All Forum Posts by: Denise Evans

20 years is a universal period of repose. That is the legal expression if you want to google it. Sometimes it is called laches.  After 20 years, problems disappear. it has been too long. Witnesses are dead. Paperwork has disappeared.  Things just can't be enforced any more.

Hi @Caylan Deal. In 2019 some counties switch to what we call the "new system." It was elective. Jefferson County switched in 2022. Most counties are on the new system. I few, such as some of the smaller rural counties, plus Lee County (Auburn University) and Houston County (Dothan) still use the old system.

Under the old system, investors bid up the auction price. The redemption rate was 8% on the taxes plus some portion of the overbid. Unsold properties went on the Alabama Department of Revenue inventory, where they could be purchased over the counter. Some wholesalers obtain price quotes from ADOR and you can buy from their websites at a markup.  Under the old system, investors get a tax certificate. It entitles them to possession. That is a tricky issue too long to discuss here. Read some of my other posts and forum answers.  Bidding is at in person auctions at the county courthouse. Winner bidders pay the taxes each year unless and until there is a redemption. Three years after the auction they can surrender their tax certificate and get a tax deed. Former owners usually still have redemption rights. The investor does not get clear title until it obtains a quiet title order from a judge after a lawsuit, or it gets releases or quitclaims from everybody with redemption rights to the property, giving up their rights.

Under the new system, bidders bid down the interest rate they are willing to accept if the property is redeemed. It starts at 12% and can go down to 0%. Winning bidders get a tax lien. They are not entitled to possession. They do have a right of first refusal to buy the next year's tax lien at the same interest rate. Bidding is usually online, at govease.com.  Unsold liens can be sold individually by the counties, if they want to bother with it. Usually they just wait until the next year, and sell two years liens at once. The law will change on 10/1/24. After that date, investors must wait four years after their first auction, and must own all of the tax liens in the meantime. After that critical date, they can file a foreclosure lawsuit to foreclose their liens. If nobody redeems in that lawsuit, someone can still demand a public auction. The judge will order a public auction, kind of like a bank foreclosure auction, and the highest bid wins. Out of the winning bid, the investor is paid their taxes, plus interest, plus legal fees, plus auction fees. The rest is divided among people with redemption rights. The investor has the opening bid equal to everything owed to it. If there are no bidders, the judge will quiet title to the property in the investor and order the clerk of the court to issue a clerk's deed.  The investor can bid against other bidders.

That's it in a nutshell. There are many different successful strategies depending on your cash, borrowing ability, rehab skills, time, local contacts, or lack of any or all of them.

@Justice NA, you reply to the email that sent you the price quote.

Thanks!

Always do after-tax cash flow analyses. Especially with cost segregation and bonus depreciation, it can make a HUGE difference in your calculations.

@Jay Y., the clause you quoted says the management company shall "collect" those fees. That is similar to saying they "collect" rent. It does not mean they get to keep all the fees. Check the compensation section of the management agreement. It is not unusual for the management company to keep all of the late fees plus other fees that are attributable to increased management work/oversight.  On the other hand, it is also common to split the late fees 50/50, but the management company keeps the other fees. Every company is different.

There is nothing magic about the AAR management contract or any other forms they provide as a convenience for members. I do not use their forms, for example, and provide my own forms for my classes and videos.

A 10% late fee is common, but might be considered excessive if there were litigation. Late fees are supposed to be liquidated damages to cover the landlord's damages due to the breach of the lease agreement (timely payment of rent) but are too general to calculate mathematically. When payments are late, the landlord suffers loss of use of money and might have to pay their own mortgage late. That might result in mortgage late fees. If it happens often enough, the landlord's credit score might drop and result in higher credit card interest rates, higher car lease rates, higher insurance premiums. Lots of waterfall damages. So, the parties say they will agree on a sum for liquidated damages, which might be 5% of the rent.

We know 5% is safe because the Alabama Mini-Code, a consumer protection chapter for small loans, specifically allows a 5% late fee. With a 10% late fee, a court MIGHT rule that 5% is allowable liquidated damages and 5% is a penalty. Penalties are illegal. So, if you are charging penalties, you can be forced to refund them, plus legal fees. There is no statute or appellate decision in Alabama that says what is a "safe" late fee for landlords.

@Kristine Ann, even under the "older" system in Alabama, winning bidders do not get a quitclaim deed. They get a tax certificate and ONE of the "sticks" in the "bundle of rights" that belongs to the owner. The winning bidder gets the right to possession, but usually cannot exercise DIY possession. Instead, it usually requires voluntary surrender by the owner, or a successful ejectment lawsuit suit. Three years later the investor will surrender their certificate to the Probate Judge, pay a $5 fee, and obtain a tax deed. Even after that, there might still be redemption rights in former owners (or heirs) and lien holders.

PS--DO NOT ask county personnel for legal advice. They are not allowed to give it. Often they do it anyway, but are usually wrong. Rely on industry acknowledged experts for advice. In Alabama, the rules are complicated and subtle.

Most people will not go pro se into a lawsuit. So, to demand a sale, they'd have to hire a lawyer to make an appearance, appear at a hearing to prove redemption rights, have a mini-trial on the issue, and then demand an auction. Usually not worth the money to be just a troublemaker.

I agree about Huntsville and also Madison. Prices are getting really high. You might want to explore Athens or Decatur, still within commuting distance to Huntsville government jobs, but real estate prices not so high.  Florence is a University town, plus a strong military retiree component.  It is a beautiful area. Just across the bridge, in Colbert County, is more modest housing, also. That would be Sheffield, Tuscumbia and Muscle Shoals.

A few Alabama counties are still on the old system. They are some of the rural counties plus Lee County (Auburn University) and Houston County (Dothan--VERY large agribusiness area).  Alabama has already changed in response to Tyler v. Hennepin County, for the new system. Now, if someone has redemption rights they can demand a public auction at conclusion of the lien foreclosure lawsuit. If it brings enough to cover taxes, interest, legal fees and auction expenses, plus some extra, the people with redemption rights share the "extra."  If nobody demands a public auction, the tax sale investor gets the property, free and clear.