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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.
What if the former owner didn't redeem and I got the property , will I be able to get the excess deposit back somehow ?
Another final question for now, for Alabama once you fill out the application to buy a property from the state owned parcels , it takes almost a year from them to respond as I have been told that I'm in spot 10 and for each application they gave it around a month before they go to the next one , is there any other efficient way for this process ?
Thanks
Let me just start by saying Thank you because this is a very informative forum.
Background before My question: I purchased a property from the state that was sold to the state in 2014. The state sent me the tax deed. I want to use the property as a rental income. The home also needs a little work. The home is vacant. Can a take possession of the home, make repairs and rent it out. From reading your post, it seems that after I take possession of the property I still have to wait another 3 years before I can file for a quitclaim and become sole owner of the home. Could you please clarify. Thanks
@Ciamaruel L. Fears, You are entitled to take possession, make repairs, and rent out the home. The former owner will have "judicial redemption" rights for three years after you establish possession. You will be able to keep all collected rents up until redemption. You'll need a 30-day cancellation clause in your lease, "just in case."
Because the property contains a residential structure, the redemption price tag will include all taxes, plus 12% per year interest, plus the value of your repairs and 12% per year interest, and insurance premiums plus 12% per year interest. If you spend $500 on materials and a whole lot of sweat equity and increase the value of the property by $8,000, you are entitled to an extra $8,000 plus interest. You are not limited to the $500 you spent. BUT:
- It must be repairs, and not upgrades or capital improvements. You can do upgrades, but you won't be paid for them. Sometimes that's okay if there's enough "profit" margin in the repairs.
- There are rigorous procedures and time limits if the former owner wants to redeem, otherwise you forfeit the right to be paid for those repairs.
Please read my article on this subject, HERE
Thanks Denise. This was very helpful.
Next Question about a property that I have the tax deed on but it is currently occupied. Not sure if the occupants are owners, relatives, or renters. How should I go about legally taking possession. What is the difference in taking possession under a tax deed vs a tax certificate. Your article was very informative.
1. With a tax deed, you do not have to give any notice or wait any time before filing the ejectment lawsuit. With a tax certificate, you have to give written notice and must wait six months before filing ejectment.
2. With a tax deed, you are entitled to ask for damages in the amount of the reasonable rental value of the property since the date of the tax deed until they move out. This is a concept called "mesne profits" in case you want to research it further. With a tax certificate, you are not entitled to mesne profits.
3. After the tax deed date (which is 3 years after the auction) you MUST either file ejectment or gain exclusive possession within three years of the tax deed date, or you will forfeit all your rights, the taxpayer will get the property back and will not have to pay you anything at all.
Does anyone have a recommendation for insurance companies who work with Alabama tax liens/deeds?
Jack Eyer Insurance Agency in Birmingham
Thank you Denise! I truly appreciate it.
Denise, you are truly a wealth of knowledge when dealing with Alabama tax sales. Thank you for all of your great insight. I do have a few questions if you don't mind, both of which pertain to new purchases where I only have a tax certificate.
- If I have a property without any permanent structures, can I lease the property for recreational use such as riding horse, four wheeling, or hunting? Also would this constitute as possession or would I have to inform the property owner?
- I have purchased a lot with a small camp house that has not been used in a couple years. It has a few personal belongings remaining ( 1980's TV and 2 beds ) but is mostly empty with power and water disconnected. There is a board covering the hole where the window unit was and the steps leading up to the house are starting to rot (house is on piles). Again could I take possession in this case and start using it?
- On both of these properties, what is the best way to show possession to get the 3 year statutory clock ticking?
Looking through your upcoming seminars, I see you have a "Rehabbing Tax Sale Properties" in Daphne coming up next month that i would be interested in. Do you anticipate an "Advanced Tax Sale Investing" in Daphne or Mobile anytime in the near future?
