All Forum Posts by: Denise Evans

The Governor of Alabama has before him a bill to shorten the post-foreclosure redemption time period from one year to six months, but only for properties that are (or were, until recently) owner-occupied residential properties.  The hidden peril is this--the lender must send out a specific notice at least 30 days before the foreclosure. If they don't send the notice, or the notice is defective, the redemption period can be as long as two years. What do you think about this?

@Steve Babiak Here are some of my most commen problems:

Collections.  Slow pays with a different story each month. Don't waste my time with your stories. I'm making money on your late fees. Abandoned personal property. Not wanting to "bother" me with repair requests that result in more expensive repairs.  Bonding with my employees against the common enemy--me.  Leaving HVAC on with all windows open. Sure, the tenant pays the power bill, but I have the added hours on my HVAC unit. Negotiating petty squabbles among tenants and between roommates.  Late fee negotiation (Them: "But I mailed it on the last day for a timely payment. Under the mailbox rule, that counts."  Me: No, the mailbox rule deals with offer and acceptance of contracts, not late fees. If I don't have the money, you are late.")  Rules negotiations. In fact, negotiations over things that are clearly not negotiable is my biggest headache, because it eats up the most time.  For rural properties, it's the septic tank and failure to take care of it.

I'm developing a class on dealing with difficult tenants.  What are the most common tenant problems you encounter?  I need some examples for the class (beyond my own bad experiences) but I'm sure everyone will share advice if you share your stories.  No tenant names, please!

@Deborah Tuck, Many properties are redeemed. The trick is to make redemption so expensive that you almost don't care if they redeem. You either make a quick profit of several tens of thousands of dollars and use it to fund other deals, or you get to keep the property and make much larger profits over many years.

The value of the preservation improvements is the current value of the property after you've done your fix up/clean up, minus the value before you started.  Usually a real estate agent can do a BPO (Broker Price Opinion) for you.  If you had a structurally sound home in a modest part of Birmingham, and it needed yard work, exterior paint, windows resealed, new carpet, new plumbing fixtures, water heater and heat pump, it might be worth $65,000 to $75,000.  You could spend $15,000 to $20,000 on it, and increase the value to $145,000. If the owner redeems, they pay the $80,000 increase in value, not the $20,000 cost of preservation improvements.  Most owners won't be able to afford that.  You'll be able to keep the property.

The trick is to change the order in which people normally do preservation improvements. Typically, people start at the top--the roof--and work their way down. That's the most efficient method.  For tax sale properties in Alabama, you want to start with the fastest and least expensive fixes that add the most value.  Usually that will be yard work, flooring and paint.  The reason you do this is because you want to hurry up and increase value as much as possible before the former owner attempts to redeem.  Once they offer to redeem, your preservation improvements after that point are not recoverable.  

One of my earlier forum discussions addressed the issue of excess bids in Alabama tax sales. I will not duplicate that information here.

A redeeming owner must pay the following charges:

1. Taxes due at time of auction, plus 12% per annum interest
2. An additional 12% per annum interest on the qualifying portion of the excess bid
3. All taxes paid or currently due since the auction, plus 12% per annum interest.

If the property contains a residential structure, the redeeming owner must also pay:

1. The value (not the cost!) of preservation improvements
2. The cost of casualty insurance premiums, plus 12% per annum interest.

If the property is in an urban renewal or urban redevelopment district (as designated by local city government on their official maps), the redeeming owner must also pay:

1. The value (not the cost!) of ALL improvements (whether preservation or otherwise)
2. The cost of casualty insurance premiums, plus 12% per annum interest

Any improvements made after the redemption demand are not recoverable by the investor.

All rents collected or earned before the redemption demand may be retained by the investor.

Knowing this, especially the information about preservation improvements, should make you feel more comfortable about making tax sale homes habitable and rentable, even though there are still outstanding redemption rights.  Document all repairs and improvements with plenty of photos, notes, and receipts. The receipts will help you remember all of your improvements.

The statute says a preservation improvement is "made to preserve the property by properly keeping it in repair for its proper and reasonable use, having due regard for the kind and character of the property at the time of sale."

Go out and invest!

@Deborah Tuck, Alabama does have a complicated system, but there are big rewards for people willing to learn the rules.

In Alabama, individuals can represent themselves in court.  Corporations, trusts, and LLCs cannot (because they have no true "self") except for cases in Small Claims Court.  Currently, Representative Mack Butler (R), of St. Clair and Etowah Counties, has a pending bill that would change that.  It is HB4.  It is currently in the Judiciary Committee.

