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Alabama Tax Sale Excess Funds Strategy is Back!!!
The Alabama Supreme Court ruled on June 24, 2022 that the retroactive portion of a tax sale statute was illegal. The statute stripped former owners (and the investors who partnered with them, by implication) of their rights to claim the excess funds in a tax sale. The scenario is an auction for unpaid taxes of $1,000 as an example. The bidding reaches $20,000. Who is entitled to the excess $19,000? Earlier Supreme Court decisions said the owner could claim that money. Unhappy special interests got legislation passed that said "only if the owner redeems" and the law was specified as retroactive.
I am paraphrasing, but the recent decision said, "You cannot just pass a law and make it retroactive and deprive people of their property rights with a wave of your magic wand!"
So, for tax auctions before the 2014 amendment, excess funds strategies are back on again because the retroactive part of the statute has been struck down.
What about AFTER the statute was passed, so "retroactive" is not an issue? Good question. It is exactly the same reasoning, you cannot just take people's property rights away. If my house sold for $20,000 for unpaid taxes of $1,000, then my house had AT LEAST $19,000 worth of value that the counties want to keep unless I redeem. What if my house isn't worth redeeming? I'm entitled to at least my $19,000, right?
Another case is bubbling up in the appeals process that will probably say the same reasoning as in the June 24 case applies to tax auctions after 2014, too.
WHO exactly is the owner entitled to the money. Formerly it was thought "owner" meant the person who did not pay their taxes. Another Supreme Court decision from several years ago said it is the owner at the time of the claim for the money. Which might be different from the owner at the time of the tax auction.
What does that mean to you? Start researching the excess funds treasure troves again in Alabama, update your joint venture agreements, and sign up CURRENT owners so you can claim that money and split it according to however you negotiate the split. Happy days will soon be here again, and you should be ready.
Often, the current owner is the tax deed holder. Think about that, and what it means if you have tax deeds! You can get some of your own money back.
#3 All Forums Contributor
- Investor
- Virginia
@Denise Evans
Wow. This seems crazy. I would think the monies should have gone to prior property owner
I agree with you. But, if you think about it, if the former owner sold its rights in the property to someone else, such as via quitclaim deed, it sold ALL of them. That would include the excess funds. The Alabama Supreme Court decision fundamentally rests on the analysis that the money is part of the property rights. I have a harder time justifying the owner of the tax deed being able to claim those funds, but it is entirely consistent with that earlier court decision.
Quote from @Denise Evans:
The Alabama Supreme Court ruled on June 24, 2022 that the retroactive portion of a tax sale statute was illegal. The statute stripped former owners (and the investors who partnered with them, by implication) of their rights to claim the excess funds in a tax sale. The scenario is an auction for unpaid taxes of $1,000 as an example. The bidding reaches $20,000. Who is entitled to the excess $19,000? Earlier Supreme Court decisions said the owner could claim that money. Unhappy special interests got legislation passed that said "only if the owner redeems" and the law was specified as retroactive.
I am paraphrasing, but the recent decision said, "You cannot just pass a law and make it retroactive and deprive people of their property rights with a wave of your magic wand!"
So, for tax auctions before the 2014 amendment, excess funds strategies are back on again because the retroactive part of the statute has been struck down.
What about AFTER the statute was passed, so "retroactive" is not an issue? Good question. It is exactly the same reasoning, you cannot just take people's property rights away. If my house sold for $20,000 for unpaid taxes of $1,000, then my house had AT LEAST $19,000 worth of value that the counties want to keep unless I redeem. What if my house isn't worth redeeming? I'm entitled to at least my $19,000, right?
Another case is bubbling up in the appeals process that will probably say the same reasoning as in the June 24 case applies to tax auctions after 2014, too.
WHO exactly is the owner entitled to the money. Formerly it was thought "owner" meant the person who did not pay their taxes. Another Supreme Court decision from several years ago said it is the owner at the time of the claim for the money. Which might be different from the owner at the time of the tax auction.
What does that mean to you? Start researching the excess funds treasure troves again in Alabama, update your joint venture agreements, and sign up CURRENT owners so you can claim that money and split it according to however you negotiate the split. Happy days will soon be here again, and you should be ready.
Often, the current owner is the tax deed holder. Think about that, and what it means if you have tax deeds! You can get some of your own money back.
So are you saying that as of now, all open and available excess funds on auctions before 2014 are due to the CURRENT NEW owner of the property?, and not the former non tax paying owner? am i reading this right?
Yes, you are.
I'm mostly just curious here...but who currently has that money? The state of Alabama? I mean...if the excess funds are go the current new owner, they have to come from someone...right? And...why would the current owner, who's due funds, need to do anything with anyone else? Can't they just go to whomever currently has the funds (the state?) and say 'gimme'?
Each county has the excess funds generated from tax sales of property within the county. It can be claimed for up to 10 years after the auction. After that it is forfeited to the county.
Quote from @Denise Evans:
Each county has the excess funds generated from tax sales of property within the county. It can be claimed for up to 10 years after the auction. After that it is forfeited to the county.
Can this list be requested by the public?
yes