Alabama Tax Sale Redemption Rights

220 Replies

There are four different tax sale redemption periods in Alabama.  At the time of the tax sale, the investor receives a Certificate, which entitles it to possession of the property. Three years after the tax sale, the investor may demand a tax deed. Before the tax deed, the person who did not pay his taxes is still technically the owner. Despite that, I always refer to the defaulting taxpayer as the "former owner" because it makes things easier.

1.  The "administrative redemption period" continues for three years after the date of the tax sale. Redemption is accomplished through local county offices.  The investor is allowed to keep all rents collected before redemption.

2. The "judicial redemption period" is called that for historic reasons. It does not require a lawsuit.  If the investor has not taken possession of the property, then the former owner has three years, from the date the investor takes possession, to redeem. If nobody is in possession of the property, the law assumes the former owner is still in possession. For tax sale properties owned by the State, the law assumes the former owner is still in possession.  If the investor takes possession on the earliest possible date--the date it receives the tax certificate, five days after the auction--then the administrative redemption period and the judicial redemption period will both burn off at the same time.  If the administrative redemption period has expired, the judicial redemption is negotiated directly with the investor, or resolved by the courts. The investor is allowed to keep all rents collected before redemption.

3. The "defective tax sale redemption period" arises when the tax sale was void for some reason. The former owner can contest the tax sale, reclaim the property, and pay only the taxes and 12% redemption interest, but will not be required to pay for preservation improvements or insurance premiums.  In order to defeat this type of redemption, the investor must adversely possess the property for three years, starting on or after the tax deed date. This is called the "short statute of limitations" if you want to research it further.  The investor must disgorge all collected rents if the owner redeems.

4.  The "lienholder redemption period" is for one year, and applies to all recorded liens as of the date of the tax sale. Mortgage lenders, judgment creditors, IRS--they all have redemption rights they can exercise in order to protect their liens. Their redemption rights are during the "administrative redemption period" or the "lienholder redemption period," whichever is longer.  The investor must send certified mail, return receipt requested, notice to all lienholders regarding the tax sale. There is no requirement for WHEN the notice must be sent.  On the date the notice is received by the lienholder, that starts the one-year lienholder redemption period.  If the notice is not sent until ten years after the sale (as an example) then the lienholder's redemption rights start on that date.  If a lienholder redeems under this rule, the investor is allowed to keep all rents collected before redemption.

@Denise Evans This is really great information. If there is a mortgage or other liens on a tax sale property, during the "lien holder redemption period", does the lien holder have to pay for preservation improvements and insurance premiums? If so, can notice be sent after improvements are completed?

During the administrative redemption period and judicial redemption are preservation improvements required to be paid to redeem. Thanks for the great info!

Any redeeming party, whether former owner or lien holder, must pay for the value of preservation improvements and casualty insurance premiums if the property contains a residential structure.

Notices to lien holder can be sent out whenever you want--right after the tax sale, two years after the tax sale, or five or ten years after the tax sale. The notice simply starts the redemption time period. If an investor fails to send out any notice at all, then theoretically the lien holder would have forever to redeem, although courts would probably cut this off after 20 years.

Yes, during both redemption periods, preservation improvements must be paid in order to redeem, but only if the property contains a residential structure.

The mechanism during the administrative period is that all counties now require a redeeming party to obtain an affidavit from the investor before the county official will allow redemption. That affidavit says the investor has been paid, or is not owed anything, or has made satisfactory payment arrangements with the redeeming party.

During the judicial period, all communication is directly with the investor, so there is no need to alert the investor that redemption is being attempted.

@Denise Evans  

Hi Denise, with regards to #4 the lien holder redemption period. If the mortgage holder never placed a lien on the property when the taxes became delinquent and there is no evidence of a mortgage release with the county recorder, does the mortgage holder automatically lose entitlement to the property after the deed has been purchased by the investor?  Thanks for the great information.

Toi, I don't understand your question. Was there a recorded mortgage in the county real estate records on the day of the tax sale?

Denise, there is a recorded mortgage with the county real estate records on day of tax sale; however, nothing showing the mortgage was released.  

