All Forum Posts by: Denise Evans

If you have local lender financing, they are usually willing to allow a transfer to an LLC. There might be a small fee. Large lenders with securitized loan portfolios cannot do that, because the servicing company has no authority under the master servicing agreement.

There is a low likelihood of lender accelerating the loan, as long as it is current. The Due on Sale clause had its genesis in a time when S&Ls held long term financing in their own portfolios. When interest rates rose dramatically, passbook savings rates also rose. S&Ls were paying high interest rates on accounts, but earning low interest rates on mortgages. Many sellers were willing to sell on a wraparound mortgage, at cheaper interest rates than the lenders were able to offer. As a result, lenders could no longer count on property changing hands after 5-7 years, and being financed at the new, higher, interest rates. They started putting due on sale clauses in their mortgage instruments. The FSLIC (sister to FDIC, now defunct) jumped into the act, and got legislation passed saying due on sale clauses were enforceable.

The whole mortgage model is different now. Plus, unless we are in a time of rapidly rising interest rates and an explosion of wraparound mortgage sales, there is simply no reason for a lender to worry about this issue. Yet, the clause is still there.

An LLC is the best for most people, from an asset protection and estate planning standpoint, and the ability to sell shares to a self-directed IRA. The assets in a self-directed IRA must be passive. The average real estate investment is not passive. BUT, shares in an LLC that owns real estate are passive. As far as protection from mold issues and personal liability, any plaintiffs' lawyer worth his or her salt can draft a cause of action against you personally, no matter what entity holds title to the real estate. Be a prudent landlord, take care of problems as they arise, and have good insurance.

You might want to look at Greg Deitsch at Sirote, Permutt for your legal work. Greg heads the Evictions/Ejectments department, but also does other landlord work. I like Sirote because they have the economies of scale to do routine things efficiently and economically, but also the depth and clout for big problems.  Some lawyers will threaten you with a lawsuit, but then slink away when Sirote says they represent you. The same with other large firms.  On the flip side, a small firm might give you more personalized service, and be more willing to educate you on things you can do yourself, or do to cut down on legal fees. Be sure to ask any lawyer about this issue of education. 

Also, do not be bashful about asking lawyers for proof of E&O insurance. The ones with it will not be offended, any more than my plumber is offended when I ask him for proof of insurance. The ones without E&O coverage will either tell you why they think it is unimportant and allows them to keep their rates down, or they will become indignant and kick you out of their offices. You decide on this issue, but make an informed decision instead of being surprised later.

Hi @Latreeka Williams. Sorry for the delay. There has been some illness in my family, and I was away from my computer. Under Alabama Code Section 40-10-74 (reprinted at end) you are entitled to possession as soon as you receive the tax certificate. You do not have to wait until you have a tax deed. There is much mis-information on this topic. Thank you @Roy Oliphant for recommending me.

If the property is obviously abandoned, you can change the locks and immediately start making your repairs. If the property contains a residential structure, and the owner redeems, they will have to pay  you for the value of your repairs, in addition to the taxes and interest. They will also have to pay you for your casualty insurance premiums, plus interest. You can buy up to $25,000 worth of casualty insurance from Jack Eyer, at Eyer Insurance in Birmingham, Alabama. BP will not let me provide his phone number, but you can do an Internet search and find him.

Somebody told me that State Farm will write regular insurance, with no limits, on a tax certificate.  I do not know if that is true or not.

You can rent the property out. If the owner redeems, you will be able to keep all the rents earned before redemption.

If the someone is living in the property, or it is just temporarily vacant between tenants or something, you cannot just barge in and take over. You will have to give the owner written notice to vacate.  You will then have to wait 6 months before you will be able to file a ejectment lawsuit to get them out.

If you file your ejectment lawsuit, and THEN the owner redeems, they will also have to pay your legal fees for the lawsuit.

Please search Bigger Pockets for blog posts and forum articles I've written about Alabama tax sales. It is a complicated field to try to figure out on your own.

Here is the statute:

Any purchaser of lands at a tax sale other than the state or anyone claiming under him shall be entitled to possession of said lands immediately upon receipt of certificate of sale from the tax collector; and, if possession is not surrendered within six months after demand therefor is made by said purchaser or his assignee, the said purchaser or his assignee may maintain an action in ejectment or a statutory real action in the nature of ejectment, or other proper remedy for the recovery of the possession of the lands purchased at such sales and shall be entitled to hold the possession thereof on recovery, subject, however, to all rights of redemption provided for in this title. If the mortgage or other instrument creating a lien under which a party seeks to redeem is duly recorded at the time of said tax sale, the said party shall, in addition to the time in this title specified, have the right to redeem said real estate sold, or any portion thereof covered by his mortgage or lien, at any time within one year from the date of written notice from the purchaser of his purchase of said lands at tax sale, served upon such party, and notice served upon either the original mortgagees or lienholders or their transferee of record, or their heirs, personal representatives or assigns shall be sufficient notice. Such notice shall be given by certified or registered mail, return receipt demanded, addressed to the last known address of the mortgagee or lienholder. Nothing in this title shall affect the rights of minors or insane persons to redeem as provided for in this title, or operate to convey or affect the rights, title or interest of any reversioner or remainderman.

Hi Michael, I used to live in Florence and in Russellville. Great area. Welcome to BP. If you have any questions about Alabama landlord/tenant law, income tax benefits of real estate, foreclosures, or tax sales, I can help. Just ask.

@Roy Oliphant, was it property you already purchased at auction, or one you wanted to buy from state? If already purchased, you are entitled to your money back plus interest, but there is a 5 year deadline for that, and a 2-year deadline for getting the overbid back.

