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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.
One more question for you. If the City of Montgomery cited me to cut and clean the lots and I paid someone to do the job. That money is lost also?
If you do something to prevent a lien from being placed on the property, which the City of Montgomery would do if they cut the grass themselves, then you can be reimbursed for that.
Mrs. Evans, thank you for taking these question. I really hope (and need) i can attend one of your seminars. I purchased 10 tax liens from Elmore County Alabama today. I had been slowly coming from familiar with all of this and now they do things different here. From what i understand no tax certificate that eventually could become a deed. Only tax lien certificates. I was told after 3 years of paying the taxes (if not redeemed) i could file for quiet title. That i have mo right to the properties now and can perform no work/maintenance or omprovements. Some properties are vacant in subdivision, others have houses, 2 have mobile homes and one is rural land. Do i just sit back and wait or iniate another process with them. Thank you.
@Shane Williams, I have a podcast video of an interview with Shelby County Tax Commissioner Don Armstrong that explains the process. You should listen to it. This year, the following counties will follows the new lien auction procedure: Baldwin, Calhoun, Cherokee, Cullman, Elmore and Shelby. In a nutshell:
- The auction is for the tax lien only. There are no possession rights. There is no overbid.
- Bidding is for the redemption interest rate for that year's tax lien. It starts at 12% and goes down in 1% increments until someone is the lowest bidder. If the taxpayer redeems, that is the interest rate it will pay.
- If the taxes are still unpaid next year, this year's winning bidder has the right of first refusal to buy next year's lien at the same interest rate. You can turn it down and take your changes at the auction that you might get a higher rate. Or you might be outbid and get a lower rate.
- If the property is not redeemed within 3 years of the first auction, that investor can file a lawsuit to judicially foreclose the tax lien. You must name the taxpayer and all interested parties, including lienholders, as defendants.
- If someone redeems, they will have to also pay the legal fees for the foreclosure lawsuit, on top of the taxes and interest.
- If nobody redeems, the court will enter an order foreclosing the lien, cutting off ALL rights in anybody else, and quieting title in the investor. You will, at that point, have clean and insurable title.
Probably a lot more counties are going to do this next year. I was at Shelby County's auction, and more than half the people there were officials from other counties, seeing how it went. Almost all the properties were sold at the Shelby County auction, with need for the County to fool with overbid money or fights about preservation improvements or anything.
Mrs. Evans i will do just that. While im lucky enough to have you attention ill ask one other question. Im actually interested in a property that has a tax deed on it. The person ill call the owner bought it in 2010 from the tax sell in montgomery. The owner has paid the taxes ever since and now has a tax deed on it. The previous owner went bankrupt in 2010 and moved back a few cities away. Ive contacted her and she in no way wants anything to do with it and is willing to sign away any interest in it. The thing in question is there was a 63,000 morgtage on it but the bank has never forclosed on it or done anything. Not that i would but could i buy the tax deed and file a quiet title and feel food about it? I know the best way would be to have the owner file it and then i buy from them. But what would my scenario look like if i bought the deed or what would you pressume the banks interests or rights would be to reedeem after so long? FYI the property appraises for about 23k now and i can get the deed for around 17k.
Ms Evans
1) If i purchase a tax property from the state of alabama, a 5 acre former mobile home site, with a tax deed, can I develop the site into a small trailer park with out waiting the 3 years to quiet the title. There are no structures on the property
2) I have seen tax deeds that say "right of redemption has lapsed". does this really mean the tax payer has no redemption rights??? or is there something I am missing
Bill
@William Watt, (1) I'd have to wonder about infrastructure expenses for power, telecom, sanitary sewer/septic, and roads. If you spend that money, you won't get it back. Will you have to cut trees to make pads? What about the pads themselves? You'll at least have to put down rock. Crushed stone costs me around $500 a load. Think about all of those expenses you won't get back and then make a decision.
(2) I have never seen a tax deed that says "right of redemption has lapsed" unless it is a deed from another investor to you. Nobody can say for sure if they have lapsed unless they have quieted title. Someone might tell you the administrative redemption rights have expired, but that still leaves judicial redemption rights and lienholder redemption rights that are not tied to the mere passage of time, but require some additional actions PLUS the passage of time.