If there was a recorded mortgage as of the date of the tax sale, and the mortgage has not been released, then that mortgage lender has redemption rights and must be given the one-year letter by certified mail, return receipt requested. This is true whether the tax sale investor has only a tax certificate, or had a full tax deed.

Hi Denise. I took some classes with you at MAAR several years ago. They were excellent!

I have a question about the judicial reception period. We bought a tax property that was occupied by the owner. We thought they would redeem, but they did not. The probate office told us we couldn't possess unless the property was vacant.  Now, three years later, we are due for the deed but what you just said is they still get another three years because we didn't evict them from the start.  I'm really confused. Help?  Should we be evicting owners from every home we purchase right after the sale?

Hi Danita, I'm sorry about this experience. The probate office told you incomplete information.  You are entitled to possession as soon as you get your tax certificate. In case anybody argues with you, the statute is Section 40-10-74, which says: 

"Any purchaser of lands at a tax sale other than the state or anyone claiming under him shall be entitled to possession of said lands immediately upon receipt of certificate of sale from the tax collector; and, if possession is not surrendered within six months after demand therefor is made by said purchaser or his assignee, the said purchaser or his assignee may maintain an action in ejectment or a statutory real action in the nature of ejectment, or other proper remedy for the recovery of the possession of the lands purchased at such sales and shall be entitled to hold the possession thereof on recovery,"

You cannot just throw people out on the street.  If the property appears to be abandoned, you can go in and take possession, change the locks, etc. If not, then you have to give the notice and then file the ejectment lawsuit. The best way to take possession and not make waves is to show the taxpayer your tax certificate, and ask them to sign a lease with you until they are able to redeem. Make the rent only $5 a month or something. Tell them your lawyer/accountant/husband (whatever) says you have to do it that way for legal reasons, otherwise you have to sue them to kick them off the property, and they will owe your legal fees on top of the redemption charges.

Awesome! It makes me so angry that they say these things.  This year, they told use we can't touch the property for three years and the owner now has up to six years to redeem! The whole room erupted with questions, but they stood by it.  

Thank you so much for answering. Now I'm equipped for my next visit downtown.

I forgot to expand on my prior answer. If the owner is in possession under a lease from you, that is the same as you being in possession. This shortens the redemption time period to just the 3-year administrative redemption.

Exactly, Hollie. The owner is your tenant, and the person occupying the property is the subtenant. You are legally in possession.

This is a good situation for a TRUE sublease. Most times, when a landlord has a tenant who wishes to move out, and that tenants finds a replacement, the parties call it a sublease. It's not, really.  It's either an assignment, in which the old tenant assigns all of his rights to the new tenant (and the landlord approves it) or it's a cancellation of the old lease and replacement with a new lease.

In a true sublease, Landlord rents the property to Tenant A.  Tenant A then rents the property to Tenant A is the landlord for Tenant B, and owes all of the landlording obligations.   If the toilet gets clogged up, Tenant A is supposed to get the phone call in the middle of the night.  This is the situation you will have if you sign a lease with the taxpayer.

@Denise Evans I bought a tax lien certificate in 2014, The property was sold to the State in May of 2013, I bought the Tax Lien Certificate in 2014 and in May 2016 i got the notification that I qualify for a Tax Deed since the redemption period ended. I recorded the Tax Deed on my name in Sep 2016. The house is been vacant for few years,  the day I got the tax deed i went to the property and talked to the neighbors, i let them know i bought the property on Tax Sale they said the former owner still go to the property some times. Last week I got the letter from an attorney saying the former owner wants to redeem, I understand he still has the right to redeem but it has to be done through me now. I would like to know what would be the right way to calculate what he needs to pay me so I can sign the deed back over to him. Is there a formula to calculate the interest and total amount? do I need to hire an attorney?

There are probably websites that calculate this for you, but I'm going to describe the process, soy ou know for sure. Sometimes website formulas are wrong. ANYBODY can post ANYTHING to the Internet.

