All Forum Posts by: Denise Evans

It came out on April 16, true enough. But everybody saw this coming as soon as Supreme Court ruled on the disparate impact case back in June of 2015.  Let's hope some insurance companies saw it coming, and had a contingency plan prepared.

HUD recently announced that relying on arrests (without convictions) for tenant screening violates the Fair Housing laws. Also, relying on convictions as an automatic disqualifier violates the Fair Housing laws. Screening needs to be more targeted, and be capable of showing an actual connection between the type and age of conviction and the harm to be avoided by the landlord, such as credit risk, damage to property, or danger to other tenants. I'm thinking the insurance companies who write Fair Housing riders to E&O policies probably have some guidance on these issues. Has anyone received any communications from their insurance companies with helpful hints?

By the way, HUD does concede that we can automatically deny housing to people with convictions for drug manufacture or distribution, but not for simple possession. Good to know that we at least have that one safe harbor.  An older HUD memorandum says we can deny housing if someone is on the Sex Offender Registry.

Hi @Anastasia Jordan. I'm pretty much the recognized expert on tax sales in Alabama. Not boasting, but it's a complex field and hard to figure out on your own. Welcome to a very lucrative investing strategy.  

Quotes for properties in Jefferson  County often take quite a while. If there have not been any prior requests for that property, then ADOR (Alabama Department of Revenue) will have to await word from Jefferson County regarding all the accrued taxes over the years since the tax sale.  Jefferson County is very short handed on personnel. That might take as long as 4 or 5 months.

Or, other people might be ahead of you in line asking for a quote. When you make the application, send an email to ADOR and asked if you are first in line for a quote. If not, how many people are ahead of you.

If there are people ahead of you, then each one in line will be given a quote, and then 20 days within which to buy. Each one who fails to buy, it then goes to the next one, for another 20 days or so.

Finally, depending on how long ago the sale occurred, even after you are given a quote and agree to buy, it might be another 6 weeks before you get a tax deed. That's because the former owner is notified and given one last chance to redeem. Sometimes, they do. I just lost one because the owner redeemed after I agreed to buy the property. The tax sale was MANY years ago. It happens.

The trick is to have enough irons in the fire that you will be able to buy some of the properties.

A warning, in case you have not seen this on any of my other posts:  Even though you have a tax deed, the former owner might STILL have redemption rights. A 3-year redemption clock starts ticking down from the date you take possession of the property. This is different from, and in addition to, the regular 3-year redemption after the tax auction.

If the property contains a residential structure, and you've made what are called "preservation improvements" (repairs, basically) then the redeeming owner must also pay you the VALUE (not the COST) of those improvements as part of the redemption price tag. So, don't be afraid of outstanding redemption rights, but make sure that almost all of your improvements are preservation improvements rather than additions or upgrades. Also, if you rent the property out to a tenant, you are allowed to keep all the rents up until collection. BUT, you'll need a 30-day cancellation clause in your lease, because once the owner redeems, you are no longer entitled to possession. If you are not entitled to possession, then your tenant is also not entitled to possession.

Good luck!

Good luck! Call me if you have any questions. You have my number, don't you? If not, go to my website and click on the red "Questions?" at the right margin of each page. It generates an email to me.

@Helen Kirk, individual investors and hedge funds invest in Alabama tax sale properties.  Either one is facing earning less than 1% per year on their money with traditional safe investments.  If they can earn 12% on $27,500, that is a great deal. The hedge funds come to certain Alabama counties and spend millions of dollars buying tax certificates on properties that are highly likely to be redeemed. Usually that means relatively new residences with mortgages. Sometimes also commercial properties. A nursing home in Shelby County went through this year with an overbid of around $2 million, if I remember correctly.

Of course, they usually bid far over the 15% appraised value. The result is that it pulls down their "effective interest rate" to less than 12%.  If part of your bid earns 12%, and part earns 0%, then all averaged out together it might work out to 4%  That's still more than they can get with other relatively safe investments.

