Alabama Tax Sale Redemption Rights

[Denise Evans]

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 Evans]

They pay the BPO amount plus interest since the date of purchase. The original statute said the redemptioner had to pay the full amount of taxes plus all interest. That made buying BPOs VERY lucrative. But, the Alabama Supreme Court ruled the statute unconstitutional in the mid 1980s. Ever since, redemptioners pay only the BPO price, plus interest.

Payment is made directly to the investor who owns the tax deed.

[Devon Daniels]

Quote from @Denise Evans:

@Bryan Hartlen, sorry for the delay in responding. I did not receive notifications for several weeks, and have been so busy I didn't realize that much time had passed. Thanks @Ebony King for bringing this to my attention.

Bryan, you are incorrect regarding the law. To address each of your points:

• We can immediately take possession (change locks, trash-out, maintain the yard, etc)  ONLY IF THE PROPERTY IS LEGALLY ABANDONED, WHICH MEANS THE OWNER HAS EXPRESSED AN INTENTION OF NEVER AGAIN RETURNING. MOST PROPERTIES ARE VACANT AND NEGLECTED BUT NOT LEGALLY ABANDONED. IF NOT LEGALLY ABANDONED, YOU MUST FIRST GET AN EJECTMENT ORDER FROM THE COURT.
• - We can start the quiet title action immediately. Do we need to file for ejectment too?
• YOU CANNOT QUIET TITLE UNTIL JUDICIAL REDEMPTION RIGHTS BURN OFF THREE YEARS LATER. YOU CANNOT QUIET TITLE UNLESS YOU ARE IN PEACEABLE POSSESSION. SEE PRIOR ANSWER REGARDING POSSESSION.
• - 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 YOU ARE IN LAWFUL POSSESSION AND IF THE PROPERTY CONTAINS A RESIDENTIAL STRUCTURE AND YOU MAKE PRESERVATION IMPROVEMENTS, THEN ANY REDEMPTION WILL HAVE TO INCLUDE THE INCREASED VALUE OF THE PROPERTY.
• - 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?  IF YOU ARE IN LAWFUL POSSESSION YOU DO NOT HAVE TO TURN OVER RENTAL REVENUES TO THE REDEEMING PERSON
  • - our tenants may have to vacate with 30 days notice?  YES, SO YOU SHOULD INCLUDE A 30 DAY CANCELLATION CLAUSE IN YOUR LEASE IN CASE THE PROPERTY IS REDEEMED.
• - If we sell the property out BEFORE the quiet title action has completed – how would a redemption affect us?  REDEMPTION WOULD AFFECT THE NEW OWNER, NOT YOU.  TO PROTECT YOURSELF FROM CLAIMS OF FRAUD, THOUGH, MAKE SURE YOU DISCLOSE THE POSSIBILITY OF REDEMPTION AND HAVE THE NEW OWNER SIGN OFF

 After the lienholder redemption period ends, how do I prevent the lienholder from requesting redemption from the county?

Also if the lienholder sells the mortgage does the lienholder period reset?

[Denise Evans]

Lienholders have one year after receipt of CMRRR notice, or the original three years, whichever is longer. So, it would never happen that the county would let the lienholder redeem incorrectly, because they always have redemption rights during the admin period.

Your only obligation is to notify the recorded lienholder at their last known address.  If they sold the mortgage but did not record the sale in the real estate records, then you do not need to send to the new lienholder. If they sold the mortgage and recorded an assignment of the mortgage in the real estate records, then you do need to notify the new owner.

[Devon Daniels]

Thanks!

[Tiarai Fields]

Hi @Denise Evans you might’ve already answered this question in previous posts, please forgive me for asking if that is the case. Can you explain what happens if a lienholder does not exercise their redemption rights after the three year administrative redemption has passed and they did not redeem within one year from written notice? Conversely, if they do redeem within one year of receiving written notice, how do I instruct them to redeem? (through redemption office, request of XYZ documentation/form etc) ? 

Similar to question the above, how is this done with the owner who would like to redeem under the judicial period and after I’ve taken possession? Is this a process that must be done in court or can it be done outside of court?

Callouts: I am still in possession of the tax certificate and am holding out on applying for the tax deed due to the IRS being one of the lien holders. 

Thanks so much! 

[Denise Evans]

That lienholder has lost their redemption rights if they do not redeem within 3 years of the auction (or while still on state inventory, which gives everybody for as long as it is on state inventory, even if over 3 years) or within one year of written CMRRR notice, whichever is longer.  You will still have to quiet title, though, because a title insurance company will not be CERTAIN the redemption rights are lost. They are NEVER certain unless you get quitclaim deeds from owners and releases of redemption rights from lienholders. If you are worried about the IRS, they do have a fast-track procedure for releasing redemption rights. It is paper-work intensive, but well worth the trouble.

If someone wants to redeem during the judicial period, and you agree they do have redemption rights, they do that directly through you. It does not require going to court, as long as everybody can agree (1) that person has redemption rights and (2) everybody agrees with the dollar amount for redemption. It starts with their written request for lawful charges. "Written" can include emails or text messages.  You calculate how much they owe you and they either pay it or they don't. There is a whole side trip procedure if you've made improvements to the property. I have videos on that process. Too lengthy to describe here.

If you think judicial redemption rights have expired, tell them that.  If you are not sure they have redemption rights (are they REALLY an heir, for example?) you are entitled to make them prove it to your satisfaction or file a redemption lawsuit and prove it to a court's satisfaction.  If they disagree with your statement that judicial redemption is no longer available, they can sue.  If they disagree with your numbers, they can sue. But, the system encourages people to work it out themselves and they are not required to go to court.

[Tiarai Fields]

Thank you! 😊