I'm hoping someone can help provide some clarity to me regarding the right of redemption law in Alabama.
Say a property is foreclosed and sold back to the bank on the courthouse steps. The bank turns around and sells the property to a 3rd party for a lesser amount. If, still within 1 year from the original foreclosure sale, the prior owner elects to redeem the property, would they owe the 3rd party the amount that the bank bid to originally take back the property? Or, would they owe what the 3rd party had paid to purchase the property from the bank?
I realize that the owner of the right of redemption would also owe interest, taxes, insurance premiums, and "necessary permanent improvements". What constitutes a necessary permanent improvement?
@Jared Irby is correct, @Dion DePaoli is wrong. The Redemption Price for an Alabama foreclosure starts with the final auction bid price on the courthouse steps, NOT the amount the foreclosure buyer (whether bank or 3rd party investor) re-sells the property for. In Dion's example, the redemption price starts at $100,000, not $120,000. Then, you add on interest at 7.5% (changed from 12% in 2011) and reimbursement for casualty insurance premiums and the VALUE of all permanent improvements. They do not need to be necessary, nor do they need to be repairs. But, you can also collect for repairs, because those are also considered "permanent improvements."
If you own both the real estate and the note/mortgage that gave rise to the foreclosure, then the redeeming party must pay the full payoff of the note with all accrued interest, not just the courthouse steps bid price. Often, you can negotiate purchasing the note in addition to the property if it is a local or regional lender. The trusts will never sell you the note.
If the investor acquires any of the other liens on the property--such as subordinate mortgages or judgment liens--at a discount, then the redeeming party must also pay the full face amount of those liens in order to redeem.
Alabama law is very clear, it is the value of the improvements, not the cost. I see that Dion is from Florida, which might have different rules. His advice on improvements is incorrect for Alabama. The Alabama statue says value, and all case authority going back for almost a century says it is the value.
Former owner redeeming is rarely the problem. Other investors trying to snatch your deal away from you are frequently a problem. Also, there is a growing trend of what I call extortionists, who acquire redemption rights and then threaten to redeem, but will go away if you pay them off.
Finally, Jared is also right that if the owner redeems, all liens come back on the property, same as before the foreclosure. Otherwise, people would "launder" their titles by letting a foreclosure happen, and then redeeming.
Last finally--a warning about foreclosures on or after January 1, 2016. If the property owner claimed a homestead exemption for their real estate taxes for the year of the foreclosure, then there is only a six month right of redemption, rather than the regular one year right of redemption. BUT, the lender must provide certain required notices to the borrower and in the newspaper notices of the foreclosure. If the notices are not provided properly, then the foreclosure is still valid, but the redemption clock does not start ticking down until the notices ARE provided properly. There is a 2-year statute of limitations, so that even if the notices are wrong, the redemption rights cannot be longer than 2 years. As a result, depending on circumstances and doing things properly or not, starting in 2016, Alabama redemption rights could be as short as six months or as long as 2 years.
@Denise Evans, okay, thanks. So, it is a full year. I am closing on a house on Monday that I plan to flip and I need to know how to sell it to a buyer while in the redemption period. So, I should be able to purchase a redemption bond for my end buyers mortgage company? Does that protect the home buyer as well as the mortgage company? Maybe that's a dumb question but this is my first deal and I'm more than a little stressed :)
@Colleen Woods, the redemption bond protects only your lender who loans money for the purchase. At least, that was true the last time I checked, which was probably in the middle of the crash, when there were so many foreclosures to be bought. Ask the title company who will be doing your closing.
@Denise Evans, thank you Denise! I really appreciate you taking the time to answer my questions. I have taken a couple of your classes and know you are legit. Thanks!
@Colleen Woods
We have offered to guarantee the buyers 20% down payment since it was not covered by the lender’s bond.
@Eric Patrick Oden , Thank you for the response. Sounds like a good option--I need all I can get!
@Denise Evans I have a question ...If a person files Chapter 13 bankruptcy with primary (homestead) house involved ..later surrenders house to the bank...the bank is now setting up foreclosure sale at court house steps..does this person still have right of redemption? Home wasn’t surrendered back to bank until year later in bankruptcy?
@Colleen Woods, the redemption bond protects only your lender who loans money for the purchase. At least, that was true the last time I checked, which was probably in the middle of the crash, when there were so many foreclosures to be bought. Ask the title company who will be doing your closing.
I am looking to purchase tax deeds from a private party in Jefferson county redemption periods have passed would you mind giving me some advice on what I need to look for and how will I get clear title of this property.