The hedge funds are generally in Baldwin, Jefferson, Madison, Mobile and Shelby counties. In Lee County, you might have just had large local bidders. With the hedge funds, the bidding might start out at $2,006, and then the next bid will be $50,000. That's because they know they will go that much and higher, so why waste time bidding against locals at $100 per bid increase each time. They just immediately go high enough so it's only big investors bidding against each other. This is not to say there are not opportunities for small investors. You just have to be smart about what you target.

What happens to the money on deposit is this. In my example:

Technically, in order to redeem, the owner must pay the full bid price plus the interest.

The full bid price was $30,000. The total of all interest is $2,735.72, for a total of $32,735.72

The owner receives a credit of $27,994 for the money in the county's bank account. That leaves a balance the owner must pay, of $4,741.72.  Of that number, $2,006 is the original taxes that were due, and $2,735.72 is accrued interest.

The county then pays the investor the full $32,735.72. Part of the money comes from the county's bank account, and part comes from the redeeming owner.

Under current law, if the owner never redeems, the county gets to keep the $27,994 at the end of ten years. Since there was not a redemption, the investor gets nothing, except hopefully it gets (and wants) the real estate, so the price tag was acceptable.

For the hedge funds, if all they paid was just the taxes due, and the owner does not redeem in one year, the hedge fund will just not pay the taxes the next year. The property will be auctioned the next year, again. Those are great opportunities for local investors because now the hedge funds won't touch them.  You might work the owner more aggressively to get redemption, or be willing to finance redemption on a payment plan. Or, you might actually want the real estate, not the 12%

It was my pleasure!

Hi @Chris McKinley, I'm sorry about your bad experience.  I'm considered the property tax expert in Alabama, so I'll share some advice with you and with everyone else on BP.

First, property is appraised by the county Tax Appraiser's office. Let's say that number is $170,000.  

If you claim a homestead exemption, $20,000 is deducted from that value, to reach $150,000.

In order to claim a homestead exemption, the property must be owner occupied residential. Such properties are assessed at 10% of the adjusted appraised value. That is 10% of $150,000, or $15,000

For commercial property, or rental properties, or unimproved small parcels, the assessment rate is 20% of the full appraised value.  That is 20% of $170,000, or $34,000.

Once you reach the assessed value, you then apply the millage rate to determine the taxes.  Millage rates have various components, with part for the city, part for the county, and part for the state. As a result, every city is different. For Phenix City, they all add up to 5.9% 

For owner occupied residential property with a homestead exemption, assessed at $15,000, the taxes will be 5.9% of $15,000, or $885.

For rental property assessed at $34,000, the taxes will be $2,006.

To find out local millage rates, you can either call the local Revenue Commissioner's office, or the local Tax Collector. Counties have different officials, depending on what they voted for.  Or, you can try searching online with the county name and the word "millage" in your search string.

If you don't pay your property taxes, it will be auctioned at the spring auctions. The successful purchaser might pay vastly over the actual tax amount and receive a tax certificate. That entitles them to immediate possession, but many do not even attempt possession. They lay low, and then pounce on you years later and sue to kick you off the property, or you can redeem.

If you've remained in possession of your property, this might happen years later, even after the investor received a deed. You will still be able to redeem, but the interest will be huge.

In Alabama, the bid amount over the taxes is called the "excess bid." Investors earn 12% per year interest on the taxes, plus all taxes they pay after the sale. They also earn 12% on a portion of the excess bid. That money is sitting in a bank account at the county, and the principal is repaid to the investor when you redeem.

That portion of the excess bid that is equal to, or less than, 15% of the tax appraised value of the property earns interest at 12% per year.

If your property is tax appraised at $170,000, then $25,500 of the excess bid will earn 12% interest, and also the actual taxes. Everything over that earns 0% interest.

Let's say your property is sold for unpaid taxes due of $2,006 and the winning bid is $30,000. Let's say you redeem exactly one year later. We won't worry about additional taxes due in the meantime, for purposes of this example.

