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Alabama Tax Lien Nuances

Alabama is a hybrid tax lien certificate/tax deed state, but a few counties have moved to tax certificate lien only. The tax lien market in Alabama is active year round by wholesalers, direct purchase from the state, and flips.

For the vast majority of Alabama Counties tax liens are sold at auction once a year, but more importantly, the Alabama Department of Revenue has thousands of tax liens for sale "over the counter." In most Alabama counties the tax certificate provides a legal right to demand possession of the property, so the certificate/deed is a tax lien, with the right to possession. This right to possession is what makes the law work: If an owner refuses to pay their property tax they may lose possession of their property. The purpose of the tax sales are to incentivize owners to pay their taxes, and if owners don't pay their taxes, investors can earn money at 3/4% interest per month (per month, not per year), they can take possession and rent the properties, and investors will be compensated for the value of repairs they make such as repairing roofs and other necessary repairs.

The most confusing part of investing in Alabama tax liens is that on the third anniversary of the sale an investor is entitled to demand a tax deed. Even some judges don't understand that the date on the deed is not relevant, but the third anniversary of the sale is the date everything is based on. Administrative, or statutory, redemption is available through the county up until the third anniversary of the tax sale. But after that date, tax liens cannot be redeemed from the county, and a redemptioner must go directly to the investor, and if they cannot agree to a price then a court will be necessary to order the redemption.

While a tax deed can be quieted after three years of adverse possession, a critical element of Alabama Tax deed law is that a property owner can sue to redeem property for as long as they are in possession. The statute requires three years after the third anniversary, with adverse possession by the investor. As long as the owner maintains possession they have a legal right to redeem the property in court. This was exemplified in the recent "Equivest" case. If the tax lien investor had possession of the property for three years they would have owned the house and the former owners would have had no rights to void the sale or redeem the property. This requirement for possession is also a ticking clock for the investor.

If an investor does not assert their right to possession within 6 years of the tax sale (Sale plus three years to be entitled to demand a deed, then three more years) the investor may be in jeopardy of losing their rights to the property and the property may be re-vested in the former owner, as in the "Rioprop" case.

Alabama's hybrid tax lien system is not the same as any other state, and an investor should join a group focused on investing in Alabama tax liens before they invest. For more information on those unfortunate counties that have adopted the "Tax certificate only" with no right to demand possession see the previous article on eth "tax Lien Monster." The tax lien market in Alabama is active and somehow even growling, being led by wholesalers.

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