Tax Sales: Buyer Beware

The issue of real property tax sales may seem mundane; but if you own a house, land, or commercial properties, then you are required to pay your property taxes at the courthouse come January 1 of every year. For every month you do not pay, you are assessed interest and a penalty of 1.0% per month until paid or sold.

Depending on what county you live in, your property can be sold to the highest bidder on the first Monday of April or the first Monday in August of each year. If the property is not bid on by anyone, then it is designated to the State of Mississippi.

From the point of sale or designation of the property to the State of Mississippi, you would have two (2) years to “redeem” the property by paying the Chancery Clerk or Municipal Clerk the following: 1) The taxes due for each year not paid; 2) any costs of the tax sale; 3) damages of 5% of the tax amount; and 4) an interest rate of 1.5% per month.

Thousands of properties are sold each year in Mississippi through a tax sale, but the majority of sales are redeemed by the original owners. Minors and persons of unsound mind have two (2) years after reaching majority or after the restoration of mental capacity in which to redeem the property from a tax sale, but they must pay for any improvements placed on the property.

Now the questions become these: If you buy a property at a tax sale and the taxes are not redeemed after the redemption period, do you have a good investment? Can the property ever be restored to its original owner? The answer to those questions is “maybe.”

For a tax deed to become valid, the tax sale must be conducted in specific conformity to the Mississippi Code. Our Supreme Court has always viewed tax sales with strict scrutiny because the 14th Amendment to the United State Constitution prohibits a state from depriving any person of life, liberty, or property without due process of law.

First, the tax collector is required to give an owner of property written notice of the tax sale given five (5) days prior to the sale or on the date of the tax sale advertisement, depending on if the owner is a resident of the county. After the tax sale but before the two (2) year redemption period has expired, the clerk of the county is required to serve written notice on said property owner alerting her or him of the sale.

This notice must be served by personal service, by U. S. Mail, and by publication in the newspaper within 180 days of the sale but not less than 60 days of the sale and 45 days for publication, again prior to the expiration of redemption. Also within this period, the clerk must send notice to all lien-holders (i.e. mortgagees, etc.), by certified mail. A defective notice not in conformity to the above will void any tax sale. Furthermore, a defective legal description in the notice of tax deed will void a tax sale.

The next sticky issue is this: What if the clerk cannot find the taxpayer? There are strict guidelines for this as well. In such a case, the clerk must publish and sign an affidavit that he/she has made diligent efforts to find the tax payer; and the clerk must keep all of the tax notices, return receipts, and affidavits in a permanent record in the clerk’s office. As you see, the above requirements put quite a burden on the tax collectors and chancery clerks; and there is often a failure to follow exact procedure, rendering the sales void.

If you buy a property at a tax sale, how do you know that you have legitimate title to that property? The only way is to hire an attorney (my favorite part) and have the attorney file a lawsuit to quiet and confirm title in the buyer. This requires the tax sale buyer to subpoena into court the past taxpayers and establish through testimony that he or she got all of the requisite notices outlined above. In a suit to confirm title, one must also show a valid legal description of the property. Any failure to prove all of the above conditions results in the tax sale being voided.

MY TAKE:

I am not saying that a person can not be successful in buying property at a tax sale; but as you can see, the process is tedious and can become very expensive and result in failure to secure the property,

I advise clients that a tax sale is not a good way to invest in real property. The Supreme Court just recently set aside a tax sale where a buyer had purchased a property at a tax sale 21 years before. With tax sales, it’s buyer beware.

Lucien C. “Sam” Gwin III was admitted to the Mississippi Bar in 1981 and has been practicing many aspects of the law at the firm of Gwin, Punches & Kelley in Natchez, Mississippi, ever since.