# NTLAANNUAL17 PITFALLS TO AVOID AT S.C. TAX SALES - PowerPoint Presentation

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# NTLAANNUAL17 PITFALLS TO AVOID AT S.C. TAX SALES - PPT Presentation

Parker Barnes Haynsworth Sinkler Boyd PA pbarneshsblawfirmcom WHY SHOULD I BUY IN SC Interest rates 3 12 Oneyear redemption Get your deed or ROI quickly 2202017 2014 National Tax Lien Association wwwtheNTLAcom ID: 783572

lien tax association sale tax lien sale association www thentla national 2014 property federal 2017 irs notice 2017

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Slide1

NTLAANNUAL17

PITFALLS TO AVOID AT S.C. TAX SALES

Parker Barnes

Haynsworth Sinkler Boyd, P.A.

pbarnes@hsblawfirm.com

Slide2
WHY SHOULD I BUY IN SC?

Interest rates: 3% - 12%.One-year redemption. Get your deed or ROI quickly.

Slide3
WHAT AM I BUYING?

SC is NOT a Tax Lien State. You are buying an interest in land, not a lien.

Slide4
HOW DOES THE PROCESS WORK IN SC?

Generally, taxes are assessed and collected by counties. Some cities also collect taxes.

Slide5
HOW DOES THE PROCESS WORK IN SC?TAX SALE NOTICES

The South Carolina Supreme Court has “consistently held that tax sales must be conducted in strict compliance with statutory requirements.”Johnson v. Arbabi,

355 S.C. 64, 69, 584 S.E.2d 113, 115-16 (2003).2/20/2017

Slide6
HOW DOES THE PROCESS WORK IN SC?TAX SALE NOTICES

Pre-Tax Sale NoticesPrior to the tax sale, the taxing authority must provide three or four pre-sale notices to the defaulting taxpayer and to any grantee of the property of record.

S.C. Code Ann. § 12-51-40.2/20/2017

Slide7
HOW DOES THE PROCESS WORK IN SC?TAX SALE NOTICES

Post-Tax Sale NoticesAfter the property is sold at the tax sale, the real property may be redeemed during the twelve months following the date of the tax sale.

S.C. Code Ann. § 12-51-90.The taxing authority must provide a Redemption Notice to the defaulting taxpayer and to any grantee, mortgagee, or lessee of the property of record neither more than 45 nor less than 20 days prior to the expiration of the redemption period.

S.C. Code Ann. § 12-51-120.

Slide8
HOW DOES THE PROCESS WORK IN SC?TAX SALE NOTICES

Notice to Lien HoldersMortgagees are entitled to the post-tax sale notice of approaching end of redemption period.

However, if a mortgagee files a “mortgagee list” with the county prior to the tax sale, the mortgagee is entitled to notice at least 45 days prior to the tax sale of any property listed on the “mortgagee list.”

While the federal government is not entitled to notice of the tax sale, federal law provides that a federal tax lien survives when the federal government was not given notice.2/20/2017

Slide9
WHAT DO I HAVE TO DO AT THE TAX SALE?

The successful bidder must comply with its bid on the day of the sale.Must pay by cash, cashier’s check, certified check, or money order, on the day of the sale.$500 penalty if do not.

Get a tax sale receipt upon payment.Must keep receipt in case property redeemed.

Can assign the tax sale bid at any time during the Redemption Period.

Slide10
WHAT IS THE POTENTIAL RETURN ON MY INVESTMENT?

The interest due is determined pursuant to the statute:1st Quarter = 3%2nd Quarter = 6%3rd Quarter = 9%

4th Quarter = 12%2/20/2017

Slide11
WHAT IS THE POTENTIAL RETURN ON MY INVESTMENT?

Interest Cap: Limited to the opening bid amount, which is (1) amount of all unpaid taxes, (2) all penalties, assessments, costs, AND (3) the next year’s taxes.

Upon redemption, the officer in charge of collecting the delinquent taxes must cancel the sale in the tax sale book, and notify the successful bidder by mail to return the tax sale receipt in order to be refunded the purchase price plus the Redemption Interest.S.C. Code Ann. § 12-51-100.

2/20/2017

Slide12
WHEN DO I GET THE TAX DEED?

Delivery of Tax TitleIf the real property is not redeemed the taxing authority shall make a tax title to the purchaser or to purchaser’s assignee within 30 days of the redemption period’s expiration, or as soon thereafter as possible.S.C. Code Ann. § 12-51-130.

Almost always takes longer than 30 days from expiration of the redemption period.

2/20/2017

Slide13
WHEN DO I GET THE TAX DEED?

