Case: What Costs Can a Tax Sale Purchaser Recover if the Tax Sale is Voided?

Thoden v. Hallford, 391 So. 3d 1137 (Miss. 2024). Hallford owned land in Jackson County. She failed to pay the ad valorem taxes assessed to the land for 2014, and the land was sold at the tax sale in August 2015. Thoden purchased the land at the tax sale for $500. The Chancery Clerk charged Thoden $133.76 for issuing a tax deed. Thoden made improvements to the land. He also paid the ad valorem taxes assessed to the land for 2015-18 in the total amount of $2,231.06.

In 2018 Hallford filed a complaint in the Jackson County Chancery Court to set aside the tax sale for lack of proper notice. The Chancery Court held that the Chancery Clerk failed to give Hallford the requisite notice of the tax sale and voided the sale. The Chancery Court held that under Section 27-43-3 of the Mississippi Code, Thoden was entitled to a refund of the amount for which he purchased the land, $500, with interest at the rate of 1 ½% per month of $350, or $845. On appeal by Thoden, the Mississippi Supreme Court affirmed the Chancery Court’s holding that the tax sale was void. Thoden argued that he was entitled to additional damages for the taxes that he had paid and the improvements that he had made, and that the Chancery Court had not given him an opportunity to present proof of his damages. The Supreme Court remanded the case to the Chancery Court for a determination of the amount of Thoden’s damages. Thoden v. Hallford, 310 So. 3d 1156 (Miss. 2021).

On remand, Thoden claimed that he was entitled to (a) statutory damages under Section 27-43-3 for the amount for which he purchased the property plus interest at the statutory rate of 1 ½ %, (b) reimbursement of the $133.76 fee charged by the Chancery Clerk for the tax deed plus interest at the statutory rate, (c) reimbursement for the ad valorem taxes that he paid; and (d) reimbursement for the improvements that he made to the property. The Chancery Court found that Thoden was not entitled to reimbursement for taxes paid or improvements made to the property. During the hearing, Hallford introduced evidence showing that Thoden had rented the land to another person for six months at $750 per month for a total of $4500. The Chancery Court held that Thoden was entitled to statutory damages of $980 ($500 paid at the tax sale plus interest of $7.50/month for 64 months or $480.). But the Chancery Court also found that Thoden was unjustly enriched by the rents that he collected and that Hallford was entitled to recover from Thoden the amount of the rents. The Chancery Court held that Hallford was entitled to recover from Thoden a total of $3,520, being the $4,500 rent collected by Thoden less the $980 statutory damages.

On appeal by Thoden, the Mississippi Supreme Court, in an opinion by Justice Ishee, affirmed in part and reversed and rendered in part. The Supreme Court affirmed the award of the statutory damages but found that the relevant number of months of interest was 79 rather than 64, so that the amount of interest to which Thoden was entitled was $592.50 (7.50/month for 79 months). Thoden was entitled to recover the $133.76 that the Chancery Clerk charged for the tax deed, but not interest on this amount. The Supreme Court affirmed the Chancery Court’s finding that Thoden was not entitled to reimbursement for the improvements that he made to the land. On the ad valorem taxes, Justice Ishee wrote for the Supreme Court that while no statutory authority existed for Thoden to be reimbursed for the taxes he paid, Hallford would be unjustly enriched if she was allowed to have her taxes paid for free. The Supreme Court therefore found that Thoden was entitled to reimbursement from Hallford of the taxes that he paid on the land. Finally, the Supreme Court affirmed the Chancery Court’s finding that Hallford was entitled to recover the $4,500 that Thoden collected as rent from the land. So at the end of the day, Thoden owed Hallford $1,092.50, being the $4,500 that Thoden had collected as rent, less the following amounts that Thoden was entitled to recover from Hallford: $1,042.68 for Thoden’s statutory damages, being the $500 purchase price and interest of $592.50; $133.76 for the clerk’s charge for the tax deed; and the $2,231.06 that Thoden paid for the ad valorem taxes.

Note 1: This case is important because the statutes and cases give scant guidance about what amounts the tax sale purchaser is entitled to when a tax sale is set aside. This case is full of gap fillers.

Note 2: This case appears to be the first time that a court in Mississippi has held that a tax sale purchaser has to pay rents to the owner if the sale is set aside.

Note 3: This case also appears to be the first time that a court in Mississippi has held that that the tax sale purchaser is entitled to recover the taxes that he paid after the sale is set aside. This holding surprised the editor; the most common phrase in cases regarding tax sales is “caveat emptor.” Since the holding that the tax sale purchaser is entitled to recover taxes paid is based on the equitable doctrine of unjust enrichment, isn’t it possible that future courts might find that a tax sale purchaser is not entitled to reimbursement because of different facts?

Note 4: The Supreme Court denied Thoden’s claim for reimbursement of improvement based on the doctrine of caveat emptor in tax sales. The Court acknowledged that applying caveat emptor to the claim for reimbursement of improvements might seem contradictory to the holding that Thoden was entitled to reimbursement for the taxes he paid. The Court explained that the difference was that Hallford had a legal duty to pay the taxes, but no legal duty to make improvements. If a tax sale purchaser makes improvements that are required to be made by law, would the tax sale purchaser be entitled to recover the cost of those improvements?

Note 5: Thoden argued that he was entitled to interest on the $113.76 that he paid to the Chancery Clerk for the tax deed under Section 27-45-3, which provides in relevant part that the tax sale purchaser shall be entitled to “interest on the amount paid by the purchaser at the rate of one and one-half percent (1 1-2%) per month, or any fractional part thereof, and all expenses of the sale and registration,…” The Supreme Court found that the Chancery Clerk’s charge for the tax deed was an expense of the sale and registration of the tax deed that Thoden was entitled to recover. But the Supreme Court found that the fact that the word “interest” was tied directly to the “amount paid”, and the location of the commas, meant that Thoden was not entitled to interest on this expense.

Note 6: The reason for the change in the amount of interest on the purchase price is that when Hallford submitted findings of facts and conclusions of law to the Chancery Court, Hallford used the date of submission, December 6, 2021, as the end date for interest to run. The Chancery Court adopted this date in its final order. Thoden was entitled to interest through the date of the Chancery Court’s final order, which was March 22, 2022, and the Supreme Court corrected the Chancery Court’s calculation.