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Alabama Tax Sale Redemption Rights
There are four different tax sale redemption periods in Alabama. At the time of the tax sale, the investor receives a Certificate, which entitles it to possession of the property. Three years after the tax sale, the investor may demand a tax deed. Before the tax deed, the person who did not pay his taxes is still technically the owner. Despite that, I always refer to the defaulting taxpayer as the "former owner" because it makes things easier.
1. The "administrative redemption period" continues for three years after the date of the tax sale. Redemption is accomplished through local county offices. The investor is allowed to keep all rents collected before redemption.
2. The "judicial redemption period" is called that for historic reasons. It does not require a lawsuit. If the investor has not taken possession of the property, then the former owner has three years, from the date the investor takes possession, to redeem. If nobody is in possession of the property, the law assumes the former owner is still in possession. For tax sale properties owned by the State, the law assumes the former owner is still in possession. If the investor takes possession on the earliest possible date--the date it receives the tax certificate, five days after the auction--then the administrative redemption period and the judicial redemption period will both burn off at the same time. If the administrative redemption period has expired, the judicial redemption is negotiated directly with the investor, or resolved by the courts. The investor is allowed to keep all rents collected before redemption.
3. The "defective tax sale redemption period" arises when the tax sale was void for some reason. The former owner can contest the tax sale, reclaim the property, and pay only the taxes and 12% redemption interest, but will not be required to pay for preservation improvements or insurance premiums. In order to defeat this type of redemption, the investor must adversely possess the property for three years, starting on or after the tax deed date. This is called the "short statute of limitations" if you want to research it further. The investor must disgorge all collected rents if the owner redeems.
4. The "lienholder redemption period" is for one year, and applies to all recorded liens as of the date of the tax sale. Mortgage lenders, judgment creditors, IRS--they all have redemption rights they can exercise in order to protect their liens. Their redemption rights are during the "administrative redemption period" or the "lienholder redemption period," whichever is longer. The investor must send certified mail, return receipt requested, notice to all lienholders regarding the tax sale. There is no requirement for WHEN the notice must be sent. On the date the notice is received by the lienholder, that starts the one-year lienholder redemption period. If the notice is not sent until ten years after the sale (as an example) then the lienholder's redemption rights start on that date. If a lienholder redeems under this rule, the investor is allowed to keep all rents collected before redemption.
@Denise EvansMy text:
I went to the property today. I noticed a water leak and I have reported it to the water company. It looked as if someone had been to the property recently was that you?
The amount that I send you over will not include any repairs for the water as I just noticed it today. I asked that the water company come out to have the water shut off from the meter.
His reply: The water company contacted me and said the water was off
My text: Ok good.
I will not make repairs to unless you wish me to.
His reply:
You don't have to worry about that, it's ok. Thanks for letting me know
now. He wishes to redeem. I have 10 days to send him the amount. Am I allowed to charge for management of the property and lawn service? How long does he have to redeem once that amount is given since you feel he did not abandon?
If he fails to redeem what are my options?
There is not a clear black-or-white answer to your question. I'm sorry. Please private message me.
Originally posted by @Leslie Finklea:
If he fails to redeem what are my options?
I am im this same situation with 2 of my business partners. We are in the process of recording "something" on Monday. That "something" is going to get created by me & Google this weekend.
@Anastasia Jordan, many older investors filed liens against their tax sale properties in order to make sure they would be paid for improvements. I do not recommend that practice, although it was once quite popular. You are not allowed to file liens against property unless:
(1) The person gave you permission, such as a mortgage; or
(2) A statute gives you the right to file a lien, such as a judgment lien, or mechanics and materialmen's lien, or similar. There is no statute that gives you the right to file a lien for post-tax sale improvements. I think it is a dangerous practice that could get you sued. Please consult with an attorney of your choice before using and filing forms off Google. To my knowledge, Google does not carry malpractice insurance.
Previous to tax deed if the home is abandoned no one had power water or lights two years. Home was unlivable with major work needed and improvements are made and I decide to move in the home. Is this allowed with the tax certificate if I gave certified notification?
I am looking to purchase a commercial property that is occupied.. it hasn't had taxes paid since 2012 however in the redemption section it says it was sold May 23, 2017 to the state of alabama... what kind of timelines do i have going forward.. if i were to purchase would i get a tax certificate? and if so what would my next steps be? Eviction followed by 3 year waiting period while not doing any improvements to the property?