The tax sale can be set aside before the tax deed is issued.If, before the tax title is issued, the taxing authority realizes there has been a procedural defect, the official can void the tax sale and refund the amount paid and any interest actually earned while the purchase money was held.

Otherwise, actions to set aside a tax sale must be filed within two years of the tax sale date.

Slide14
WHAT SHOULD I DO WHEN I GET THE TAX DEED?

Tax deeds are presumed valid.Insure the property.

ONLY IF VACANT – secure the property.2/20/2017

Slide15
WHAT ARE COMMON PITFALLS?FEDERAL TAX LIENS

When does a federal tax lien arise?Under federal law, if any person fails to pay any kind of tax after the IRS makes a demand, a federal tax lien will attach upon the person’s real and personal property and will last until the debt is either extinguished or discharged.

How long do they last?Federal tax liens last for 10 years after demand is made, unless the IRS re-files notice of the lien.

2/20/2017

Slide16
WHAT ARE COMMON PITFALLS?FEDERAL TAX LIENS

Does a federal tax lien survive a county tax sale?The general rule is that if notice of the federal tax lien is filed in the county real estate records and the federal government is not given notice of the tax sale, the sale is subject to the federal tax lien.

This means that the tax lien will continue even after the property is sold.This general rule is based on a case called

Fox v. Moultrie—deals with a situation where the federal tax lien attached prior to the county tax lien.

Slide17
WHAT ARGUMENTS EXIST FOR CHALLENGING A FEDERAL TAX LIEN?

The only case deciding the federal tax lien issued involved a federal tax lien filed before the county tax lien attached.Arguments exist for challenging a federal tax lien recorded during the redemption period or after the tax sale.

2/20/2017

Slide18
WHAT ARGUMENTS EXIST FOR CHALLENGING A FEDERAL TAX LIEN?

If the IRS does not file notice of its lien prior to the county tax sale, local law determines the effect of the sale on the federal tax lien.IRS Lien filed AFTER the Tax Sale.

IRS Lien filed DURING the Redemption Period.

Slide19
CAN I NEGOTIATE WITH THE IRS TO RELEASE ITS FEDERAL TAX LIEN?

IRS will value property: The IRS first needs two pieces of information establishing the value of the property or an appraised value. The IRS will accept any two of the following: (i) assessed value, (ii) BPO, or (iii) any other similar estimate of value. IRS will then average the two values, or if an actual appraisal is provided, the IRS will then only use that value.

2/20/2017

Slide20
CAN I NEGOTIATE WITH THE IRS TO RELEASE ITS FEDERAL TAX LIEN?

The IRS will then multiply the averaged value by 0.8, the purpose of which is to discount the averaged value by 20% because the property was sold at tax sale (forced sale). After reducing the averaged value by 20%, the IRS will then deduct the tax sale bid. Usually, the amount left after subtracting the bid is what the IRS will accept to satisfy its lien(s).

2/20/2017

Slide21
HOW DO HOMEOWNERS ASSOCIATION DUES APPLY TO PROPERTIES SOLD AT TAX SALES?

HOA dues are contractual and binding.Provisions that require property owners to pay dues for improvements, maintenance, or other services to the HOA are deemed to run with the land itself.

Provisions regarding HOA dues will be enforced unless they are indefinite or contravene public policy.

Slide22
HOW DO HOMEOWNERS ASSOCIATION DUES APPLY TO PROPERTIES SOLD AT TAX SALES?

Properties likely to be subject to HOA liensCondominiums

Homes in subdivisions/planned communities

Slide23
HOW DO HOMEOWNERS ASSOCIATION DUES APPLY TO PROPERTIES SOLD AT TAX SALES?

Priority at tax salesPursuant to S.C. Code § 27-31-210(a), HOA assessment liens are subordinate to:

Tax liens in favor of any assessing unit (i.e. county tax liens)Any mortgages or liens encumbering the property that have already been recorded

When the property is sold at a tax sale, the purchaser will take the property free of existing mortgages or other liens encumbering the property, including HOA assessment liens; in such situations and under ordinary circumstances, the lienholder is only entitled to the excess over costs and taxes.

Slide24
HOW DO HOMEOWNERS ASSOCIATION DUES APPLY TO PROPERTIES SOLD AT TAX SALES?

Tax sale purchasers take the property free from all liens (except federal tax liens), but the purchaser is generally liable for all homeowners association assessments that are incurred after the tax deed is recorded.

TSP has no interest until tax deed is recorded because the county can void the tax sale up until that point.2/20/2017

Slide25
HOW DO HOMEOWNERS ASSOCIATION DUES APPLY TO PROPERTIES SOLD AT TAX SALES?