Thank you
@Ahsan Harriel, I'd like to help you, but that is a six hour class to be able to answer that. I'm sorry. I'm happy to answer specific questions.
@Sharon Alexander, in Alabama if you give a bank a deed in lieu of foreclosure, which is what is meant when most people say they surrendered a property to a bank, then there are no redemption rights. If the bank went through an actual foreclosure sale, you would have had redemption rights unless you failed to vacate within ten days after a demand for possession.
@Jared Irby I jumped on to see if i can get more clarification regarding 180-360 redemption differences and wanted to clear up the IRS liens. They are not superior to liens they only would be superior if they were recorded prior to the mortgage. They are only 120 and unless its a big opportunity they will not bother anyone.
IRS redemption rights are a MINIMUM of 120 days, but the rights for the IRS are at least as long as the rights of other parties when other parties have redemption rights that exceed 120 days. In other words, the IRS gets the bigger of the redemption periods - and no party gets a longer redemption period than the IRS when you look at it that way.
@Steve Babiak Correct.
I just bought a foreclosure property with an IRS lien in Alabama. The foreclosure was by senior mortgage prior to 2016. So, the IRS has a one redemption period like everyone else or just 120 days? Should I wait this period out or request a discharge per IRS publication 487?
@Ahsan Harriel, I'd like to help you, but that is a six hour class to be able to answer that. I'm sorry. I'm happy to answer specific questions.
Hello @Denise Evans , I have the similar question from @Ahsan Harrielarriel,... I bought 2 properties on the Alabama State Tax Sale and one of them is within the 3 year initial redemption period given by the county. Would it be possible to buy the right of redemption from the former owner? As far as I know, unlike the mortgage, for a tax sale the initial redemption period is 3 years (by the county) and after that there is still a second period of 1 year that allows the judicial redemption (no longer direct with the county). .. So, hence my interest in trying to buy the redemption rights to anticipate the settlement of the deed. How to do this correctly, if even possible?
Redemption rights after a tax certificate are 3 years, through the county. There might be another 3 years after that, depending on circumstances, during which the former owner can redeem directly from you. The tax sale wipes out liens against the property. Those people have redemption rights, but they cannot foreclose or have a sheriff's sale or IRS seizure, etc.
During the first three years, you can get the owner to release their redemption rights. Just a simple statement such as "I hereby forever release my redemption rights to the following property: (with legal description and street address and tax parcel ID number) and then they sign and have their signature notarized. You do not want to get a quitclaim deed from them during the first three years because the liens might re-attach to the property.
After that time, you can get the former owner to give you a quitclaim deed. That gets rid of all of their rights.
That should clear up all tax sale issues.
Redemption rights after a tax certificate are 3 years, through the county. There might be another 3 years after that, depending on circumstances, during which the former owner can redeem directly from you. The tax sale wipes out liens against the property. Those people have redemption rights, but they cannot foreclose or have a sheriff's sale or IRS seizure, etc.
During the first three years, you can get the owner to release their redemption rights. Just a simple statement such as "I hereby forever release my redemption rights to the following property: (with legal description and street address and tax parcel ID number) and then they sign and have their signature notarized. You do not want to get a quitclaim deed from them during the first three years because the liens might re-attach to the property.
After that time, you can get the former owner to give you a quitclaim deed. That gets rid of all of their rights.
That should clear up all tax sale issues.
Thank you @Denise Evans for your suport...
But when you say "You do not want to get a quitclaim deed from them during the first three years because the liens might re-attach to the property." what it means exactly? I ask it because every liens drop in a buy of Tax sale (minus the municipal and mechanical liens... unti where I know) and I payed all of delinquent tax when I buyed it from the Alabama Estate. Am I wrong?
It is just my theory. My theory is based on this line of reasoning:
1. The tax lien is a super-priority lien that trumps all others. That means that all other liens (except local government for things like sewer, demolition, etc) are no longer on the property. They have redemption rights, which would restore title to the owner and the liens would re-attach.
2. When you get a tax deed, you are now the owner of the property. The consequences of the tax sale (loss of liens) continue.
3. When you get a quitclaim deed after you get a tax deed, you already have ownership. The quitclaim deed merely releases any owner rights.
4. When you have only a tax certificate, you do not own the property. If you receive a quitclaim deed during that time, your only route to property ownership was because of the quitclaim deed. The title to the real estate and the lien merge, which allows the prior liens to re-attach. That is my theory, based on about 1,000 years of the history of real estate law from the Battle of Hastings in 1066 to the American Revolution, to the present.
