Alabama Tax Sale Surplus Funds Strategy Might Return

[Denise Evans]

Several years ago the Alabama legislature and the Alabama Supreme Court, acting separately, eliminated the surplus funds tax sale strategy in Alabama. The strategy related to partnering with former property owners to claim tax sale overbid money on deposit with the counties. The strategy became useless because the surplus funds could be claimed ONLY if the owner redeemed first. In order to GET the money, the property owner had to first PAY the money, plus the taxes and interest to date.

Now, I think the strategy will return. That is because of the newer tax lien sale process that almost all Alabama counties follow.  In a tax lien sale, the county auctions only a lien on the property. Investors now bid down the interest rate. Under the old system, they bid up the purchase price, which caused the surplus funds. Today, after buying three consecutive years of liens, the investor can judicially foreclose. If nobody redeems during that foreclosure lawsuit, the court awards the property to the investor.

I've heard rumors the law will change next year, and there will be a public auction if nobody redeems in the judicial foreclosure lawsuit. That's good for interest-only investors, because it makes it more likely they will be paid.  It's bad for want-the-real-estate investors, because they will have competition at the auction. (I do have some strategies to solve that problem if it happens.)  It's great for surplus funds investors because what happens to the winning auction bid money after the taxes and interest are paid?  That's right--it will need to be held until someone claims it.  The surplus funds treasure hunt will return. 

Stay tuned for announcements by me in early Spring 2024, when the pre-filed legislative bills will be available for me to read. Something will almost definitely change in 2024, we just don't know exactly what. I'm betting on public auctions.