About 80 counties have the authority under G.S. 161-31 to require a tax certification before recording a deed. In counties that have opted into this requirement, the registrar of deeds may not record a deed unless the county tax collector first certifies that there are no delinquent property taxes owed on the property being transferred.
I’ve blogged about the basics of the tax certification process here. Today I focus on the most popular question I get about this process: what happens if the tax office makes a mistake and certifies a deed for registration without realizing there are delinquent taxes owed on the property?
Tax collectors can take comfort in knowing that mistakes by the tax office almost never waive or limit the county’s authority to collect property taxes.
G.S. 105-394, the “immaterial irregularity” provision, states that defects in the listing, appraisal, or collection process “shall not invalidate the tax imposed upon any property.” As I discuss extensively here, G.S. 105-394 has excused a huge variety of mistakes by tax offices with the exception of the failure to give proper notice of a foreclosure action. And even in that situation, the error affected the validity of the foreclosure action and not the validity of the underlying property taxes.
The Machinery Act identifies only two situations in which a tax office error can affect the enforceability of a property tax.
The first is G.S. 105-357(a)(1), which addresses the situation in which a tax receipt is issued for a check or an electronic payment (credit/debit card) and that check or electronic payment is later dishonored. In that case, a purchaser or lender who relies on the erroneous tax receipt takes an interest in the property free from the county’s tax lien for the taxes that were defectively paid with the bad check or rejected credit card.
The second is G.S. 105-361, which authorizes interested parties (owners, tenants, potential buyers, and the like) to obtain a “statement of amount of taxes due” on a particular property. If the tax office fails to include a particular tax or special assessment in that statement, the lien for that tax or special assessment may not be enforced against a party who relies on the erroneous statement. See this blog post for details on G.S. 105-361.
So, if a tax is mistakenly left off a G.S. 105-357(a)(1) receipt or a G.S. 105-361 statement then the county loses the ability to foreclose on the property for the omitted tax. Does that mean if a tax is mistakenly left off a G.S. 161-31 deed certification then the county similarly loses the ability to foreclose on the property for the omitted tax?
Neither the Machinery Act nor our courts have answered this specific question. But I think the answer is almost certainly no.
The path to that conclusion begins with the plain language of the statutes at issue. G.S. 105-357 and G.S. 105-361 create explicit waivers of tax liens for omitted taxes. G.S. 161-31 creates no such waiver for taxes omitted from a deed certification. Combine that lack of waiver with the general forgiveness of tax office errors created by G.S. 105-394, and I think it would be pretty tough for a taxpayer to convince a judge that an error in a deed certification invalidates the omitted taxes.
The taxpayer’s argument is made more difficult by the purposes behind the relevant statutes.
G.S. 105-357(a)(1) and G.S. 105-361 exist to give taxpayers the information they need to move forward with property transactions. These provisions benefit taxpayers, not tax collectors. It makes sense that taxpayers should be permitted to rely on receipts and statements issued under those provisions.
In comparison, G.S. 161-31 exists to give tax collectors additional help collecting delinquent taxes. The statute benefits tax collectors, not taxpayers. It makes sense that taxpayer’s can’t use erroneous deed certifications to avoid tax liabilities.
Remember that potential buyers don’t rely on deed certifications to decide whether or not to buy properties. When a deed is presented for certification by the tax office, the deed has already been signed by the grantor and grantee. A buyer is not harmed by an error in a deed certification because the transaction has already been completed at the time of certification.
An error in a deed certification may cost the tax collector the opportunity to collect the omitted taxes before the deed is recorded, but it should not permanently bar the tax collector from collecting those taxes.
Tax offices should do everything they can to get deed certifications correct, of course. Errors in certifications mean missed opportunities to collect delinquent taxes and, perhaps more of a concern, really annoyed taxpayers.
That said, tax offices should not let errors in deed certifications affect their collection efforts. When an error is discovered, the tax office should immediately inform the new owner of the error and of the fact that he/she may be held personally responsible for the delinquent taxes. The tax office can still use foreclosure to collect the delinquent taxes or it can target the personal property (wages, bank accounts, cars, Duran Duran albums, etc.) of either the current owner or the former owner of the property. G.S. 105-365.1(b).
Given the potential negative consequences for errors in G.S. 105-361 statements, it is highly recommended that each county develop a form that makes clear exactly what constitutes a statement under that provision on which taxpayers may rely. Here’s a good example from Gaston County. The regular use of this type of form will help educate taxpayers as to when they can legally rely on information obtained from the tax office and when they cannot.
Finally, some advice to the 20 or so counties that do not yet have the authority to require tax certification under G.S. 161-31. If your county would like to get that authority, you’ll need to work with your local state senators and/or representatives to have them sponsor a local bill adding your county to the list of those covered by the statute. Once that local bill becomes law, the county must then adopt a resolution opting into the deed certification requirement.