Again thanks in advance,
Daniel
Hi @Daniel Ganus, I will be having an Advanced Class available at locations all over the state, probably late April.
You can lease the property. Just have a written lease, and make them pay you something, even if it is only $1, via check, so you can show the deposit and a paper trail. Post the property, and have the people send you a text when they are out there using it, and if they notice anything out of the ordinary or like someone else has been on it. Talk to the neighbors. Make sure they know you "own" it. You do not have to separately inforrm the property owner.
Yes, you can take possession and use the small camp house. Does it have a kitchen and a bathroom, and would therefore qualify as a residential structure? If so, you can probably also safely make preservation improvements.
Regarding showing possession, do as many things as possible, and keep good records.
i have a question about tax sales and foreclosures does a foreclosure have to take place before a tax sale , I purchased a property at last years tax sale , then i got an e-mail from a bank stating they wanted to redeem , i question this and went to the county court house to ask questions and talked to a judge for 3 hours as she looked things up . after all that she said looks like i have a diamond in the ruff it looked like something was not filed right but could not tell me what it was . now i have gotten 2 letters from a lawyers office demanding that i sign the redemption papers. after the second letter they file foreclosure papers and are now asking for the court to allow them to redeem without me signing off . i am trying to find a lawyer to talk to but have had no luck . can someone please tell me what i need to do . thank you.
I can help you, but I’m traveling right now and it’s too much to text out on my phone. I’ll post an answer in about three hours.
@Steven Stewart, If the foreclosure takes place before the tax auction, and the tax auction is in the name of the borrower, then that is a void tax sale. It can be "unwound" by the bank, but they have to pay the investor for taxes plus interest. They do not have to pay the investor for improvements or insurance. If the tax auction was after the foreclosure, the bank (or whoever they sell the property to) will have to redeem from the investor before they will have good title. They will have to pay taxes and interest, plus (if allowed by the circumstances) the value of improvements and the cost of casualty insurance premiums.
I have no clue what the judge meant about a diamond in the rough. Was it a circuit judge or a probate judge? If a probate judge, is she a lawyer?
The bank can redeem, and can go to court to force a redemption. Have you made any repairs or improvements to the property? Mention my name when you answer, like I did yours. Otherwise, I won't get an alert when you reply to me.
Hello,
I am in possession of a tax certificate for a vacant lot. I will be eligible to redeem the certificate for the tax deed next May (2019). Should I refrain from making improvements or adding structures until 2022 when the 3 year redemption period is over? Or does the 3 year period begin when I became in possession of the tax certificate? Would that work to my benefit making it harder for the previous owners to redeem the property?
There are so many caveats it has hard to keep up. Thank you.
Originally posted by @Demetria Cass:
Hello,
I am in possession of a tax certificate for a vacant lot. I will be eligible to redeem the certificate for the tax deed next May (2019). Should I refrain from making improvements or adding structures until 2022 when the 3 year redemption period is over? Or does the 3 year period begin when I became in possession of the tax certificate? Would that work to my benefit making it harder for the previous owners to redeem the property?
There are so many caveats it has hard to keep up. Thank you.
Possession starts when you take possession of the property.
Unless this is in an area that has an urban renewal project in the works, I would not improve the lot.
Please read my article about the various Alabama redemption periods. https://www.biggerpockets.com/forums/70/topics/181968-alabama-tax-sale-redemption-rights
If the lot is inside the official boundaries of an urban redevelopment or urban renewal area, you can make any improvements at all and redemption will include payment for the value of those improvements. In other words, if you spent $75K to build a house worth $125K, a redeeming party will have to pay taxes, plus $125K, plus interest at 12% per year.
@Denise Evans I am contemplating buying property that has been on the tax sale list for over 2 years. There is a home on the property with no residents. The home has been vacant for a t least 4 years. If I purchase the delinquent taxes and am provided with a tax certificate would I be able to:
- Mow the lawn and clear the lot?
- Make improvements/repairs to the home?
