All Forum Posts by: Denise Evans

In Alabama, if there is a federal lien on property sold for unpaid real estate taxes, then the IRS (or whatever government agency has the lien, such as Medicaid, SBA, etc.) has the right to redeem from the tax sale in order to protect their own lien.  If they attempt to foreclose on their lien without first redeeming, they will not have good title. They MUST redeem.  They cannot simply take your tax sale property away from you.

The investor is obligated to provide certified mail notice to all lien holders. This includes mortgage lenders, IRS, judgment creditors, everybody. There is no time limit for WHEN to give the notice. But, whenever the investor gives the notice, the lien holder has one year from that date to redeem, or the regular 3 years that everybody has after the tax sale, whichever is longer.  If you give your notice one month after the tax sale, the lien holder has 2 years and 11 months left to redeem. If you give it 3 years or 5 year or 15 years after the tax sale, the lien holder has one year from that date to redeem.

Where most investors get in trouble is, they never give the required notice to lien holders. As a result, long after the investor has a tax deed and thinks they are safe, a lien holder can pop up and redeem the property. This is especially dangerous if the lien holder has made any improvements to the property. If the property contains a residential structure, then a redeeming party will also have to pay the value of what is called preservation improvements.  If the property is vacant land, or if it is commercial property, the redeeming party has to pay only for taxes and interest.  Even if the property contains a residential structure--a house for example--and the investors adds on to it or upgrades the finishes, the redeeming party does not have to pay for those.  Just preservation improvements, which basically means repairs. As a result, an investor could lose a lot of money if it does not send out those notices, and then the IRS or some other lien holder redeems.

If you want to speed things up and not wait a year, the IRS will usually release its redemption rights on a tax sale property, without being paid anything at all.  Here is a link for an IRS publication that explains the process:  http://www.irs.gov/pub/irs-pdf/p487.pdf

There are two types of quiet title in Alabama. In personam (which bars only the people named in the complaint) and in rem (which bars everyone, forever, whether known or unknown.)  In order to file the in rem quiet title after a tax sale, you must have three years of active possession counting from the date you were entitled to demand a tax deed, going forward.  In researching Litigation Guarantee in California, it appears that it is not necessary in Alabama, because of the availability of the in rem proceeding in Alabama.  We don't need a company to track down all possible claimants to a property. We simply do our own good faith due diligence, and then file the in rem proceeding and name whoever we've been able to find.

Tax Title Services does a good job for people who do not want to fool with the details of ordering a title commitment from a local closing company and then sending out notices to lien holders.  If you are okay with DIY, it is significantly cheaper to do it yourself.  I'm okay with DIY legal stuff and electronics, but would NEVER DIY even simple electricity or plumbing.  People tell me it's easy and nothing can go wrong, but I don't believe them. Each person is different.

The quiet title action must name all known or identifiable claimants to the property as parties Defendant. The lawsuit begins with a Verified Complaint, in which the plaintiff makes some version of the following statements, under oath:  

"Plaintiff has made diligent inquiry and has not been able to ascertain any other person or persons making claim to or interest in the said lands."

"The Plaintiff does not know of any person who claims any interest in the above described lands or any part thereof, or lien thereon, or encumbrance thereon, except as alleged in this Complaint."

If your lawsuit is an "in rem" quiet title action, then you also name the real estate itself as a party defendant.  In that case, the Circuit Clerk publishes notice of the lawsuit in a local newspaper for three consecutive weeks. That technically and legally puts any unknown defendants on notice that they must enter an appearance in the lawsuit and present evidence as to their claims to the property.  If they do not, then they are barred from complaining in the future. The quiet title order affects them, as well as the named defendants.  (Kind of like the wedding line, "Speak now or forever hold your peace.") Unknown defendants might be the heirs of a certain person, but you don't know the names of the heirs or where they live.  Other unknown defendants might be the shareholders of a defunct and dissolved corporation. Or, it might be people with liens that did not show up in the title search because of bad indexing or something.  The court appoints a Guardian ad Litem to represent the interests of the unknowns, and that satisfies constitutional due process requirements.

Hi @Corwyn Patterson. If you have a tax certificate (whether obtained at auction or from state) you are entitled to immediate possession. If the property is vacant, you can take possession, change locks, make repairs, and rent the property out.  If the property is occupied (even if the people are just temporarily gone on vacation or something) then you must give them written notice to vacate. You must then wait 6 months, and at that time you can sue them for ejectment (not eviction) to gain possession. 

Often, people will then offer to redeem, and the court will let them do that. But, if they wait until after you file your ejectment lawsuit to redeem, they will also have to pay your legal fees as part of the redemption costs. 

