Alabama Redemption and Mandatory Arbitration
After a foreclosure or a tax sale in Alabama, the former owner has redemption rights.
After a foreclosure of any type of property, the cost of redemption includes the VALUE of any permanent improvements and/or repairs made by the investor. After a tax sale of a property that contains a residential structure, the cost of redemption includes the VALUE of something called "preservation improvements" made by the investor. Sometimes there is a dispute about the value. In that case, Alabama has a mandatory arbitration requirement, described below.
The "referees" and "umpires" mentioned below can be anybody at all. An appraiser, real estate agent, trained mediator, your mother, or a carnival worker you talked into the job. It doesn't matter.
The redemption process usually starts with a written demand for lawful charges. It does not have to be any particular form. It does not have to be certified mail. It can be an email.
This is the process, the deadlines, and the consequences of missing deadlines:
- Investor has ten days after written demand to provide the itemized list of lawful charges.
- If investor misses its deadline, it is NOT entitled to any compensation for improvements.
- Former owner has ten days after receipt of itemized list to contest the amount. The method of disputing the charges is to appoint a referee and notify the investor of the the former owner's disagreement, and the name of the referee.
- If the former owner misses its deadline, it loses the right to dispute the value of the improvements.
- After the former owner appoints a referee and notifies the investor, the investor then has ten days to appoint its own referee.
- If the investor misses its deadline to appoint a referee, it forfeits the right to compensation for the improvements.
- The two referees have ten days to come to an agreement regarding the value of the improvements. If they are deadlocked, they must at once appoint an umpire. There is no penalty if the two referees miss their deadline.
- If an umpire is appointed, the two referees and umpire have 10 days to reach a decision. If two of them can agree on a value, the majority rules. If they cannot come to an agreement, there is no penalty to the investor or former owner.
Comments (3)
I have had a judge tell me that they will allow most permanent repairs to the structure as long as they are not excessive or "luxury" items. What they defined as "luxury" items were if the foreclosure buyer does $50,000 of landscaping or puts in a new pool and hot tub then they will not reimburse for those items. They also won't reimburse the investor for his lost potential profit on the deal.
If the foreclosure buyer bought the property for $130k and put $70k into repairing the property so he could sell it for $350K the most he would be reimbursed for is $200k. He loses the $150K potential profit that he made the value of the house go up by. This is the risk of the business on buying a foreclosure with a lot of profit potential. Another investor may either partner with the owner to redeem the property and then pay them $20K for them to sign over their rights.
Lee Allen, about 5 years ago
Reel,
For foreclosures, ALL improvements count. There is some sloppy language in old Supreme Court decisions that talk about "necessary improvements" but it is just sloppy language. The decision itself did not limit itself to "necessary improvements." The appellate decisions are very clear that ANYTHING that enhances the value is recoverable as a permanent improvement. That also includes repairs, but can include luxury finishes, adding rooms or a garage, or even building a house on a vacant lot.
For tax sales, it must be a preservation improvement. The statute defines a preservation improvement as those “improvements made to preserve the property by properly keeping it in repair for its proper and reasonable use, having due regard for the kind and character of the property at the time of sale.” I think the courts pretty much hold that if you do a luxury bath renovation, or upgrade counters from laminate to granite, or similar things, those are NOT preservation improvements. Adding on to the house is not a preservation improvement.
The problem with this field is that many lawyers do not understand the distinction between tax sale redemptions and foreclosure redemptions. So, if you bought a foreclosure property and did a luxury bath renovation, a lawyer representing the redeeming homeowner might truly believe you are not entitled to that. He might believe it so strongly that you will doubt yourself, and your own lawyer will be persuaded by the passion and certainty of the former owner's lawyer. Don't let that happen to you. There is a LOT of law out there, and no lawyer knows all of it. It is your job to know the rules related to your field, and then share that information with your lawyer. He or she will investigate, of course, but they bring other skills to the table besides just knowing technical rules. Your relationship with your lawyer should be a partnership, not a passive activity.
Denise Evans, over 8 years ago
Denise -
I have read stories where some improvement (such as a luxury master bath renovation or large addition) have been successfully disputed by the previous owner. Have you heard this?
Account Closed, over 8 years ago