Tax sale purchasers should also be wary of fees that will accrue after the tax sale.If the language of the Declarations is unambiguous, the covenants will be enforced according to their obvious meaning.

Therefore, if the Declarations provide for personal liability, the provisions will be enforced.In those cases, a homeowner cannot always walk away from the property and abandon the assessments that are past due if the Declarations provide for personal liability.

2/20/2017

Slide26
HOW DO HOMEOWNERS ASSOCIATION DUES APPLY TO PROPERTIES SOLD AT TAX SALES?

Tax sale purchasers should also be wary of fees that will accrue after the tax sale.There is no authority limiting a HOA’s ability to levy assessments pursuant to a governing document, even if those assessments ultimately exceed the value of the property itself.

2/20/2017

Slide27
WHAT ABOUT ENVIRONMENTAL CONCERNS?

What is Superfund? Established by Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).The U.S. Government’s Superfund program is designed to fund the cleanup of sites contaminated with hazardous substances and pollutants.

The vast majority (approximately 70%) of Superfund cleanup activities have been paid for by potentially responsible parties (“PRP’s”) for the cleanup of contamination, unless the party either cannot be found or is unable to pay for the cleanup.

A PRP is a possible polluter who may eventually be held liable under CERCLA for contaminating a property or resource.

Slide28
WHAT ABOUT ENVIRONMENTAL CONCERNS?

Who can be a Potentially Responsible Party?Current owner or operator of a site (regardless of whether the current owner had any relationship to the site when the hazardous waste was disposed).Owner or operator of a site at the time that a hazardous substance, pollutant, or contaminant was disposed.

Person who arranges for the disposal of a hazardous substance, pollutant, or contaminant.

Person who transported a hazardous substance, pollutant, or contaminant to a site and who selected that site for such purpose.2/20/2017

Slide29
WHAT ABOUT ENVIRONMENTAL CONCERNS?

What property is affected by a Superfund Lien?CERCLA provides that all costs and damages for which a person is liable to the United States in a cost recovery action shall constitute a lien in favor of the United States upon all real property that belong to such person and are subject to or affected by removal or remedial action.

A Superfund lien applies to all property owned by a PRP upon which responsive action has been taken—not just the portion of the property that is affected by cleanup activities.The lien does not extend to any title the PRP has to other property.

2/20/2017

Slide30
WHAT ABOUT ENVIRONMENTAL CONCERNS?

What priority is given to a Superfund Lien?Before notice of the lien is filed, federal liens are subordinate to the rights of any purchaser, holder of a security interest, or judgment lien creditor whose interest is perfected under state law.

After notice is filed, the lien takes priority over known and potential purchasers, holders of security interests, and judgment lien creditors who have not perfected their interests.Note—the EPA must file its lien in order to secure its priority over other secured parties, and cannot rely on constructive notice.

The lien arises at the time the costs are first incurred by the U.S. Government with respect to a response action or the time that the PRP is provided with written notice of potential liability, whichever is later.

2/20/2017

Slide31
WHAT ABOUT ENVIRONMENTAL CONCERNS?

How can I tell if a property is a Superfund site?Make sure to conduct due diligence to find out whether a property is likely to come under CERCLA jurisdiction.

The EPA website publishes a list of Superfund locations throughout the United States and provides a summary of the contamination at each site.https://www.epa.gov/superfund/search-superfund-sites-where-you-live

2/20/2017

Slide32
WHAT ARE SOME TIPS FOR DEALING WITH SUPERFUND SITES?

Since CERCLA imposes liability upon current owners and operators of contaminated sites regardless of fault, buyers should assess the level of contamination and the likely costs of recovery.2/20/2017

Slide33
WHAT ARE SOME TIPS FOR DEALING WITH SUPERFUND SITES?

Be aware of defenses available to PRPs—there will not be any liability if the PRP can establish by a preponderance of the evidence that the release or threat of release of hazardous substances and subsequent damages were caused solely byAn act of God

An act of war, An act or omission of a third party (other than the PRP’s employee/agent) if the defendant establishes by a preponderance of the evidence that

It exercised due care with respect of the substance involved, andTook precautions against foreseeable acts or omissions of any such third party, or

Any combinations of the foregoing paragraphs2/20/2017

Slide34

NTLAANNUAL17

PITFALLS TO AVOID AT S.C. TAX SALES

CLOSING COMMENTS & QUESTIONS

Parker Barnes

Haynsworth Sinkler Boyd, P.A.

pbarnes@hsblawfirm.com