The one major thing in all of this that you need to be careful about is if the tax sale was void. The most common reason is because the owner died before the tax sale, but the auction called off the dead person's name. If the tax sale is void, you are NOT entitled to possession, even if you take it in good faith. If you are not legally entitled to possession, then you are not entitled to keep any rents you collect if you do happen to physically take possession. As a result, if the owner contests the tax sale as void then (1) they will still have to pay you for the taxes plus interest in order to "redeem," (2) you will  have to give them all the money you collected in rent, because you are not entitled to keep it; (3) they will not have to pay you for any of your repairs; and (4) you will not be entitled to legal fees if you file an ejectment lawsuit and THEN find out the tax sale was void.  

This is not intended to discourage  you from tax sale investing. It is a very lucrative field. If a 5 acre field had a pot of gold in the middle, and the field was covered in land mines, but you had a map that FOR SURE showed the location of every single mine, you'd go after that gold, wouldn't you?  Of course, nothing in investing is FOR SURE, I'm not saying that.  Just, don't be afraid. You can learn about most of the problems and easily avoid them.

@Account Closed, if the owner died before the tax sale, then the tax sale is void. You can "cure" a void tax sale with 3 years of adverse possession that starts on or after the date a tax deed could have been issued, In other words, you start with the date 3 years after the tax sale, and if some time after that the investor adversely possesses the land for 3 years, then the statute of limitations expires and the heirs cannot claim the tax sale was void. If it was void, you are not entitled to possession and cannot maintain an action in ejectment, but you can at least start ejectment and force them into "redemption." Technically it's not really a redemption if the tax sale is void, but they do have to pay you for the taxes plus interest, and you have a lien on the property for that. If they don't pay, you can foreclose your lien, somewhat similar to a sheriff's auction.

If the owner died after the tax sale, then their heirs have simple redemption rights. You can file your suit to eject. They will either redeem (and pay your legal fees as part of the redemption costs) or they will default and hopefully you will get possession.

@Greg H., good point. I didn't think about FHA and their rules. But, a lease purchase is still the most viable option. @Helen Kirk, be careful when thinking about "part or all" of lease payment going towards note.  Set it up as if it were a fully amortizing loan.  That portion of each "payment" that would be principal can be used towards reducing the purchase price.  Otherwise, there is no time value of money component.  Besides being not smart, you also run the risk of the IRS imputing an interest rate to you, if you are audited. They will recharacterize part of each payment as interest, thereby increasing your income, causing additional taxes, penalties and interest.

I blogged about a recent Alabama Supreme Court case in which the payment was set up as 100% of lease payment going to reduce the note on the seller financing.  It was bad news for the seller. You can link to my blog from my website.  Click on the blog tab for "Financing" and then the article on "Seller Financing Pitfall."

Also, part of each payment needs to cover insurance and taxes.

I see no reason for WF to get involved. 

I don't know if 400 to 450 is affordable for them.

If this is your only seller-financed deal in a twelve month period, you will not run afoul of the S.A.F.E. Act, but you should learn more about this if you are going to get into such activities on a more regular basis.

Depending on the wording of their note, they might have a large deficiency balance due after the foreclosure. If they purchased their property from you for $22,000 in cash, then they would have a free and clear piece of real estate, and the bank (or its successor) would simply sue them for the deficiency.  In addition, with the wording of "after acquired property" clauses in mortgages, the lender MIGHT be able to make an argument that their mortgage re-attached to the property, and then foreclose a second time!

I would recommend renting it to them on a lease/option basis. This will give them time to go through bankruptcy and clear our the deficiency, or work something out with the lender about the deficiency. 

If there was a recorded mortgage as of the date of the tax sale, and the mortgage has not been released, then that mortgage lender has redemption rights and must be given the one-year letter by certified mail, return receipt requested. This is true whether the tax sale investor has only a tax certificate, or had a full tax deed.

Toi, I don't understand your question. Was there a recorded mortgage in the county real estate records on the day of the tax sale?

Any redeeming party, whether former owner or lien holder, must pay for the value of preservation improvements and casualty insurance premiums if the property contains a residential structure.

Notices to lien holder can be sent out whenever you want--right after the tax sale, two years after the tax sale, or five or ten years after the tax sale. The notice simply starts the redemption time period. If an investor fails to send out any notice at all, then theoretically the lien holder would have forever to redeem, although courts would probably cut this off after 20 years.

Yes, during both redemption periods, preservation improvements must be paid in order to redeem, but only if the property contains a residential structure.

The mechanism during the administrative period is that all counties now require a redeeming party to obtain an affidavit from the investor before the county official will allow redemption. That affidavit says the investor has been paid, or is not owed anything, or has made satisfactory payment arrangements with the redeeming party.

During the judicial period, all communication is directly with the investor, so there is no need to alert the investor that redemption is being attempted.