July 23, 1979

Mr. Gordon Milbrandt 
Auditor General 
State Capitol 
Pierre, South Dakota 57501

Official Opinion No. 79-22

Disposition of proceeds of tax deed sales

Dear Mr. Milbrandt:

You have requested an official opinion in regard to the following factual situation:

FACTS: 

Certain property in Beadle County was sold for taxes prior to 1970 pursuant to SDCL 10-23.  The county bid on the property and was the tax sale certificate purchaser.  After the required period of time had passed the county took a tax deed under SDCL 10-25. 

On April 30, 1970, Beadle County sold this property under an installment contract pursuant to SDCL 10-25-38.  The contract contained the required statutory provisions with respect to the retention of payments made prior to default as taxes paid and liquidated damages.  On or about January 1, 1975, the contract purchaser defaulted in the terms of the contract as well as in the payment of 1974 taxes.  By resolution of the county commissioners dated August 2, 1977, the state's attorney was directed to proceed in accordance with SDCL 7-31-30 to foreclose that real estate contract.  Default Judgment was entered by the circuit court on October 4, 1977, adjudging the contract to be null and void and foreclosed and barring the interest of any party defendant to the property and adjudging that the county was the owner of the property with full clear and equitable title and entitled to immediate possession thereof free and clear of all right, title, lien, claim or encumbrance on the part of the defendant contract purchaser. 

Thereafter and on November 15, 1977, Beadle County entered into a contract for deed with a second contract purchaser.  This contract is still in effect. 

The county out of the total amount received from the two purchasers of $185,823.07, apportioned to the various tax levying subdivisions $131,300.47; there were also county expenses incurred in the sale of $3,528.67.  As of this time there have not been apportioned funds in the amount of $50,993.93.

Based on this situation you have asked the following question:

QUESTION: 

May the county keep the $50,993.93 or must it be apportioned to the taxing subdivisions as the delinquent property taxes would have been apportioned?

Initially the statutes for these proceedings as to the sale of tax deed property were contained in SDCL 10-25-28 through 10-25-39. Of these sections all except the last were repealed by Chapter 68, Laws of 1974. However, they were in effect at the time of the origination of this contract, and had they remained in effect, 10-25-39 dictated that the proceeds from the tax deed sale, after deducting expenses, would be placed to the credit pro rata of the various funds in taxing districts which are beneficiaries of the tax for the year for which this property was sold as a tax sale.  It should be remembered that the tax sale proceeding is the initial proceeding provided in SDCL 10-23 and is not the proceeding by which the county sold the property to which it had acquired a tax deed.

Default under conditions existing prior to the 1974 amendment results in the retention by the county of all moneys paid as taxes paid and as liquidated damages.  This money was proceeds of the sale which should be prorated fully by the county.  This conclusion was also followed in an opinion of my predecessor, 1945-46 A.G.R. 260, which points out that counties have no powers other those given by statute, and the statute requires the proceeds of sales to be distributed to the several taxing districts.  For example, in that opinion the Attorney General held that the excess proceeds could not be returned to the original owner since the county in taking its tax deed had divested that owner of all right, title and interest to the property.

The 1974 amendment repealed duplicating sections of the law with respect to the sale of county property and combined all procedures including those for the tax deed property, SDCL 7-29-2 through 7-29-22.  There is no substantial resulting change in the procedure; as a matter of fact 7-9-12 contains language which provides that all payments made prior to default shall be retained by the county as liquidated damages just as provided in former repealed section 10-25-38.

Section 7-29-13 directs that except as provided in sections relating to land acquired through tax sales, tax deed sales and special assessments (10-23, 10- 25, 10-26, 10-25-39, 9-43-53) money accruing from sales of county property under 7-29-2 to 7-29-12 should be paid to the county treasurer, who credits it to the county general fund.  As noted, this relates to the sale of all county property except that property which is of a character covered by the situation here in question, that is, tax deed or tax certificate sales.  With respect to those sales the statute has not changed, and as specifically provided, not only in 7-31-31 but in 10-25-39, the proceeds of any sale of land bid and acquired pursuant to 10-23 and 10-25 are placed to the credit pro rata of the various funds of the taxing districts which are beneficiaries of the tax for the year for which the property is sold for tax.

It is my opinion that the statute means that the proceeds of the sale, i.e., those moneys retained by the county through its default judgment and proceeds of the second contract for deed, come under the section providing for the entitlement of taxing districts to their pro rata share.

Respectfully submitted,

Mark V. Meierhenry
Attorney General

MVM:JD:mam