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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.
For a general education on the subject, I have some videos and books on my website, and I also do live seminars. I'd recommend coming to a live seminar because you can listen to other peoples' questions, ask your own questions, and network. You can visit my profile to find my website. For some reason, BP doesn't like people to put websites in their forum posts.
I will be setting my Jan/Feb/March 2017 calendar this weekend. Starting on Monday, you can view the calendar and see when I'll be having classes in your area. If you send me a private message with your email address, I can add you to my mailing list, also.
@Denise Evans. I followed all the steps and sent the redemption amount to the owner's attorney. I got a letter saying my delay was exhausted and i don't have the right to the amount i posted. I got the redemption letter 6 weeks ago. Is there a time limit to answer?
@Denise I'm new to tax properties so I have a few questions. If I pay the back taxes which is 2yrs worth now it will be 3yrs in october and the said property is vacant an has been for a few yrs what's the next process
@Liliana Lopez If you are making a claim for preservation improvements, you must respond within 10 days of receipt of notice of intention to redeem, or you lose the right to the value of the preservation improvements. You do not forfeit the right to the taxes or the interest. Can you pm me and send me a copy of the letter from the lawyer?
@Kiya Hines, you can take possession as soon as you receive the tax certificate. Three years after the tax sale you will be able to surrender your tax certificate and get a tax deed. You must adversely possess the property for three years in order to burn off all redemption rights.
So what you are saying is after I pay the back taxes and get my tax lien certificate I can do as I please since it is vacant
@Kiya HinesYou can take possession. If the property contains a residential structure, and the owner redeems, he must pay you for the value of the preservation improvements (repairs) only. If the property does not contain a residential structure and the owner redeems, he does not have to pay for improvements. If the tax sale was void, then you have no rights at all. These topics are not difficult, but they are complicated to explain in a BP post.
Hello Denise, I am new to all of this but very interested. If I buy a state owned property that the state he had for ten years do I still have to wait for the redemption period? It's a vacant home that hasn't been touched in years and years.
@Shane Denney, you still have to burn off three years of possession to kill all redemption rights.
Just make sure the tax sale was not void--such as taxpayer died before the auction. If that's okay, then the good news is you can fix the property up and rent it out or use it yourself. Even if somebody comes out of the woodwork to redeem, they will have to pay you all the taxes plus interest, plus the value of your preservation improvements. (This rule is only for properties that contain a residential structure), and you will get to keep all the rents from before the redemption.
Preservation improvements are any sort of repair to return the property to its ordinary and customary use, such as making it habitable. It also includes anything required to keep it there. It does not include things like upgrades, such as upgrading veneer countertops to granite or adding another bathroom.
On the other hand, the preservation improvements normally increase the value of the property far more than it cost to do them. So, if it cost $15,000 in repairs, and you also spend another $5,000 in upgrades, but the repairs all by themselves increased the value of the property by $20,000, you are covered. The best way to establish the "before" value is to pay for an appraisal. An appraiser will be able to make all the downward adjustments from previous comparable properties in good condition, to reduce to the value of your property.
The second best way is to get values of comparable properties in good condition. Then, add up the cost of all of your preservation improvements. Add a 5% management fee on top of that. Add up your time actually doing any of the work, and price that time at $20 - $50 an hour, depending on what a professional would charge to do similar work. What you will end with is a flipper's evaluation of how much it would cost to bring that property up to habitable condition for resale. But, a flipper would not buy a property just to sell it for a price to break even. The flipper would want a profit, also. So, add a profit margin that is reasonable for your market place for that type of property. Start with the values of comparable properties, subtract the costs (actual and imputed) for all the repairs, subtract the generally required profit margin, and that is probably pretty close to the value of the property before you start making the repairs.
BUT, an appraisal is best.
The value of preservation improvements required to keep the property habitable is sometimes just the cost. Every time you have the grass cut, it does not increase the value of the property. But, it does count as a preservation improvement. So, for that particular preservation improvement, the value is the same as the cost. In most other things, the value will be more than the cost.
Good luck!
@Denise Evans, a few posters have alluded to this but I'm still not sure you've directly addressed it.
Assume Landowner failed to pay 2012 taxes, and the property was sold to the state for taxes in May 2013. In May 2014 Investor purchases a tax certificate. When should Investor receive a tax deed? (See 40-10-29: "After the expiration of three years from the date of the sale of any real estate for taxes, the judge of probate then in office must execute and deliver to the purchaser. . . a deed to each lot or parcel.) Should it be May 2016 (3 years after the state purchased) or May 2017 (3 years after investor purchased).
If Investor receives a tax deed in May 2017, does Landowner still have 3 more years to redeem? (See 40-10-82: "No action for the recovery of real estate sold for the payment of taxes shall lie unless the same is brought within three years from the date when the purchaser became entitled to demand a deed therefor . . ."
It appears to me that 40-10-29 and 40-10-82 effectively create a 6 year redemption period for Landowner. This is because Investor has to wait 3 years for a tax deed, and then Landowner has 3 years after the tax deed is issued in which to redeem. Am I correct?
Tax deed can be obtained in May 2016. You surrender tax certificate to probate judge, pay $5 fee, and get a tax deed.
Landowner has 3 years from date of tax sale to redeem, plus 3 years from date investor takes possession. There is currently a case on appeal to decide if the investor takes possession as soon as it gets the tax certificate, can both 3 year time periods be burned off simultaneously.