@Jared Irby is correct, @Dion DePaoli is wrong. The Redemption Price for an Alabama foreclosure starts with the final auction bid price on the courthouse steps, NOT the amount the foreclosure buyer (whether bank or 3rd party investor) re-sells the property for. In Dion's example, the redemption price starts at $100,000, not $120,000. Then, you add on interest at 7.5% (changed from 12% in 2011) and reimbursement for casualty insurance premiums and the VALUE of all permanent improvements. They do not need to be necessary, nor do they need to be repairs. But, you can also collect for repairs, because those are also considered "permanent improvements."
If you own both the real estate and the note/mortgage that gave rise to the foreclosure, then the redeeming party must pay the full payoff of the note with all accrued interest, not just the courthouse steps bid price. Often, you can negotiate purchasing the note in addition to the property if it is a local or regional lender. The trusts will never sell you the note.
If the investor acquires any of the other liens on the property--such as subordinate mortgages or judgment liens--at a discount, then the redeeming party must also pay the full face amount of those liens in order to redeem.
Alabama law is very clear, it is the value of the improvements, not the cost. I see that Dion is from Florida, which might have different rules. His advice on improvements is incorrect for Alabama. The Alabama statue says value, and all case authority going back for almost a century says it is the value.
Former owner redeeming is rarely the problem. Other investors trying to snatch your deal away from you are frequently a problem. Also, there is a growing trend of what I call extortionists, who acquire redemption rights and then threaten to redeem, but will go away if you pay them off.
Finally, Jared is also right that if the owner redeems, all liens come back on the property, same as before the foreclosure. Otherwise, people would "launder" their titles by letting a foreclosure happen, and then redeeming.
Last finally--a warning about foreclosures on or after January 1, 2016. If the property owner claimed a homestead exemption for their real estate taxes for the year of the foreclosure, then there is only a six month right of redemption, rather than the regular one year right of redemption. BUT, the lender must provide certain required notices to the borrower and in the newspaper notices of the foreclosure. If the notices are not provided properly, then the foreclosure is still valid, but the redemption clock does not start ticking down until the notices ARE provided properly. There is a 2-year statute of limitations, so that even if the notices are wrong, the redemption rights cannot be longer than 2 years. As a result, depending on circumstances and doing things properly or not, starting in 2016, Alabama redemption rights could be as short as six months or as long as 2 years.
It's a lengthy conversation. Call me. You can fight it, but it is fact specific and I need a LOT more facts. Denise
Sorry@Colleen Woods, that was a mistake. I tried to take down posts that had mistakes in them, but BP won't let me do that. I apologize for the confusion.
@Denise Evans Dang, that’s scary. Is there a way to make
an edit after you post, so that you could go back and put a warning message to inform others the info is incorrect?
[Update: @Denise Evans , just learned you can make edits to your posts, you may want to go back and remove the errant info you posted as to not spread misinformation, especially as it looks like people are leaning into to you as someone who is very knowledgeable on these matters.]
Thanks @Michael Penny. At the time, I contacted tech support and they said I could not do that. I will do it right away.
We have inherited property that had been owner financed. The buyer continued to pay note for years to us but then sued us right before the balloon note was due, we could not foreclose while a lawsuit was pending. Finally after many delays the court ruled in our favor, now we can foreclose. Is there a chance that the property will not sell for the amount owed in a foreclosure?
There is always that chance. It is hard to say in the abstract. The foreclosing party places the opening bid. If your opening bid is the amount owed, plus legal fees and foreclosure expenses, then any auction bidder with have to bid a higher price to get the real estate. That way, nobody is able to grab the property for $100 or so, just because they are the only bidder. If nobody bids, then YOU are the successful foreclosure bidder. You get the real estate and can then place it with an agent to try to sell in the regular manner.
Thank you very much Denise. We plan on bidding for the total owed to us, I would love to have the property back.
@Diane Merrill, you can also bid against other people. If the total owed is $75,000 and someone bids $76,000, you can increase your bid to $77,000 and so on. The extra money over and above your payoff must be paid to your borrower, or to secondary lienholders if there are any. So, if there was a credit card judgment against your borrower, you would contact the lawyer who represented the credit card company (their name is on the certificate of judgment in the real estate records) and pay the money over to that lawyer. The lawyer who helps you do the foreclosure will order up a title report and tell you what should be done under different scenarios.
Just make sure you hire a lawyer who has LOTS of experience with foreclosures. Ask a real estate agent in the area for a few closing companies. Call those closing companies and ask to talk to the closing attorney. Ask that attorney for the names of a few attorneys who do a lot of foreclosures. The closing attorney will know the actors in that field.
A
@Diane Merrill do you mind telling me what state you and the property are in and how long the court case took?