Under the proposed law, single-member corporations, business entities with only one owner, and LLCs with five or fewer members, could represent themselves in court, through their owner or members. It would make evictions, collections, quiet title lawsuits, and similar cases much easier, faster, and cheaper.  Most such cases are uncontested and do not truly require a lawyer's assistance. You would be held to the same rules as lawyers, though. The court will not cut you any slack if you do not know the rules of evidence or procedure.

If you support this bill, please contact each member of the Judiciary Committee. Tell them you are an Alabama  small business owner, or a landlord or property manager, and often cannot afford a lawyer to protect your rights. As a result, you have no real remedies. Ask them to recommend HB4 for passage by the full House. Members of the House Judiciary Committee, and their email addresses, appear below. Unless you have popup blockers, you should be able to click on each email address in order to create the email message.

Mike Jones, Jr, Chairman (R, Escambia, Coffee, Covington) MLJAtty@andycable.com

Jim Hill, Vice Chair (R, St. Clair) Jim.Hill@alhouse.gov

Thad McClammy, Ranking member (D, Montgomery) Thad.McClammy@aol.com

Mike Ball (R, Madison) MikeBall@knology.net

Marcel Black (D, Lawrence, Lauderdale and Colbert) Marcel.Black42@gmail.com

Paul Beckman (R, Elmore and Autauga) PaulBeckmanJr@yahoo.com

Merika Coleman-Evans (D, Jefferson) Merika.Coleman@alhouse.gov

Dickie Drake (R, Jefferson and Shelby) DDrake1080@aol.com

Chris England (D, Tuscaloosa) CEngland1@hotmail.com

David Faulker (R, Jefferson) David.Faulker@alhouse.gov

Matt Fridy (R, Shelby) MDFridy@gmail.com

Juandalynn Givan (D, Jefferson) Juandalynn.Givan@alhouse.gov

Phillip Pettus (R, Lauderdale) Phillip.Pettus@alhouse.gov

Connie Rowe (R, Walker and Blount) Connie.Rowe@alhouse.gov

There are four different tax sale redemption periods in Alabama.  At the time of the tax sale, the investor receives a Certificate, which entitles it to possession of the property. Three years after the tax sale, the investor may demand a tax deed. Before the tax deed, the person who did not pay his taxes is still technically the owner. Despite that, I always refer to the defaulting taxpayer as the "former owner" because it makes things easier.

1.  The "administrative redemption period" continues for three years after the date of the tax sale. Redemption is accomplished through local county offices.  The investor is allowed to keep all rents collected before redemption.

2. The "judicial redemption period" is called that for historic reasons. It does not require a lawsuit.  If the investor has not taken possession of the property, then the former owner has three years, from the date the investor takes possession, to redeem. If nobody is in possession of the property, the law assumes the former owner is still in possession. For tax sale properties owned by the State, the law assumes the former owner is still in possession.  If the investor takes possession on the earliest possible date--the date it receives the tax certificate, five days after the auction--then the administrative redemption period and the judicial redemption period will both burn off at the same time.  If the administrative redemption period has expired, the judicial redemption is negotiated directly with the investor, or resolved by the courts. The investor is allowed to keep all rents collected before redemption.

3. The "defective tax sale redemption period" arises when the tax sale was void for some reason. The former owner can contest the tax sale, reclaim the property, and pay only the taxes and 12% redemption interest, but will not be required to pay for preservation improvements or insurance premiums.  In order to defeat this type of redemption, the investor must adversely possess the property for three years, starting on or after the tax deed date. This is called the "short statute of limitations" if you want to research it further.  The investor must disgorge all collected rents if the owner redeems.

4.  The "lienholder redemption period" is for one year, and applies to all recorded liens as of the date of the tax sale. Mortgage lenders, judgment creditors, IRS--they all have redemption rights they can exercise in order to protect their liens. Their redemption rights are during the "administrative redemption period" or the "lienholder redemption period," whichever is longer.  The investor must send certified mail, return receipt requested, notice to all lienholders regarding the tax sale. There is no requirement for WHEN the notice must be sent.  On the date the notice is received by the lienholder, that starts the one-year lienholder redemption period.  If the notice is not sent until ten years after the sale (as an example) then the lienholder's redemption rights start on that date.  If a lienholder redeems under this rule, the investor is allowed to keep all rents collected before redemption.

Manufactured housing communities usually have the best cash-on-cash returns of all real estate investments, but they are management intensive unless you specialize in retirement communities or something similar.

@Rick H., although I now live in Alabama, my law license is in Texas. I claim both Texas and Alabama for tax sale investing expertise, and can fill that need if anyone is interested.