ADOR just reporting what the county told them. I've run into some mistakes in this regard. Ask for details. Press the issue. I was told one of my properties had been redeemed, when I knew good and well it had not.  I asked questions, asked for particulars, and then ADOR said, "Jefferson County said they made a mistake, the property has not been redeemed, so you can buy it after all."

@Brooks Conkle, is there a real estate agent sign on the property? If so, contact the agent to see if they have a current listing agreement. Often, they don't, and are in violation of license law. Once you have the tax deed, you are the owner. Of course, there will still be redemption rights. But, as the title owner you can tell the agent to remove its sign. As either tax deed or tax certificate owner, you can change the locks, secure the windows, and start making repairs. Do the things you would normally do if this were a property you purchased off MLS and wanted to get it ready right away for rental. Tell the neighbors you are the new owner. Put up your own "For Rent" sign. Ask the neighbors to keep an eye on the property and call you if they see anything suspicious. That is a good idea, plus it counts as possession if done in conjunction with acts of physical possession. The neighbors will probably be grateful someone is fixing the property up, and will work with you.

Hi Brooks, it's Denise. We know each other.  You came to one of my tax sale investing classes several years ago. Yes, you are entitled to possession and can rent the property out. If the owner redeems, you can keep all the rents up until redemption. If the property contains a residential structure, you can do any necessary repairs to make the property habitable (but not upgrades) and the VALUE (not the cost) of those repairs is an additional charge if there is a redemption. If the property is located in an official urban redevelopment or urban renewal district, you can recover the value of ALL improvements, not just repairs.  If in one of those districts, the property does not have to contain a residential structure. I think Mobile has several districts.   I have an 18 minute video about tax sales and possession on my website. Send me an email, and I'll send you a coupon code so you can watch it without charge, since you've already been to one of my classes.

Beware of a void tax sale, though. In that case, you are not entitled to possession, or rents, or value of your repairs or improvements. The most common reason for a void tax sale is the name called off at the auction was not the current owner of the property. Usually that is because the assessed owner died, or sold the property, or it was foreclosed on.

Alabama uses mortgages, but we are considered a hybrid state. Most states that use a deed of trust allow non-judicial foreclosure, which is cheap and easy. Most states that use a mortgage require judicial foreclosure, which takes a long time and is expensive. Alabama uses an instrument called a mortgage, but it legally transfers title immediately to the lender. Sort of like the deed of trust immediately transfers legal title to the trustee. IIn Alabama, if the borrower makes all payments, then the title "defeases" or "jumps back" to the borrower. If the borrower defaults, then under the power of sale in the mortgage instrument, the lender can sell the property on the courthouse steps, exactly like a deed of trust state.

The one deterrent in Alabama is the one year right of redemption. The borrower (or someone claiming under the borrower) can force the current owner to sell the property back to the borrower at any time within one year after the foreclosure. There is a different rule for mortgages signed after January 1, 2016 (I'll put that at the end, so it won't be a distraction here) The redemption price tag is the winning bid amount at the foreclosure auction, plus some additional charges. If the auction bid amount was $100,000 and the investor then sells to someone else for $125,000, and the borrower wants to redeem, it is $100,000, plus the additional charges, not $125,000 plus additional charges.

The additional charges consist of interest at 7.5% per year, the VALUE of all permanent improvements made after the foreclosure auction, and the cost of all casualty insurance premiums. 

In a May 13, 2016 Alabama Supreme Court decision, the investor built homes on unimproved subdivision lots that had been foreclosed upon. The borrower wanted to redeem. He argued about having to also pay for the value of the new subdivision homes. The court said, "Too bad, that's the rule," but they used a lot more words.

Older cases say that "permanent improvements" also means any repairs done to the property.

If the investor rents the property out, and the borrower redeems, the investor can keep all rents collected up until the date of redemption.

If the investor also owns other liens against the property, such as buying up old judgment liens against the borrower, then the borrower must also pay the full payoff amount of those liens in order to redeem.

If the owner of the real estate also owns the note that gave rise to the mortgage that was foreclosed, then the borrower must pay the full balance of the note in order to redeem, not just the amount bid at the foreclosure. This occurs when a note holder credit bids the property itself because there are no other bidders. It also happens when an investor buys at the foreclosure auction, but then negotiates with the note holder to buy the promissory note, also.

If there were outstanding junior liens at the time of foreclosure, and the borrower redeems, then all those liens revive against the property. A borrower can't launder their title by letting their property be foreclosed and then redeeming it right away. As a result, most borrowers are never able to redeem. If someone is going to redeem, it's usually going to be a commercial property, or a family farm, or something owned by a church.

Change in law for mortgages signed after January 1, 2016: If the borrower claimed a homestead exemption for the ad valorem tax year immediately preceeding the auction, then the lender must give certain required notices to the borrower, and must also publish those notices in the newspaper foreclosure notice. If that is done properly, then the borrower has only 180 days to redeem. If it was not done properly, then the borrower has as long as two years to redeem.

No, Luke, you have to give your own notice. You cannot "tack" onto anything related to the state.  @Roy Oliphant, who is the attorney you use? I'm considered THE tax sale expert in Alabama, but my law license is in Texas, not Alabama (moved here from Texas.) I'm always looking for knowledgeable local attorneys to whom I can refer people.  BTW, I went to undergraduate school at University of Dallas, law school in Alabama (parents lived here--in state rates!) and then practiced law in Houston. Sure miss Texas!

I have a blog article on this, also, on BP. It is at https://www.biggerpockets.com/blogs/6547/49892-lan...

What needs to concern all of us is that (1) this is just the beginning with new HUD rules and (2) we must now develop complicated rules that might not pass statistical scrutiny by HUD. I don't know about the rest of you, but I spent an entire semester of college Statistics praying, "Please God, get me through this course with at least a C, and I'll promise you whatever you want."