If taxes have not been paid since 2012, then it sold in the 2013 auction. That investor paid the taxes for 2013, 2014 and 2015 but did not pay the 2016 taxes, so it sold again in the 2017 auction. That means the investor was okay with losing all of their money spent so far. Your best play is to buy a quitclaim from the first investor for less than the total of all the taxes and also buy the current tax certificate. Give notice to vacate, wait six months, and then file an ejectment lawsuit. The taxpayer will probably counterclaim for redemption, but will then also have to pay your legal fees. Redemption will include the full amount of the earlier taxes plus 12% per year interest, plus your certificate amount and interest. That is your profit--the spread between the quitclaim purchase price and the taxes + interest payoff.
Redemption rights extend for 3 years after you take and hold continuous possession, not just 3 years after tax sale. For a commercial building, you are safe making improvements only if the property is located within the official boundaries of an urban renewal or urban redevelopment district, or you have quieted title, or you have burned off your 3 years of possession.
@Chris Nelson, send me a pm with your email address.
@Denise Evans I have a property that I purchased in feb of 2017. It was a foreclosure and I received a simple warranty deed at closing. I also received a credit for the proration of taxes for 2017. We the previous iwner failed to pay the taxes in 2016. The house was sold at auction for 2600. The taxes were only 300-500 dollars. They are going to give me the exact amount. My name was not called out at the tax sale bc the sold I told under the previous owners names who are deceased. the property was sold in May. I was never notified by the purchaser BBC my info was not on there. They are telling me this sale cannot be voided. What are my options The property was sold May 1st 2017. Afternoon I owned it. I know that the purchaser has not done any work bc in working on the house as we speak. I was o my notified a few moments ago by the courthouse.
Hi Denise, I purchased a tax deed from the state of Alabama for a property with a structure on it 1/30/2015 in Centerpoint. The tax sale took place3/26/2011. I took possession of the property immediately by cleaning it out removing all furniture and trash that was there. I boarded up the doors and windows and I continue to pay to maintain the grass . I have been trying to get funding to do a full renovation of the property to. Make it my home. A particular investor who has contacted me several times to sell the home and I said no ,sent me letter today which included a quit claim deed from the former owner signing the property over to his company and he is demanding the right to redeem the property. The quit claim deed was signed on 9/27/2017. Does he have the right to redeem. Please help me.
@JoanLivingstone Denise emailed an article about that very situation today. It talked about protecting yourself from redemption. Go to her website ButlerEvansEducation. The article is about redemption rights. Good luck.
@Denise Evans is the time period 3 years right of redemption for commercial property as well?
@Erica Wilson, after a tax sale, 3 years for all properties. Maybe longer, depending on judicial redemption rights. Have you read my blog article about different redemption time periods? It is HERE
If you purchase a property at a trustee foreclosure sale "1st mortgage forclosure" and some else has purchased the tax certificate are you allowed to pay the tax certificate back to the investor? Or will there be problems getting the taxs in the new owners name?
Whoever buys the property from the foreclosure auction is allowed to redeem from the tax certificate purchaser. Redemption charges might be higher than you think because of the overbid situation. If the taxes were only $1,000, but there was a $20,000 overbid, then you pay 12% per year interest on $21,000. You don't have to pay the $20,000 because that money is on deposit at the county, but you do have to pay the interest on it. There is a cap on interest accruals on tax sale overbids. You have to look at the tax appraised value of the property at the time of the auction. Then you calculate 15% of that number. So much of the overbid as is equal to, or less than, 15% of the tax appraised value will earn 12% per year interest. Overbid amounts over that earn 0% interest.
As an example, a property appraises for $100,000. 15% of that number is $15,000. Suppose the taxes are $700. Someone can bid up to $15,700 at auction, and that entire sum will earn 12% interest. If they bid $20,000, then $15,700 earns 12% interest and $4,300 earns 0% interest.
Redemption prices can also jump dramatically if the property contains a residential structure, and if the tax sale investor makes repairs. In that case, the foreclosure investor (or anyone else redeeming) will have to pay the increased VALUE of the property due to the repairs. If the tax sale investor spends $2,500 on repairs, but increases the value by $10,000, then the redemption price tag just increased by another $10,000.
Hello,
It's my first reply or post to this very useful community.
I wonder if multifamily building 4+ apartments will be considered residential and will be allowed to redeem the preservation cost for it or will it be commercial ?
Denise Evans, you mentioned in one of your replies that you don't recommend putting a permanent fence around the property , why ? also for this multifamily property it's in very very bad shape so I was thinking of putting a permanent fence around it to protect it from further damage , can I claim the cost for this fence later on ? also will it help me out with the possession claim as long as I put a fence on this property ?
Finally do you know where to find the state owned parcels for Florida so I can made a request for it like we do in case of Alabama ?
Thank You.
