Purchasing tax deeds from a private seller & quit claim deeds

[Jessica Howard]

Hello, 

I'm looking into purchasing Alabama tax deeds from a private seller who provides quit claim deeds after about 60 days.  What type of due diligence do I need to conduct to research these properties? The seller provides the property address, assessed and market values and lot size.  I have looked up properties by address on zillow and found the information the seller provides and the zillow information a match, but I feel like I should be digging deeper for more information. 

Second question: can I resell a property with a quit claim deed? If so, how much profit can I expect to make? My research tells me that I may not be able to get market value unless I quiet the title.  If I choose not to do so, what are the risks for me as a reseller?

Thanks.

[Denise Evans]

Aside from normal due diligence regarding any property, you will need to find out:

1.  Are there still any outstanding redemption rights. Probably there are. They can extend beyond the 3 years from tax auction to tax deed, and often do extend that far. If the assessed owner or heirs redeem, you might get only taxes plus interest, and lose the excess over that paid to the wholesaler.

2. If the former owner gave a quitclaim deed for their rights, and the current owner sells or assigns the tax sale rights, did the correct person quitclaim? Did all of them quitclaim?  If the tax assessed owner died, it can be tricky figuring out the identity of the legal heirs.

3. Was the tax sale void?  Under the tax-certificate-to-tax-deed system used by all counties until very recently, a tax sale might be void if the owner died before the auction, or was foreclosed upon, or sold the property to someone else. In other words, the name called out at the auction was not the true owner.  Only Jefferson County has a special law that protects it in such circumstances.  If the tax sale is void, the owner(s) can get the property back by paying taxes and interest only. No payment due for improvements.

4. Has it been too long since the tax auction? If more than six years since the auction, and no investor has taken possession of the property legally and continuously and exclusively (more than just putting up a no trespassing sign) then the former owner can get the property back and pay nothing at all. There is some doubt about whether that six years is tolled (paused) while the property is on the state inventory, and no appellate guidance.

5. Was the most recent tax sale against another tax sale investor?  In other words, is there any even earlier owner who might still have redemption rights, even if the most recent owner gives you a quitclaim deed.  It is not uncommon for investors who want only interest income to simply stop paying the taxes and let the property go to auction again if nobody redeems.  It is not uncommon for investors to get in over their heads regarding rehab expenses and simply dump out of the investment by not paying taxes and  letting it go to auction, thereby cutting their losses.

There is a LOT of money to be made in Alabama tax sale properties, but you better know where the landmines are located so you can avoid them successfully.