taxpayer argued that the division would have sold only a portion of the property to satisfy the entirety of the outstanding taxes, which would have saved the remaining portion from being lost at the sale. It claimed that, although the parcel was a single tax parcel tied to a single tax account within the county records, the property was already divided in two by a road, and a plat had been recorded dividing the property into four lots. Relying on Folk v. Thomas 1, the Court disagreed, emphasizing that the burden to request property division for the purpose of tax parcels lies with the property owner, not the county or tax collector. The court highlighted the permissive term "may" in the relevant statute2, indicating that the county had the option, but not the obligation, to divide property before selling it at the tax sale.
Excessiveness of the Sale
The delinquent taxpayer also argued that the Tax Collector’s sale of the entirety of the second parcel was excessive in violation of state statute. The Court rejected this argument, concluding that the tax collector had no statutory duty to divide the property before the tax sale or determine the potential excessiveness by reference to the amount of the tax sale bid alone. It emphasized that excessiveness is a question of fact, with no fixed guidelines, and noted that the sale price exceeding the tax debt does not necessarily render the sale excessive.
Impact on Your Tax-Lien Portfolio
Because the opinion is unpublished, it likely will not have a direct impact on the properties within a tax-lien investor’s portfolio. Yet the opinion highlights two important risks tax sale bidders must factor into their bids at tax sales and that property owners facing the forced sale of their property must consider. First, whether a property can be divided on a plat is distinct from whether it has been divided on the county’s tax maps. Merely subdividing property for the purpose of making separate lots does not necessarily equate to separating properties for the purpose of the tax sale.
Second, the opinion confirms that the question of whether a tax sale is excessive as a matter of statute rests largely in the discretion of the tax collector. Merely because a property could be divided and only a portion sold does not mean the tax collector must take that step. That said, delinquent taxpayers and other interested parties may still try to raise constitutional challenges to the excessiveness of particular tax sales by relying on the Supreme Court’s opinion in Tyler v. Hennepin County, No. 22-166 (May 25, 2023)3. The opinion does not address this constitutional question. At the time the parties in this case submitted their initial briefs in June 2021, the United States Supreme Court had not issued its opinion in Tyler. Thus, the parties here did not have the benefit of the Supreme Court’s statement that the United States Constitution requires taxpayers to “render unto Caesar what is Caesar’s, but no more.” Thus, the question of constitutional excessiveness of a particular tax sale remains open, and the courts may still have to grapple with that constitutional issue in the wake of the Supreme Court’s opinion in Tyler.
1) Folk v. Thomas, 344 S.C. 77, 543 S.E.2d 556 (2001).
2) S.C. Code Ann. § 12-51-40(d) (“When the real property is divisible, the tax assessor, county treasurer, and county auditor may ascertain that portion of the property that is sufficient to realize a sum upon sale sufficient to satisfy the payment of the taxes, assessments, penalties, and costs. In those cases, the officer may partition the property and furnish a legal description of it.”).
3) See our additional client alert about the Supreme Court’s opinion here.