You will owe $2,006 plus $240.72 of interest.

On the excess bid of $27,994 ($15,000 - $2,006), a full $25,500 will earn 12% interest. That will be another $3,060. The final $2,495 of the excess bid earns no interest.

After one year, you will owe a total of $2,735.72 interest on a tax bill that was only $2,006 to start with. That makes your effective interest rate 136%  Even the IRS doesn't charge interest that high. 

The lesson: Even if you have to put it on a credit card, always pay your taxes before the annual auctions!

While this is all bad news for property owners, it's good news for investors. Whichever one you are, understand the law and make decisions accordingly.

Squatters have heard stories about people moving into property with zombie mortgages, and being able to adversely possess them. That is what is driving a lot of that activity. I think Florida has a 7-year adverse possession statute if the property has been abandoned by the owner and any lenders.  I think you have to file some sort of certificate in the real estate records. In Alabama, on the other hand, a pure squatter has to be there for 20 years to get title.  If they have color of title (a deed that turned out to be defective, a will that left them property it turned out the testator didn't actually own, etc) or if it is a simple boundary line issue, you can adversely possess a property in only 10 years.  If it is a tax sale property and the tax sale was defective for some reason, you can adversely possess in only 3 years after you get your tax deed. The squatters don't know those rules. They've heard Internet rumors about states like Florida, and think it is the same everywhere. It's not.

Could be a squatter, or a relative of the owner. He's right, though, you do need to cut the limbs that hang over his roof.  Technically, he's allowed to cut them, but it's better if you do it.

@Tiffani Baggett, welcome to BP! With a buy and hold strategy, make sure you:

1. Are careful in tenant selection. A bad tenant choice made because you are afraid of a vacant property can cost you tens of thousands of dollars. By buying cheaply and rehabbing, you should be able to afford to wait for a good tenant.
2. Have a good lease and you understand each and every clause. Don't just pull a lease off the Internet. If you must, pull several and compare them.  Visit the landlord/tenant forums on BP and read the horror stories that a good lease would have avoided.
3. Have good Rules, Regulations and Fee Schedules.  Rules by themselves mean that if someone violates the rules, you have only two choices. Forgive and forget and hope it gets better, or declare a default and proceed to eviction if you are able. With a fee schedule, there is a price tag attached to every rule. It might be something general such as "Tenant agrees to pay Landlord the sum of $50 per hour plus expenses, including portal to portal mileage for any violation of this Rules for which a specific fee is not associated." For specific things, you might want to say, "An unauthorized animal on the premises shall result in a fee of $20 per day from discovery for the increased monitoring required until the animal is removed, plus a fee of $10 per day for increased wear and tear on the premises due to the presence of the animal."
4. Understand animal related issues and are prepared. Make sure you know the Fair Housing rules about service animals and emotional support animals. They are not pets. You cannot require a pet deposit or charge a pet fee. You CAN have an all-purpose Animal Clause that applies to pets and to disability-related animals. It should have provisions associated with responsible animal ownership. Examples include "no outdoor tethering unless..." and "all animals must be spayed or neutered" and "all animals must be up to date on any required vaccinations. You should also have clauses that protect the property, such as dogs and cats being on flea control medication, and the responsibility to clean up "deposits" from the lawn, and the responsibility to scoop litter boxes daily and clean completely once a week, etc.
5. Inspect often, even if your tenants seem to be "nice people."  I recommend quarterly inspections. In Alabama, you must have a separate agreement, separate from the lease, that allows regularly scheduled pest control, maintenance, and inspections.  If it is in the body of your lease, it is not enforceable. In that case, you will need your tenant's permission before you enter each time. With the separate agreement, you need only the agreement and the schedule.
6. Invest in an inspections app, until you are large enough to need full property management software. I recommend SnapInspect. It does a great job of documenting everything very easily.

Good luck!