South Carolina Delinquent Tax Auction Information

This year’s South Carolina tax lien auctions are finishing up. But, for those of you heading to the auction or just want to learn more about this great state for tax lien investors, I wanted to summarize how the penalty rate works in South Carolina.

Penalty Rate

Unlike most states, South Carolina doesn’t charge a default interest rate on the outstanding tax amount. Instead, they pay a 3% penalty at the beginning of each quarter after the sale. So, if you purchase a lien at the October sale, you’ll automatically receive the 3% if it were to redeem the next day. However, you will not receive additional interest until January when you’ll earn another 3%. You earn this 3% penalty each quarter for four quarters or a total of 12%.

Maximum Penalty Rate

You may not earn more in penalty than the amount set for the opening bid. This amount is set by the Forfeited Land Commission and is usually the total amount of tax owed. You can estimate this by doubling one year’s worth of taxes.

Overbid

At the auction, the opening bid will be this amount set by the Forfeited Land Commission. Then, bidders will bid-up the price in increments set by the auctioneer. This amount is called the overbid. You’ll earn interest on the full amount of the initial bid plus the overbid. However, since the penalty rate is capped, you may not receive a full 12% on your interest. Below are to sample bids on the same property.

In the first example, the overbid was only 20K and you'll earn your full 12% if it redeems near the end of the redemption period. However, in the second example, the overbid was bid up to $60K and your interest is limited to $4000. Thus, if this one redeems at the end of the redemption period, you've only earned 6%.

              Investment not limited by initial bid       Property Value $100,000           2010 Taxes $2,000       Cum. Earnings 2011 Taxes $2,000   First Qtr Penalty 3% $720   Tax Amount $4,000   Second Qtr Penalty 3% $1,440   Overbid $20,000   Third Qtr Penalty 3% $2,160   Investment $24,000   Fourth Qtr Penalty 3% $2,880                 Investment limited by initial bid       Property Value $100,000           2010 Taxes $2,000       Cum. Earnings 2011 Taxes $2,000   First Qtr Penalty 3% $1,920   Tax Amount $4,000   Second Qtr Penalty 3% $3,840   Overbid $60,000   Third Qtr Penalty 3% $4,000 (Cap Limit) Investment $64,000   Fourth Qtr Penalty 3% $4,000