Alabama Tax Lien Basics for 2021
Updated: Jun 5, 2021
In Alabama tax liens are different from any other state. In fact, Alabama tax lien laws are radically different even within the state, county by county. For example, if you try to take possession after a tax lien sale in Shelby County you could go to jail, and will certainly be sued in civil court.
The counties run on revenue and a great part of that revenue is from property taxes. If Alabama Property owners didn't pay their property taxes the schools would shut down and the roads would not be repaired. If you own property in Alabama, look at your tax bill and see how much of it goes to schools.
Two Types of Sales - Property Tax Sale
Counties have public sales of tax liens when an owner doesn't pay their taxes. This is a good public policy because it funds the counties necessary services and notifies the property owner there is a lien on the property that is accruing interest at up to 1% a month.
In about half the 67 counties, including Jefferson County, after the property tax sales the investor may demand possession within a few weeks of the auction. (Do not try to take possession too early or you will be banned from future property tax auctions.) If there is no bidder, the State of Alabama buys the land at the amount of the tax lien. There are overbids and extra interest and an entire code section on how this auction will work and when an investor can take possession - It is NOT automatic or immediate, even if the property appears abandoned. If the owner does not actively relinquish possession an “ejectment” lawsuit may be brought at the earliest at 6.5 months after the auction. As an investor, this is usually way too early, so discuss your strategy with other investors in formal groups such as the Alabama Tax Lien Association or with an attorney well versed in Alabama Property Tax Sale law. Once in lawful possession, investors are allowed to be reimbursed some of their expenses. Depending on which county you are in, you may be entitled to improvements that were required for "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" (as the code says). However, some judges interpret this code section to mean an investor will only get reimbursed for costs that directly prevent further decay and rot (waste) of the property, which is a great bonus for delinquent tax payers when they redeem from an investor that made improvements to keeping the property in repair for its proper and reasonable use as a residence, like replacing the main water line to the house.
An owner of commercial land or undeveloped land may redeem any time within three years after the date of the sale by simply sending in a check to land redemptions. There is no requirement or reason for an owner to even notify the investor that they are redeeming. (If you doubt this please read the law, take a class from Denise Evans, and pay for a consultation with an attorney to explain it.)
An owner of a property with a residential structure on it can redeem the property anytime within three years of the date of the sale by coordinating with the county land redemption department to complete a notice of redemption and affidavit for the investor. If the investor ignores this affidavit the owner can redeem about two weeks after they send the notice to the investor by just writing a check.
If no one buys the property for taxes at the tax sale the state "bids it in" for taxes owed and a homeowner can redeem by simply sending a check to the county land redemption office any time prior to an investor buying the lien from the state.
After the three-year anniversary of the tax sale any tax lien held by an investor automatically becomes a deed, whether the county signs the deed on that day or not. Counties such as Montgomery have the deeds available immediately, while other counties are much less efficient in producing the deeds. This delay in producing the deeds creates a headache for the owner to redeem and in some cases has caused months of interest to accrue against that land owner because there was no recorded conveyance to the investor. Tax Certificates are definitionally personal property so they are not to be recorded in the probate land records. Since there is no proof the purported deed holder owns anything many landowners rightfully refused to pay the investor for a deed that will become void by law as soon as the tax deed issues. (Quit claim deeds are not warranty deeds and therefore do not convey any future interest the grantor may acquire. A quit claim deed from a tax lien investor is literally worthless unless the tax deed has been previously recorded. The quit claim deed does NOT reach forward if the tax deed is recorded later. The property owner just bought the Brooklyn Bridge.
It is possible for an investor to extinguish an owner's right to redeem. Once the investor has a recorded tax deed their three years of required "adverse possession" can start. This is usually when an investor will file for ejectment. There are contingencies in the Alabama code that extend this period and if the owner retains possession their right to redeem is perpetual. Remember, for unimproved land or an empty lot constructive possession stays with the Owner and can only be cut off by the adverse possession of the Property by the Tax Purchaser. How do you prove this adverse possession? The courts have ruled you can only extinguish constructive and scrambling possession of vacant land with an ejectment lawsuit, which will start your possession period.
Other Type of Sales - Tax Lien Sale
In the other half of Alabama counties, including Shelby County, after the property tax sale the investor has no right to possession, may not prevent waste, may not molest the owners, and must watch the house rot to the ground in the middle of the nice neighborhood in which it sits. This is particularly troublesome, because if a clever occupant moves in to a vacant tax lien property, they could turn on the utilities and commence living there and neither the tax lien purchaser, the police, nor the local neighborhood association can have them removed. Only the absent delinquent tax payer could do so, and they are the ones that vacated and stopped paying taxes.
These Counties have an online tax lien interest-rate bid-down process and many properties are bid down to 0%. This is great for the property owners because unlike in other states that have interest rate bid down systems, Alabama does not have a lump sum interest that immediately accrues at the end of the auction. So this system is not competitive with other states such as Georgia and Florida.
If you only remember one thing...
Remember that depending on what county you are in, an investor may be able to take possession, or not, they may be able to make repairs, or not, they may be reimbursed for their proper and reasonable repairs, or not. Don't get a gun, get a lawyer.
Gregory S. Stanley, Esq. 201 20th St S. Irondale, AL 35210 2054514196