All Forum Posts by: Denise Evans

I'd like to correct some statements in @Fernando Alonso post. Tax sale redemption rights can be far longer than 3 years.  The interest rate after a lender foreclosure has been 7.5% for many years now.  Payment for improvements is based on the value those improvements added to the property, not the cost of the improvements. Valuation does not require an appraiser, but that is the recommended best method.  Redemption is not uncommon with investment properties because the borrower can often sell their right of redemption to another investor, who then has the right to exercise it.  In fact, redemption is probably more common with investment properties than with owner occupied residential properties, but that is just based on anecdotal evidence, not actual numbers.  As far as coming up with enough money to stop the auction, once the loan has been accelerated in Alabama, only payment in full will stop the auction, or a voluntary agreement by the lender to pause while a short sale or something similar is negotiated.  I doubt a waiver of post foreclosure redemption rights would be enforceable, because they do not even come into existence until after the foreclosure, so there is nothing to waive at the time the mortgage is executed.

Michael Morrongiello, You have a deed of trust on an Alabama property, rather than a mortgage?  If a mortgage, it makes no difference regarding ownership of an investment property, natural person or entity has the right of redemption.

I'd have to research the technicalities of a deed of trust foreclosure. Offhand, I'd think no different from an Alabama mortgage foreclosure. In an Alabama mortgage foreclosure (unlike all other states' mortgages) title vested in the lender when the mortgage was executed. Title defeases and goes back to the borrower when the mortgage is paid in full. The foreclosure forecloses the borrower's equity of redemption (not to be confused with their post-foreclosure right of redemption), which allows the title holder (the bank) to sell the property on the courthouse steps. With a Deed of Trust, the title is transferred to the trustee when the money is borrowed. Title is transferred back to the borrower when the loan is paid in full. The foreclosure forecloses the borrower's equity of redemption, which then allows the title holder (the trustee) to sell the property on the courthouse steps. So, off hand, I'd guess no difference in post-foreclosure redemption rights if it is a mortgage or a deed of trust.

No, you can't use that law to eject former owners or their tenants after a foreclosure. You must file an ejectment lawsuit.  

Also, post-foreclosure redemption rights are only six months for homestead property in Alabama. 

Also, be aware that the federal Protecting Tenants at Foreclosure Act (PTFA), passed in 2009 during the Great Recession, expired and then was reinstated during the final days of President Trump's first term. It is still the law. Residential tenants in possession after a foreclosure have rights, including the ability to stay in the property until the end of their lease term, at the rental rate in their lease. The rent has to be paid to the new owner, though.  If you are unfamiliar with the PTFA, here is some additional info:  https://www.occ.gov/news-issuances/bulletins/2020/bulletin-2...

@Eric Miller For a purely commercial property, the appraisal is primarily a capitalized income approach based on the rents and the expenses. If you can get the rents up, and the expenses down, you increase the Net Operating Income, which increases value. On a property with $24,000 a year in NOI and a market cap rate of 8.5%, and a rent increase of $50 per month and a savings of $1,000 a year by increasing your insurance deductible, you will add $18,824 of value.

If you can reduce risk, such as having all tenants with significant time remaining on their leases and all with security deposits, that will often decrease the cap rate, which increases value. Cap rates are related to market interest rates and to risk. If you can reduce the risk of near-future capital expenditures, such as replacing an older HVAC or roof, that also reduces the cap rate which increases value. A $10,000 capital expense for a brand new HVAC unit does not count as an expense for purposes of calculating NOI. It can result in a cap rate reduction. If the cap rate goes from 10% to 8.5% on a property with NOI of $24,000 a year, then the increased value is $42,353. Well worth the $10,000 expense.

For SFR, appraisers generally look to see the character of the neighborhood. They will then do a psf analysis based on comps, and a capitalized income analysis. In the reconciliation, if the neighborhood is predominantly rental, they will lean more heavily towards the capitalized income value when doing their reconciliation. If the neighborhood is predominantly owner/occupant, they will lean more heavily towards the psf valuation when doing their reconciliation.

If the property is a rental property but vacant, they will accept comparable rents as long as you can substantiate the properties and locations really are comparable to yours.