@Mena George - Let me take a guess at the commercial/mf questions. I think that the more you improve the property like putting in your fence, the more you take risk that if the owner redeems, you won't reclaim that expense. As far as the FL question, each state has different tax laws and treats their tax liens or deeds differently. In the case of FL, its also a case of county per county. So some FL counties are on realtaxlien.com but you would have to first find the county you want to invest in and second, look up the county assessors office and find out where they auction off their properties. Best of luck
@Joe Mclain - Thanks for your advise , for the website you mentioned I came across it few weeks ago and I just checked it again now but it looks for me that it has only the tax certificates owned by the state and they're trying to sell it to the public. And if I'm not mistaken, in Florida you have to go to public auction to get your tax deed in exchange for your tax certificate and your tax deed will go to the highest bidder which is a different process than Alabama that's why I was looking to buy the tax deed that left over from the auctions and owned by state of Florida ?
I'm interested in Bay county in Florida and I tried calling the county office to ask for the state owned tax deed and they have no idea about what I'm talking ?!!
Also for the multifamily property's fence, why do you think that I can't claim this kind of expense later on ?
Thanks
@Mena George In FL some counties have deed and lien sales online. I don't have any information for Bay county. I believe that that there is also a process for "Stricken off" properties like AL but again that is a county per county process.
The fence question. You are thinking about this as a business. But when you own a tax lien, you don't own the property. So think about this. If I own the Tax deed and not just the tax certificate, then I would file to quiet the title. Then after I had title, I would think about the fence. So If I have the tax deed and file for the quiet title, I believe that @Denise Evans mentioned that the owner can still redeem and they are not required to pay you back for your legal fees related to the Quiet title. So that is why I question the fence.
FYI>>After you own the property then you can write that off on your taxes but I am thinking that you are referencing the owner paying you back for those expenses.
@Mena George, an apartment complex is a residential structure and qualifies for the preservation improvements. I don't recommend permanent fencing because I can't read the definition of "preservation improvements" in the statute and fit fencing into that. The only way fencing would fit inside the definition is if the area is so crime infested that you have to put up 10 foot fences topped with razor wire, and who would buy that property as an investment? Here is the definition in the statute, Ala. Code Section 40-10-122(d): "As used herein, 'preservation improvements' shall mean improvements made to preserve the property by properly keeping it in repair for its proper and reasonable use, having due regard for the kind and character of the property at the time of sale." I think fencing is an upgrade, not a preservation improvement. Maybe, if there were dogs in the neighborhood who kept tearing up the lawn with digging and urine burns, maybe fencing to keep the dogs out would qualify. Think about the WHY and HOWit preserves the property, and then make a decision.
Regarding Florida properties, I think those inventories are kept on each county's websites, for that county, and not in a centralized state website location.
@Mena George, the lady at Bay County was confused by your question because there are no "state owned" properties. If unsold, they remain at the county level, and don't go to the state. The following link will take you to the list with the unsold Bay County properties: http://records2.baycoclerk.com/TaxDeed/ It looks like they have only four properties currently.
@Denise Evans , thanks so much for the information and the advise. You made things much clearer now for me.
Another question for you in case of overbid , I understand that the former owner will pay the interest on only %15 of the market value of the property and the rest of the deposit will be saved with the county with 0% interest.
Now can I use the excess deposit in anything ? like can I ask the county to take the next year taxes from it ? or just refund it to me in certain cases ?
Thanks
@Mena George, it is 15% of the tax appraised value in overbid, not market value.
The 15% limit plus the taxes always earn 12% per year interest. All over that earn 0% interest.
You cannot use the overbid for anything.
The redemption price tag is the full bid amount plus the interest.
If the taxpayer redeems during the first three years, he gets a credit against the redemption price for the overbid on deposit at the county. So, if the overbid was $35,000, and the taxes were $1,200, and the interest on $36,200 was $4,344, then the taxpayer pays $1,200 plus $4,344 and the rest comes from the county. The county takes the taxpayer payment plus the $35,000 already on deposit, and sends it to the investor.
If the taxpayer redeems after the tax deed date, then things are more complicated. Currently, the taxpayer must pay the entire $40,544 to the investor, and then apply to the county to get $35,000 of it back. You can see that is grossly unfair to taxpayers, but its how it works out because of the unintended consequences of some recent changes in the statutes. There are currently some class actions percolating up in the courts to say that is unconstitutional or otherwise defective. My advice to anyone finding themselves with a redeeming taxpayer during the judicial redemption period, and an overbid at the county, is to try to work it out some way so the taxpayer does not have to come up with the principal amount of the overbid. Otherwise, that investor might get roped into a class action.