If taxpayer remains in possession and investor does not file suit to gain possession, within 3 years of the date the investor COULD HAVE demanded a tax deed, then investor's statute of limitations has expired. It can no longer gain possession of the property.
@Denise, I talked to the former owner of the tax property about 3 weeks ago told him how much he needs to pay me to redeem, he said he wants to sale the property and he was going to contact me at the end of the week i talked to him to let me know how much he wants for the house to give me first option to buy but he never called me back. I went by the house and he has a for sale by owner sign on the property, what are my options to get my money back? His attorney never responded to my letter with the amount to redeem either.
At this point, you need to file an ejectment lawsuit against him. Refresh my memory, do you have a tax deed or just a tax certificate? Even if he sells it, you will have to be paid at closing.
@Denise Evans. i have a tax deed.
With a tax deed, you can file ejectment immediately. The redemption price will have to include your legal fees for the ejectment.
Hello. I'm looking at buying piece of property which has a tax Deed. I was wondering:
Does the property deed remain a tax deed or does it convert to a standard property deed when I purchase the property? How long till the deed will transfer to a regular property deed?
If the person passed away. Could a family member come in and claim the property? Does the tax sale run the risk of being void and I loose the money I spent to purchase the property?
Best I can tell the property was purchased at a tax sale in 2010. The lien was sold 3 times. The tax office has the previous owner listed as the owner from 2007 till 2015. The seller is listed as the current owner of the property on the revenue website.
Thank you!
Joe
The tax deed is always a tax deed. It is like a quitclaim deed. You will have to file a quiet title lawsuit to get insurable title. There is a case pending in the Alabama Supreme Court that will determine how quickly you can file that quiet title lawsuit. It might be 3 years after the tax deed (6 years after the tax auction) or it could be as quickly as when you receive your tax deed (3 years after the tax auction), depending on circumstances.
If the taxpayer died before the tax sale, but the decedent's name was called off in the auction, then the tax sale is void. People recovering property after a void tax sale must pay the investor taxes and interest. They do not have to pay for preservation improvements or casualty insurance premiums. (These redemption add-ons are not available for all properties.) If the investor collected rents, then it must remit those rents to the taxpayer. If the investor used the property itself, it is liable for the fair market rental value of the property, and must pay the taxpayer. If the auction included an overbid, the investor cannot ask for a refund if it has been more than two years since the tax sale. The consequences of a void tax sale can be dire.
If the taxpayer died after the tax sale, then his/her heirs can redeem.
Figuring out title history and people with ownership or redemption rights is a consulting service I offer, and beyond the scope of an educational post. I'm sorry.
i have a question , i just purchased a property in this years tax sale in the bessemer cut off area , i am a little confused as to taking posession of the property , it is vacant and has been for about 2 years . it is a commercial property too , I have found out that the said owners tried to donate the property to the foundry missions and they did not want it due to back property taxes being owed on it . what can i do ?
@Steven Stewart, you can take possession immediately. If the property is located in an official urban renewal or urban redevelopment district, you can make repairs or improvements to the property and the owner will have to pay you the value of those if he/she redeems. Otherwise, you cannot make any repairs or improvements because you will not be compensated for them if there is a redemption.
You might want to put a tenant in there at a reduced rental rate in exchange for making repairs. Then it won't matter that you you will not be reimbursed if the owner redeeems. Just make sure you have a 30-day cancellation clause because if the owner redeems, the tenant will have to leave.
Or, you might want to contact the owner and get a quitclaim deed. They might be willing to do that for a very inexpensive price, since they tried to donate it.
thank you for the help . i will be using building for my own business i actually purchased 2 properties one of which is owned by a state legislator
That's a good plan.
I learned this the hard way, go down to the redemption department and make sure you let them know who you are and ask they upload papers from you stating any repairs you have made and any proofs of contact. If you have a dishonest taxpayer they do have the option to file an affidavit stating that you, the investor, have not responded to their written request for redemption amounts, they will then be allowed to redeem the property. You could lose your preservation improvements and insurance premiums. You will have to find a lawyer, file a petition, it will get messy, time-consuming and expensive. If you receive a "verification of expenses form", contact the taxpayer and give them the amount needed to redeem that covers your preservation improvements cost and insurance and then take the proof of contact to the redemption department as well. This is not a requirement so ask nicely that they do this and they will, it will prevent the homeowner from circumventing the process. If they do try the office will already have information from you proving that you have contacted the taxpayer and they will not allow the taxpayer to redeem without your signature approving it.
Also, anyone purchasing tax delinquent property in Alabama should really go to Denise Evans website and get her Tax Sale book. Denise's book is worth every penny and then some. If I had purchased this book before I purchased my first tax property I could have saved myself a bit of a headache. Luckily I had it when the taxpayer pulled this nasty stunt. The form I needed to undo the redemption was there in the appendix along with case law and information about the redemption process.
Thanks, @Ashley G., for your endorsement. You are turning into quite the expert yourself!
thank you ashley that is helpful
@Denise Evans, thank you for writing the book it has been an invaluable tool for me. Thanks I try to learn from mistakes and obstacles but in all honesty, your advice and resources helped make it possible. It was one thing to read books and post on the process in general; but when it was time to act and I needed information specific to the state, I could have easily lost thousands learning the hard way, without the nitty gritty detailed info you provide.