Step One:

Let's assume the auction was on May 15, 2013.  Start with 2012 taxes, penalties and advertising costs. That is the principal amount that was due on May 15, 2013.  Let's say it was $510. One year later, on May 15, 2014, there will be one year of interest due, from May 16 2013 through May 15 2014.

Step Two:

Multiply the 2012 taxes (sales price on May 1, 2013) by 0.12. The answer is $61.20 That is the annual interest owed on May 15, 2014, 2015 and 2016.That's a total of 3 years of interest at $61.20 per year, or $183.60  But that's only through May 15, 2016

Step Three:

Take your annual interest accrual ($61.20) and divide by 365 to obtain a daily accrual. Interest accrues at the rate of 16.767 cents per day.

Step Four:

Google:  count days between dates

There are a number of websites that do this for you.  The first day will be May 16, 2016. The last day will be the day you request the calculation, or the day you expect to be paid. When asked, do NOT include the last day in the calculations. The last day of interest is not due until the next day.  If you have no idea when they will pay  you, put the current date. If they say they will redeem on December 31, 2016, you put that date.

From May 16, 2016 through yesterday (December 17) there are 216 days.

Step Five:

Multipy the number of days in the partial year by the per diem. In our case, that is 216 days times 17.767 cents per day, or 3,837.672 cents, or $38.38 after rounding off.

Step Six:

Add the principal amount ($510) plus three full years of interest ($183.60) plus the partial year's interest through yesterday ($38.38) to get $731.98 payable today, but that's just the portion for the 2012 taxes.

Step Seven:

Repeat prior steps for all subsequent years' taxes.

Step Eight:

Add up all the totals. That is the total amount due if the taxpayer redeemed today. But, it is highly unlikely he/she will redeem on the day you give them the payoff quote.

Step Nine:

Add up all the per diems for the different years. Let's assume it is 17.767 cents a day for the 2012 taxes and 14.794 cents a day for the subsequent years. Subsequent years will be less than the auction year, because the auction year includes advertising costs and late fees in the principal amount due. Subsequent years will be only the taxes due for those years.

Adding up all the per diems is 17.767 (2012 taxes) plus 14.794 (2013 taxes) plus 14.794 (2014 taxes) plus 14.794 (2015 taxes) plus 14.794 (2016 taxes) to equal 76.943 cents per day of interest accrual.

Step Ten:

Your letter should say, "If you redeem today, the total will be $XX.XX. For each additional day up until the date you actually redeem, you must add another 76.943 cents per day.  If you do not redeem on or before (fill in a date, maybe 30 days in the future) then this quote will no longer be valid and you will have to start the process all over again."  You add that language about a termination date because they might drag their fee for many months without redeeming. In the meantime, you  might have made preservation improvements for which you might be entitled payment, you might have filed an ejectment lawsuit and they will owe your attorneys fees as part of the redemption amount, or any number of other things might have happened.

@Liliana Lopez , I'm so sorry. I drafted this reply on the day of your question, but apparently forgot to hit the "post" button. I hope this advice is not too late for you.

There is only one circumstance under which attorneys fees can be added to the redemption price. That is if the investor files an ejectment lawsuit against the taxpayer (or someone in possession under the taxpayer, such as a tenant) and the taxpayer counterclaims and asks for redemption. In that case, the redemption amount will include reimbursement for the attorneys fees for the ejectment.

The ONLY things that can be included in redemption quotes are:

Taxes + interest

If the property contains a residential structure, then also the value of preservation improvements + interest and the cost of casualty insurance + interest.

If the property is located within the official boundaries of an urban renewal or urban redevelopment district, then redemption will include the value of all improvements made after the tax sale (not just preservation improvments) + interest, and the cost of casualty insurance premiums + interest.

You cannot include attorneys fees (except as described above), accounting fees, consultant fees, recording fees, due diligence expenses, travel expenses to check on the property, or anything similar.

The law is VERY clear on this.

If the owner remains in possession until after the tax deed date, and then attempts to redeem, the investor can sue the taxpayer for something called "mesne profits." This is the reasonable rental value of the property from the tax deed date until the present time.