Please clarify the difference between the Revenue Commissioner's Certificate of Purchase (Not tax lien certificate) and a tax property deed. The Probate office used the terms interchangeably when I filed.
Hey @Denise Evans, I notice that you stated, " 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.
My questions are:
If the property is not sold within the tax sale, and 3+years has passed since the tax sale does the investor still receive a Certificate or a tax deed? Or is it 3yrs after the investor has taken possession of the property regardless of when the state auction off the property?
Is it possible for the investor to obtain a warranty deed after some years has passed on a tax property?
Can the investor refi or sell the property after he has received a tax deed or quitclaims deed?
@Bonnie Moore, your question did not come up on my alerts. I'm sorry for the delayed reply. A tax certificate is received after the tax auction from the county, or within three years after the auction if purchased from the state. The tax certificate can be surrendered to the county at any time after the three year anniversary date to receive a tax deed. There might still be redemption rights even after the tax deed.
1. If the property does not sell at auction, it goes to the State. If it has been on the State inventory for 3 or more years, the purchaser receives a tax deed signed by the Governor, not a tax certificate. There will still be outstanding redemption rights, however, for another three years after possession.
2. An investor cannot receive a warranty deed after a tax sale. It might quiet title via a lawsuit and have insurable title and be able to give a warranty deed to others.
3. If the investor receives a quitclaim deed from the former owner and has obtained redemption releases or run out his time on all lienholders, then it can borrow money from any lender that requires title insurance, because the investor will be able to get title insurance. Same answer for selling. It all depends on title insurance. If he has only a tax deed but has not obtained quitclaims or quieted title, he will not be able to obtain title insurance. You can always sell without title insurance, but you have to give a quitclaim deed or special warranty deed yourself, and the property will not sell for full retail value because the buyer will not be able to get title insurance and will have to bear the risk of redemption. Why would anybody pay you $75,000 for a small house when someone could redeem it for $8,000?
@denise Evans I contacted an attorney about filing the ejectments and she stated that I need to wait 10 years. This does not seem correct.
@Michael Anderson, she doesn't know what she's talking about. Perhaps she thought you meant a quiet title lawsuit after adverse possession. Let's be charitable and say that's what she thought. Send me a PM and I'll send you a list of attorneys who actually understand tax sales law and ejectments.
@Michael Anderson, I meant quiet title after 10 years of regular adverse possession, like a boundary line dispute. Anybody reading this--don't freak out and think my prior answer meant it took 10 years of adverse possession after a tax auction. It does not.
Denise, big question here.
I purchased a property from the county that is 3 years tax delinquent. The original owner wants to redeem. The original owner went down to the county to redeem. The County told them that they had to deal with me now since it has been 3 years delinquent.
But I do not have my tax deed yet as the county only sends them out in august every year.
What are my rights? can I charge my costs as a redemption amount, things like due diligence we paid for to acquire the property and other expenses?
Also do I just have to wait for my tax deed to come before this lady can redeem? Thank you!
@Living Lien, if I understand you correctly, you bought at the auction three years ago, and now you are eligible for a tax deed but the county does not mail them out until August? If so, it does not matter. The lady can redeem from you without you have possession of the deed. You are able to charge only for taxes and interest, unless you've made eligible improvements or purchased eligible property insurance.
I know some people who charge attorneys fees and other expenses upon a judicial redemption, but that is not allowed. They say to the redeeming party, "You are allowed to file a lawsuit to redeem, but that will cost you attorneys fees. It is cheaper and faster to just pay me what I want than to file a lawsuit."
I think that argument is specious. People have the right to file lawsuits because they have rights they are unable to enforce, for one reason or another. Because they cannot get what they are entitled to, they have access to the courts to help them.
Someone who has judicial redemption rights, and you recognize that, should not have to use the courts to enforce their rights. If you tell them, "I'm not going to give you what you are entitled to, so you will just have to sue me to get it, or you can pay me some extra money" then you are guilty of extortion. Also, you are forcing people into the court system when you know you should not. That could make you liable for damages, including paying their attorneys fees plus punitive damages.
Originally posted by @Living Lien: Thanks Denise, really appreciate the advice.
We actually purchased the property a couple of months ago but it had been tax delinquent for more than three years (the lien never sold at the auction).
