Acquiring a property by paying someone else’s tax

[Christopher McConnell]

I’m curious if anyone has experience acquiring properties by paying off someone else’s overdue property taxes. 
I read about this process and it sounds odd. Is it messy getting the people out? Is it a good idea? 

[Denise Evans]

There is some inaccurate advice on this thread. In Alabama you can buy a tax certificate at the annual auctions for many counties. Other counties sell tax liens.  If they don't redeem within 3 years after a tax lien sale you can file a lawsuit to foreclose your lien, obtain possession, obtain a quiet title order and get a clerk's deed. At that point, it is all over for the former owner. If they redeem during the lawsuit, they also have to pay your legal fees in addition to taxes and interest.

For tax certificate counties, you are entitled to possession immediately after receipt of the certificate, usually fairly quickly after the auction.  If the property is legally abandoned you can take DIY possession. If not, you can file an ejectment lawsuit. They have 3 years after the action within which to redeem, which will cost them taxes plus interest. If the property contains a residential structure they will also have to pay the increased value resulting from your preservation improvements, plus insurance, plus interest.  if the property is in an official urban reneewal or urban redevelopment area, it does not matter what type of property or what kind of improvements--it can be new construction even--a redeeming party will have to pay you the increased value due to the improvements plus insurance plus interest.

While you have possession and before the property is redeemed, if it is redeemed at all, you can occupy the property or rent it out. Even if the taxpayer redeems, you get to keep all of your collected rents.

Once the tax deed has issued three years after the auction, there is a split of opinion among experts regarding whether you can quiet title immediately (assuming you have been in possession in the meantime) or must wait an additional three years to burn off what is called "judicial redemption rights." The more modern view among experts, because of some statute changes and other reasons, is that if you are in exclusive possession at the time of the tax deed, you can quiet title immediately. The former owner has no rights after that.

For counties doing tax certificate sales, if there are no bidders for a property, it goes on the state inventory.  Investors can buy off the state inventory website 24/7/365.  You buy a tax certificate if it has been fewer than three years since the auction. Otherwise, you get a tax deed.

There are about half a dozen traps and pitfalls where wrong choices can cost you a lot of money. Easy to avoid if you know about them. Easy to fall into if you don't.  The reason Alabama is not crowded with tax sale investors is so many people don't know the rules, get hurt, never invest again and tell their friends to never invest.  It is an extremely lucrative field if you know what you are doing.

Regarding adverse possession, that is usually not a good investment strategy in Alabama. It takes 10 years of exclusive and continuous possession by yourself or your tenant if you have color of title--a deed, a will, some defective instrument--or it is a boundary line issue. If you are a pure squatter, it takes 20 years of exclusive and continuous possession.