Comparison of Alabama Tax Lien Sales vs. Arizona Tax Lien sales

[Abdenour Achab]

First, a disclaimer. I have some experience (so far unsuccessful) in Arizona tax lien sales and zero experience in Alabama tax lien sales. So, what I am going to write below is based mostly in just reading information online.

The Alabama's relatively new tax lien systems is very similar to the Arizona tax lien system. They are both interest bid down states. Alabama starts at 12% and Arizona starts at 16%. If you are trying to acquire a modest residence worth at least $50,000 as is in a county that holds online auctions (which is the point of view I adopt in this whole post), double digit interest rates are not an option. So, there is no difference in starting at 12% or 16%. Here are the major three pros of each state as I see them.

A) Alabama Pros = Arizona Cons:

A.1) No Excess Proceeds sale option.

   Let's say you start a foreclosure on a vacant house in Alabama worth exactly $50,000 as is, whose owners of record are dead, and whose true owners are ten heirs who live out of state and don't like each other very much and are not savy real estate investors. The odds are, none of them will redeem the lien. You will be able to acquire the house for a total cost of about $15,000, and either wholesale it for a $30,000 or so profit, fix it up to rent it out or move into it yourself. Also, a savvy investor who sees your foreclosure notice may decide it's too much of a hassle to try to secure quit claim deeds from all heirs and still make a big enough profit from the sale to bother. On the other hand, in case of a similar situation in Arizona, the odds are one of ten heirs will ask the court for an Excess Proceeds sale, and all you will get back from that sale is the $15,000 you had spent.

 Maybe even any lien holder can ask for an Excess Proceeds sale. In which case you will lose out if any lien holder asks for an Excess Proceeds sale.

 I expect to be able to report on this Excess Proceeds calamity from personal experience by the end of 2027.

A.2) Proximity to where you live, if you live east of the Mississipi river.

 Even if you buy liens online sight unseen like I do, at some point, before subtaxing or paying a lawyer to foreclose, it's probably a good idea to go see the property in person. I find it less annoying to drive less than one thousand miles each way in my SUV once every other year, and house and pet sit along the way, to visit properties than to fly and rent a car. Likewise if you luckily end up with a nice enough house to move in yourself.

A.3) I don't know yet. Maybe you can pitch in for the third advantage if you read about it or have personal experience with Alabama.

B) Arizona Pros = Alabama Cons:

B.1) Bailout By A Greater Fool in some counties.

In some Arizona counties, if you buy sight unseen a tax lien on a house that looks decent on Zillow, Google & Cie, then, when you go see the house, you find a burned down pile of carbon sitting a very low value lot, you can simply not subtax. When a greater fool decides to buy a tax lien at the subsequent year sale, the county will ask him to pay the taxes for two years. Including the year for which you bought the lien. And you will get your investment back, plus interest. Not all Arizona counties do that. But some do. It seems like that's not an option in Alabama. It seems to me like if you buy a lien on a dog in Alabama, you will eat the loss.

B.2) Nicer weather in Arizona:

If you succeed in acquiring property, you are bound at some point to spend some time in that state. I suspect most people would prefer Arizona weather to Alabama weather.

B.3) Proximity to where you live, if you live west of the Mississipi river.

On balance, I don't know which one is better. The real issue is how bad is the Excess Proceeds sale novelty in Arizona. I think it will be hard to tell, even after losing some properties to such sales. Because, even if you lose one, who's to say that, if there was no Excess Proceeds sale option for that property, a savy investor wouldn't have seen the foreclosure notice, contacted the owner(s), convinced them to sell to him at a low price, then redeemed that property. In which case you would have gotten only your investment back. Excess Proceeds sale or not.