Clarification on Right of Redemption in Alabama

[Cooper B.]

I'm hoping someone can help provide some clarity to me regarding the right of redemption law in Alabama.

Say a property is foreclosed and sold back to the bank on the courthouse steps.  The bank turns around and sells the property to a 3rd party for a lesser amount.  If, still within 1 year from the original foreclosure sale, the prior owner elects to redeem the property, would they owe the 3rd party the amount that the bank bid to originally take back the property?  Or, would they owe what the 3rd party had paid to purchase the property from the bank?

I realize that the owner of the right of redemption would also owe interest, taxes, insurance premiums, and "necessary permanent improvements".  What constitutes a necessary permanent improvement?

[Denise Evans]

@Jared Irby is correct, @Dion DePaoli is wrong. The Redemption Price for an Alabama foreclosure starts with the final auction bid price on the courthouse steps, NOT the amount the foreclosure buyer (whether bank or 3rd party investor) re-sells the property for. In Dion's example, the redemption price starts at $100,000, not $120,000.  Then, you add on interest at 7.5% (changed from 12% in 2011) and reimbursement for casualty insurance premiums and the VALUE of all permanent improvements. They do not need to be necessary, nor do they need to be repairs. But, you can also collect for repairs, because those are also considered "permanent improvements." 

If you own both the real estate and the note/mortgage that gave rise to the foreclosure, then the redeeming party must pay the full payoff of the note with all accrued interest, not just the courthouse steps bid price.  Often, you can negotiate purchasing the note in addition to the property if it is a local or regional lender. The trusts will never sell you the note. 

If the investor acquires any of the other liens on the property--such as subordinate mortgages or judgment liens--at a discount, then the redeeming party must also pay the full face amount of those liens in order to redeem.

Alabama law is very clear, it is the value of the improvements, not the cost. I see that Dion is from Florida, which might have different rules. His advice on improvements is incorrect for Alabama. The Alabama statue says value, and all case authority going back for almost a century says it is the value.

Former owner redeeming is rarely the problem. Other investors trying to snatch your deal away from you are frequently a problem. Also, there is a growing trend of what I call extortionists, who acquire redemption rights and then threaten to redeem, but will go away if you pay them off.

Finally, Jared is also right that if the owner redeems, all liens come back on the property, same as before the foreclosure. Otherwise, people would "launder" their titles by letting a foreclosure happen, and then redeeming.

Last finally--a warning about foreclosures on or after January 1, 2016. If the property owner claimed a homestead exemption for their real estate taxes for the year of the foreclosure, then there is only a six month right of redemption, rather than the regular one year right of redemption. BUT, the lender must provide certain required notices to the borrower and in the newspaper notices of the foreclosure. If the notices are not provided properly, then the foreclosure is still valid, but the redemption clock does not start ticking down until the notices ARE provided properly. There is a 2-year statute of limitations, so that even if the notices are wrong, the redemption rights cannot be longer than 2 years. As a result, depending on circumstances and doing things properly or not, starting in 2016, Alabama redemption rights could be as short as six months or as long as 2 years.