- Update the home/make additions to the home?
- Would I be able to rent the home or live in the home myself?
Thanks in advance.
Stephanie
@Stephanie Johnson, You can mow the lawn and clear the lot, but if someone tries to redeem, they might argue those things are not preserevation improvements and not compensable. There is no clear "rule" on that.
You can make repairs, but not upgrades or additions. Aesthetic improvements, such as replacing perfectly good laminate counters with granite is not compensable.
You can rent it or live in it yourself.
All of this assumes the tax sale was not void because of the prior owner dying before the auction, but the property not being assessed in the new owners' name. Wrong name called off at auction is a void tax sale If void, you are entitled to taxes and interest only, but nothing else.
Thanks @Denise Evans. Mowing the lawn, etc does however establish ownership or posession, correct?
not clearly, all by itself. Do as many things as possible that are appropriate to the property..
You answered a question
1. With a tax deed, you do not have to give any notice or wait any time before filing the ejectment lawsuit. With a tax certificate, you have to give written notice and must wait six months before filing ejectment.
My question is: with the Certificate- written notice to whom...written notice to the occupants of the property or the homeowner or both... I was told by a tax lawyer if you notify the tenant of the unpaid taxes you could be liable for unpaid rent if he is still paying the owner. The owner has many properties some he has paid taxes on and some he hasn’t and were sold to state. I have found two that appear to be in good condition, but both currently occupied and 5/24/2016.
@Lisa Cranford, written notice to the tax assessed owner, the person who did not pay their taxes and gave rise to the tax sale. It is imprudent to contact the tenant because it usually throws them into a tizzy. They get stressed out, call the landlord, and demand to know if they are in danger of losing their home. The landlord tries to soothe them, but the tenant doesn't believe him/her any more, because they've been collecting the rent but not paying the taxes. That seems not very honest, so now all things are suspect.The tenant says it will not pay the rent until the matter is cleared up. The landlord needs that money, so he gets upset. The landlord threatens to sue you for interference with a contractual relationship, and asks the court to award him damages against you, equal to the lost rents on the property. Can he win? Probably not. Will it cost you legal fees you can't recover from anyone else to get it thrown out of court? Of course. Plus, remember that "probably" in "probably not."
It is best to NEVER contact the tenant.
Thank you Denise!! You are the best!
Hello. I've read differing opinions on the "possession" and ability to title. The first opinion was that you had to have possession for three years after being granted tax deed in order to quiet title the property to yourself. Hence, at the earliest, clear title could not be obtained until six years after a tax sale. But recently I read that you can quiet title a property to yourself immediately after receiving a tax deed, even if you haven't been in possession very long. Which is true?
Secondly, if it's true that I can quiet title immediately after receiving a tax deed, when I can sell / donate with clear title? Do I still have to possess it for three years to burn through the short statue of limitations? What if I'm certain that the tax sale was OK? (For example, the tax sale was properly advertised, it listed in the correct owner's name and that person is still living, etc.)
Thank you for any insight you can provide!
In order to burn off redemption rights you need to have procession for 3 years.
also don’t forget your lien holders, they can redeem for a year after notice.
you can get procession with a certificate.
Originally posted by @Account Closed:
Hello. I've read differing opinions on the "possession" and ability to title. The first opinion was that you had to have possession for three years after being granted tax deed in order to quiet title the property to yourself. Hence, at the earliest, clear title could not be obtained until six years after a tax sale. But recently I read that you can quiet title a property to yourself immediately after receiving a tax deed, even if you haven't been in possession very long. Which is true?
Secondly, if it's true that I can quiet title immediately after receiving a tax deed, when I can sell / donate with clear title? Do I still have to possess it for three years to burn through the short statue of limitations? What if I'm certain that the tax sale was OK? (For example, the tax sale was properly advertised, it listed in the correct owner's name and that person is still living, etc.)
Thank you for any insight you can provide!