BVRRR-"Beaver?"  Nature's builders. Makes sense.

The first "R" in BRRRR is for "Rehab." It's a handy acronym, but don't let it structure your thinking. You want value-add property you can Buy, Add Value, Rent, Refinance and Repeat. When you think Value Add instead of Rehab, you allow yourself to think more creatively.

It is not always distressed properties that create opportunities, although that's a great strategy all by itself. Think also about:

Distressed Revenues.  Properties rented significantly below market because the owners are afraid to raise rents or emotionally attached to their tenants and reluctant to raise rents or maybe just ill-informed.  Getting rents up to market adds significant value.

Distressed Owners. Foreclosures, tax sales, heir property, divorce, out-of-state owners with bad local management, many more.

Distressed Market Intelligence.  I live in Tuscaloosa Alabama, home of the University of Alabama with 40,000+ students and still growing. Some parts of town that used to be predominantly low income are changing to student housing.  Student housing brings higher rents and parent guarantees, making it more valuable. Despite that, many owners are still selling on low income tenant assumptions to evaluate a (low) asking price.  Some apartment communities are D- properties in B+ or better locations. Finding the opportunity and partnering with an equity partner who can pay for the rehab allows both of you to share in refinance money but without any rehab expense by you.

Get out of the "rehab" straight jacket and find many more opportunities!

I can HIGHLY recommend Tuscaloosa, Alabama.  There are very good buys in student housing, workforce housing, and low income. There are opportunities in turnkey and value add. Labor costs are low for property maintenance or reno. There are always more investors coming in and buying, so the exit strategy is excellent if you want to exit. The state laws are landlord-friendly and the local county judges do not bend over backwards and sometimes defy the law to help tenants, as is the case in some counties in Alabama. Property taxes and insurance rates are low. There is excellent property management available.  Appreciation is dramatic with low-cost value add like turning a surplus bedroom into a 2nd bathroom or buying something in the path of student housing growth. Normal appreciation is steady because rent increases are steady.  Huntsville is also a good market but with all the federal money pouring in the last few years, and likely to continue, prices are high and competition fierce.

Maybe things are changing, but in my experience rural southeast means mobile home housing, not SFR housing. Almost everybody has a relative with some surplus land on which they can put a mobile home. And, there are MANY older mobile homes that can be rented very inexpensively. Usually it is a leftover from a child or grandchild getting a mobile home and then graduating to building their own home. That has typically been the housing path in rural SE in the past.

If there is title insurance involved, you should know it is not simply a matter of redeeming during the judicial redemption period (in other words, taxes and interest only). You now OWN the property even though someone might be able to take it away from you because of redemption rights. Think about a home mortgage--you OWN the property, but the bank might be able to take it away from you. Similar concept.

Because you have a tax deed and own the property, you are entitled to damages for "mesne profits," being the reasonable rental value of the property from the date of your deed until redemption. That's probably not much. You are also entitled to damages for the trees cut down and dirt work done on your property.  Make sure you get everything you are entitled to.

Do NOT sit by and let him build and then hit him up for a "better price." It is the reasonable rental value without the new improvements, because the tax sale investor did nothing to add value regarding the improvements. Under Alabama law, that is a VERY dangerous play and you could end by losing money.

You also cannot sit back and let him build the house and say "Thanks." Under any scenario, any state, someone who sits on their rights and lets someone get into the weeds to the benefit of the person who sat on their rights, will NOT have those "rights" enforced by the courts.  That is under almost 1,000-year old principals of "equity" followed in English and then American jurisprudence. Think Norman Invasion, 1066. (Which is why "mesne" often has the French pronunciation "main.") Think King Henry II, the great lawgiver of England, who took the throne in 1154. That old.

The developer absolutely has the right to redeem.  You have NO leverage, no matter what he builds or does not build, except for the developer saving some money in legal fees and cutting down on mesne profits damages. And, if it comes out that you stood by and let the clock run on mesne profits just to set up the former owner for large damages, a judge will not give them to you. The judge might also find that "reasonable legal fees" is a number much smaller than what you had to pay your lawyer. Those are also principles of equity. Believe me, things ALWAYS come out, no matter how well litigants think they've hidden them. Again, I speak from experience.