Alabama Tax Sale Redemption Amounts

7 Replies

One of my earlier forum discussions addressed the issue of excess bids in Alabama tax sales. I will not duplicate that information here.

A redeeming owner must pay the following charges:

  1. Taxes due at time of auction, plus 12% per annum interest
  2. An additional 12% per annum interest on the qualifying portion of the excess bid
  3. All taxes paid or currently due since the auction, plus 12% per annum interest.

If the property contains a residential structure, the redeeming owner must also pay:

  1. The value (not the cost!) of preservation improvements
  2. The cost of casualty insurance premiums, plus 12% per annum interest.

If the property is in an urban renewal or urban redevelopment district (as designated by local city government on their official maps), the redeeming owner must also pay:

  1. The value (not the cost!) of ALL improvements (whether preservation or otherwise)
  2. The cost of casualty insurance premiums, plus 12% per annum interest

Any improvements made after the redemption demand are not recoverable by the investor.

All rents collected or earned before the redemption demand may be retained by the investor.

Knowing this, especially the information about preservation improvements, should make you feel more comfortable about making tax sale homes habitable and rentable, even though there are still outstanding redemption rights.  Document all repairs and improvements with plenty of photos, notes, and receipts. The receipts will help you remember all of your improvements.

The statute says a preservation improvement is "made to preserve the property by properly keeping it in repair for its proper and reasonable use, having due regard for the kind and character of the property at the time of sale."

Go out and invest!

thanks Denise, this is very useful. One of the reasons I stuck to land in Alabama was these issues with houses that were, at least technically, redeemable. Have you had any redeem?

Also, do you know the difference between 'value' and cost?

@Deborah Tuck , Many properties are redeemed. The trick is to make redemption so expensive that you almost don't care if they redeem. You either make a quick profit of several tens of thousands of dollars and use it to fund other deals, or you get to keep the property and make much larger profits over many years.

The value of the preservation improvements is the current value of the property after you've done your fix up/clean up, minus the value before you started.  Usually a real estate agent can do a BPO (Broker Price Opinion) for you.  If you had a structurally sound home in a modest part of Birmingham, and it needed yard work, exterior paint, windows resealed, new carpet, new plumbing fixtures, water heater and heat pump, it might be worth $65,000 to $75,000.  You could spend $15,000 to $20,000 on it, and increase the value to $145,000. If the owner redeems, they pay the $80,000 increase in value, not the $20,000 cost of preservation improvements.  Most owners won't be able to afford that.  You'll be able to keep the property.

The trick is to change the order in which people normally do preservation improvements. Typically, people start at the top--the roof--and work their way down. That's the most efficient method.  For tax sale properties in Alabama, you want to start with the fastest and least expensive fixes that add the most value.  Usually that will be yard work, flooring and paint.  The reason you do this is because you want to hurry up and increase value as much as possible before the former owner attempts to redeem.  Once they offer to redeem, your preservation improvements after that point are not recoverable.  

Aha! That's great, thanks!

With the interest rate, is it 1% per month or an automatic 12% no matter when the owner redeems?

@Mike Sherman , technically it is 12% per annum, which should be calculated on a per diem basis. 12% per annum on $1,000 works out to interest accruing at the rate of 32.8767 cents per day. But, most people just go with 1% per month because it is easier.

Thanks @Denise Evans , another quick question with the new bid down interest way be the same way per annum so for instance if it's bid down to 5%  would that be around 0.42 percent per month?  Also the 2019 tax sales that are coming up, are they for the delinquent 2018 taxes or 2017 delinquent taxes?   Thanks you have been such a great help!

@Mike Sherman , it works out to 0.041666 per month, but interest is always calculated daily unless a statute or contract says otherwise. There is no statute that says otherwise for tax sales. Most people use a monthly number good through the end of the current month because its easier and the numbers are small and nobody seems to care.

The 2019 auctions will be for the delinquent 2018 taxes.

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