All Forum Posts by: Denise Evans

@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."

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%