So when purchased it was a tax deed, we never actually had a lien.
Are the redemption rules the same if you own the deed. If you call the county they will tell you you can charge all your expenses as the redemption, if you call a lawyer they will say "it's a grey area".
You seem to have some solid evidence for your argument, I believe you, and luckily we haven't gotten back to the person who wants to redeem yet with a redemption total amount. Do you have any links to what you can and cannot claim in the 3 years after the tax deed is purchased, as the full redemption amount. Something that says in writing what you described above "interest + insurance, + improvements".
Would really appreciate being able to read that, I cannot find anything in The Code of Alabama - Section 40-10-1 to 200.
Thank you for the help
Thanks Denise, really appreciate the advice.
We actually purchased the property a couple of months ago but it had been tax delinquent for more than three years (the lien never sold at the auction).
So when purchased it was a tax deed, we never actually had a lien.
Are the redemption rules the same if you own the deed. If you call the county they will tell you you can charge all your expenses as the redemption, if you call a lawyer they will say "it's a grey area".
You seem to have some solid evidence for your argument, I believe you, and luckily we haven't gotten back to the person who wants to redeem yet with a redemption total amount. Do you have any links to what you can and cannot claim in the 3 years after the tax deed is purchased, as the full redemption amount. Something that says in writing what you described above "interest + insurance, + improvements".
Would really appreciate being able to read that, I cannot find anything in The Code of Alabama - Section 40-10-1 to 200.
Thank you for the help
I have an LOA for a delinquent tax property that’s a vacant lot. I thought that since I could take immediate possession I had a new mobile home placed on the lot and the next day the person who’s name is listed as the owner redeemed the property. Well the issue comes in where a couple says they bought the lot from the owner and they want to be paid for “damages” to the grass where the mobile home was placed. My question is legally am I responsible for that? Or should thst be an issue between them and the owner since neither one of them paid the taxes and I did have a tax certificate at the time.
Originally posted by @Ashley G.: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.
@ashley g & @Denise Evans: I'm assuming you are filing the cost of repairs to confirm that you've actually spent money and possessed the property. But the amount included in the redemption would be the valuation of those repairs - which we could prove through before and after appraisals (at possession and after repairs)?
@Bryan Hartlen Disputing the value of preservation repairs is an entire chapter of stipulations with back and forth notices and its own set of deadlines and magical referees etc. I am speaking on the fact that you could lose the right to claim any of your preservation repairs or insurance regardless of how many appraisals you have or how extensive your repairs have been. The main take away should be: give the redemption office all the documentation but MOST IMPORTANTLY proof of contact with taxpayers within ten days of receiving the redemption affidavit from taxpayers or none of the other stuff matters.
The judge only cares that you have proof of contact with the taxpayers within 10 days of the date you received this affidavit, which does not explicitly ask for preservation repairs. This proof of contact should be on file with the redemption office well before that ten-day deadline. If not the judge will allow the taxpayer to redeem and your preservation cost or value won't matter because you will have lost all claim to them. I say should because its not written in the law but if they don't have proof of your contact on court records that means it didn't happen. In the end, the taxpayer wants to pay as little as possible. They will lie to Jesus that they never met or spoke with you. Go and redeem their property, then call the police and say you or your tenants broke into their home. At that point, the burden of proof and the $500 plus an hour lawyer is on you. Petitions to Revoke Redemptions are not free or fast.
@Ashley G. thanks for the sage advice.
The tax redemption process in AL is really interesting (and complex). I think I have a basic understanding. Is the following accurate?
If we purchase a tax deed for a vacant property from the state where the tax sale date was 3 years or more earlier:
- - We can immediately take possession (change locks, trash-out, maintain the yard, etc)
- - We can start the quiet title action immediately. Do we need to file for ejectment too?
- - If we start repairing (not improving) BEFORE the quiet title action has completed – any redemption would have to include the value (not cost) of our repairs and holding costs (finance, utilities, insurance, etc).
- - If we rent the property out BEFORE the quiet title action has completed any redemption:
- - would not require us to pay any rents collected prior to the redemption?
- - our tenants may have to vacate with 30 days notice?
- - If we sell the property out BEFORE the quiet title action has completed – how would a redemption affect us?
Thanks in advance for your insights!
