Tax Lien Foreclosure Action vs Quitclaim Deed

Birmingham, Alabama
Tax Liens & Mortgage Notes
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Tax Lien Foreclosure Action vs Quitclaim Deed

Christine Garnier
Member since 2022 · 49 posts · 18 votes

I bought several tax liens at Alabama auction and I understand that the process to get the title is to file a tax foreclosure action which, based on what the attorney Gregory Stanley is saying and unlike what many articles are mentioning, is a judicial process. So my questions are: 

Is it possible to avoid the foreclosure action at the end of the three years period, by continuing paying the taxes?

Would it  be legal to take over the property, without the foreclosure action?

Would it be legal to sign a quitclaim deed for the property in question, after the three years period and transfer the interests without the foreclosure action?

The reason why I am thinking out of the box is because Alabama tax sales department is a disaster. We bought a deed on April 2sd and we are still waiting for the deed. We submitted 60 different requests to purchase an OTC deeds or certificates early January 2023 and we never received a single quote. Clearly, they are understaffed and for investors, the process is unacceptable. So in order to avoid wasting time, I am thinking outside the box.

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
3y

@Christine Garnier I can't speak specifically to AL tax sales. @Denise Evans is the expert here. 

Barring some obscure and clearly unconstitutional law in AL you can always buy the property from the owner. I wouldn't choose a quit claim deed to do so but you certainly can. Keep in mind a quit claim deed does not necessarily give you clear title and all liens and mortgages would still be attached. 

If you are asking if YOU can quit claim the deed to yourself, yes but that would transfer no ownership rights. 

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  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    3y

    @Christine Garnier I can't speak specifically to AL tax sales. @Denise Evans is the expert here. 

    Barring some obscure and clearly unconstitutional law in AL you can always buy the property from the owner. I wouldn't choose a quit claim deed to do so but you certainly can. Keep in mind a quit claim deed does not necessarily give you clear title and all liens and mortgages would still be attached. 

    If you are asking if YOU can quit claim the deed to yourself, yes but that would transfer no ownership rights. 

    2Reply
  • Denise Evans
    JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    3y

    @Christine Garnier, Tax deeds and tax certificates from ADOR are completely different from tax liens under the newer system.  You seem to be smashing both of them together. All the rules are different.

    For tax liens, you must foreclose. You never pay the taxes, you just keep exercising your right of first refusal to buy subsequent year's tax liens, until you are ready to foreclose. When you foreclose, the court awards title to you, enters a quiet title order, and orders the Clerk of the court to issue a deed to you. You have perfect, insurable, title at that point. Unless someone with redemption rights redeems during the lawsuit, in which case you get your redemption money and your tax liens are cancelled.

    With tax certificate/tax deed sales under the older system, you pay the taxes each year. After you have a tax deed, you can quiet title. The minimum time period after the tax deed, that you can quiet title, is hotly debated among attorneys, investors, and judges. There is NO clear decision from an appellate court on this subject.  The tax sale wipes out all the liens, but those lienholders have redemption rights. If you have a tax certificate or tax deed and then also obtain a quitclaim deed from the former owner, then title is resurrected in the name of the owner, all the liens re-attach, and then title moves to you, in a split second.  If you simply hold onto the property for ten years after the tax deed date, and maintain possession (usually by renting it out) then you are into old fashioned "color of title adverse possession" which is 10 years. 

    If you own a tax deed, you can quitclaim it to anybody, including another entity owned by you. If you own a tax lien, it can be ASSIGNED to anybody, including another entity owned by you.

    One "outside the box" play is to track down former owners, pay nominal amounts for a quitclaim deed, and then redeem. That is allowed because you will then have the former owner's redemption rights. Just make sure there are no liens against the property, because they will re-attach upon redemption.

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  • Devon Daniels
    Dothan, AL · Member since 2012 · 36 posts · 2 votes
    8mo

    With the tax lien sale you do not pay the taxes The subsequent years after winning the lien bid? Who pays the taxes then?

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  • Denise Evans
    JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    8mo

    @Devon Daniels, if you win the tax lien bid in Alabama, you have the right of first refusal to buy the next years' liens (unless redeemed, of course) at the same redemption interest rate as the first winning year.  If you do not exercise your right of first refusal, then someone else might be the next year's lien. If so, that used to be called "lien fracturing," where two or more investors own different years' tax liens. Now, the next purchaser will have the redemption price tag of the earlier purchaser's liens added to the next purchaser's price tag. The earlier purchaser will get paid off, just like a redemption, except that person's liens will be transferred by the county to the later investor.

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