top of page
Search
  • bhamlegal

New Kind of Alabama Foreclosures 2022

Updated: May 12, 2022

If you bought a tax lien certificate in 2019 in a bid-down auction in Alabama, that 2019 tax lien

certificate becomes eligible to foreclose on in just a few months. However, the chances are that the property was redeemed. As of this writing, 200 of 236 Shelby County Liens have been redeemed. Because almost all sales were bid down to zero % percent interest, the investors made zero interest. (See my story at the * below.)


The three-year anniversary of the hybrid “tax lien certificate bid-down auction” marks the first of time anyone can foreclose on a tax lien in Alabama. With this new foreclosure, which is markedly different from the other two, there are now three broad categories of foreclosure in Alabama: Non-Judicial, Judicial, and a new judicial foreclosure hybrid, the Tax-lien-certificate Judicial Foreclosure.


Non-Judicial Foreclosure

Alabama is known as a “non-judicial foreclosure” state. However, that designation only applies to consensual liens. It does not apply to judgment liens, vendor’s lien deed foreclosures, municipal liens, or ad valorem tax sale liens.


After a borrower is notified several times and advertisements are published that the borrower/mortgagor has defaulted on a note that was secured by a document with “words of conveyance” such as a mortgage, a sale may occur. A foreclosure sale typically takes place at the main door of the county courthouse for cash to the highest bidder. The result is a foreclosure deed. A foreclosure deed must be drafted by an attorney, and it conveys title to property subject to a right of redemption. Typically, buyers at foreclosure auction will get a redemption bond if they plan to resell the property because a title company will not insure a foreclosure deed conveyance without a redemption bond.


Judicial Foreclosure

Alabama is a title theory state, which is why non-judicial foreclosures may only happen if the title holder already gave permission to foreclose. The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to hold the foreclosure sale, is used when no “power of sale” or “words of conveyance” are present in the mortgage or recorded instrument. So when no power of sale is present, lenders must have a court authorize their right to foreclose. The court does not grant a deed, it grants the authority to have a foreclosure sale. This traditional judicial foreclosure process is not at all similar to the new tax lien certificate judicial foreclosure


Tax Lien Certificate Judicial Foreclosure in Shelby County starting April 2022

Delinquent taxpayers gave no consent to have their property taken from them if they did not pay their taxes, so a judicial foreclosure is required. Tax sale foreclosures require a great deal less notice to the owner of the property, but a great deal more people need to be notified of the foreclosure. The owner, anyone with any interest or rights to the property, all recorded lienholders of all manner, and the tax collector must be notified and a lis pendens must be filed. After appropriate waiting periods, service of process, waiting periods, and court, the judge will hold a hearing. The property can be redeemed at any time during this process. However, if no one went to the courthouse and paid the back taxes the court will hold a hearing in which the judge will simply allow any party to pay the taxes due, or forever hold their peace. (Denise coined the phrase “put up or shut up” for this part of the proceeding.) If no one pays the back taxes, the court does not authorize a foreclosure sale, the court clerk will issue a deed.

The code says:

…if the court finds that the tax lien auction or sale is valid, that proper notice has been given, and that the tax lien has not been redeemed, the court shall enter judgment foreclosing the right of the defendant or defendants to redeem and shall direct the circuit clerk to execute and deliver to the party in whose favor judgment is entered a deed conveying the interests of the defendants in the property described in the tax lien certificate.”


Post Tax-Lien-Certificate Foreclosure

Investors must record their deed and assess the property, but they cannot insure this deed; they will need to go through the usual title curative or quiet title steps necessary to clear any other clouds off the title if they want to sell the property with title insurance. This deed conveys ONLY the rights of the tax delinquent (former) property owners and does not extinguish other liens.


* Funny story. (If you’ve heard me tell this one before just let me tell it again because I really like this story.)

I own property in Shelby County, and I skipped paying the taxes on a house in Alabaster. It sold at the bid-down auction, and it was bid down to zero percent interest by one of the big investors. It was fun getting an interest-free loan for a couple years because redemption was cheap and easy. (I should have waited until the first notices went out, but alas, there is always next year.) So I wanted to see how easy it would be to redeem, and I asked a friend to go pay the taxes. Gott a redemption receipt in about 15 minutes. I’m not sure if it will always be that simple to borrow money from these big investors for 0% interest, but I don’t see why I would pay next year’s taxes.



217 views0 comments

Recent Posts

See All
bottom of page