Alabama Tax Sales and Possession

Alabama tax sale investors are entitled to possession of the property even though they might not get a deed for another three years. You MUST understand the rules if you are going to be able to take advantage of this and also stay out of trouble.

As of the 2019 auctions, all counties except Baldwin, Calhoun, Cherokee, Cullman, Emore and Shelby sold tax certificates. Those counties sold tax liens. You are not entitled to possession with a tax lien.  All properties on the state inventory are tax certificate properties, no matter what county.

As soon as you receive a tax certificate, whether at the auction, from the state inventory, or from another investor, you are entitled to possession of the property. If the property contains a residential structure, you can make "preservation improvements" (repairs, mostly) and must be paid for the increased value of the property if the owner redeems. That is not your out-of-pocket expenses, but the amount you increased the value. Usually, increased value is larger than reimbursement for expenses.

Possession must be "peaceable." If it is not peaceable, the owner can sue you for money damages. Also, you will not be paid anything for your preservation improvements. Not one red cent. To you lawyers reading this: Not even in equity. Nada. Nothing. Been tried by others and doesn't work according to the Alabama Supreme Court.

Going into a vacant property and changing the locks is almost never peaceable. The only exception is if the property is legally abandoned. Legally abandoned is completely different from vacant and badly neglected. Legally abandoned means the owner told you they have no intention of ever doing anything with the property and have turned their backs on it forever. Anything less than that is only vacant and neglected.

So, let's say you have a tax certificate. The property needs a lot of work and the owner had $100,000 of IRS liens against him before the auction. Then you buy at the auction. The IRS lien goes off the property unless the owner redeems. The IRS can redeem and then seize the property afterwards, but that never happens! If they did redeem, they would have to pay you all the same charges as the owner.

Let's suppose you go to the owner and say, "I bought this property at a tax auction. I see it has a big IRS lien against it. Maybe it was not such a good purchase for me. Would you like to buy the property back? Do you have any plans for it?"  Hopefully, that will cause some conversation in which, hopefully, the owner will say he does not want the property and the IRS can just go jump in the lake.  That is what you need, in this example, to know the property is abandoned. Every situation is different, but you get the idea.

Suppose, instead, you spend a lot of money fixing up the property and it looks really great. You put a tenant in there, who is a good tenant and pays their rent on time.  If you asked the owner at that time if they wanted the property back, they would (of course) say, "You betcha. I always intended to fix the property up myself. Thanks for all of the free work, because this property was not abandoned and you were never entitled to possession."

Bad timing, right?

The best solution is to either get that owner to tell you in advance the property is abandoned, or file an ejectment lawsuit against them. That is a very simple and inexpensive lawsuit. If they redeem after you file, then they also have to pay your legal fees. As a result, there's really no down-side to ejectment.

Don't kid yourself. If they redeem when you file the ejectment lawsuit, they were always going to redeem anyway.  The big surprise is that they often DO NOT redeem if the property is vacant and neglected. They don't understand why you filed a lawsuit to get them out of a property they are not currently using anyway. Often, they just throw the lawsuit papers in the garbage.  Less than 90 days later, you can have a final and non-appealable court order that gives you legal possession and completely protects you for a WIDE variety of things too extensive for this one blog post.  

One thing you can do with your final non-appealable ejectment order is start making your preservation improvements, and be confident you will be paid for the increased value if the owner redeems.

People always ask me, "What if nobody has been there for years and all the neighbors say the owner moved away to another state? Can I just take self-help possession without the ejectment order?"  Technically, the answer is "No, unless that owner tells you the property is abandoned." On the other hand, technically the fastest you are allowed to drive on the Interstate is 70 miles per hour.  If you ever broke that speed limit, you knowingly accepted some risk, thinking it would probably be okay and you would not be ticketed or lose control of your vehicle and crash.  As real estate investors, we all take risks. My goal is for you to understand your risk in this situation, so you can then make an informed decision about whether to risk it or not.