All Forum Posts by: Denise Evans

@Account Closed, if the owner died before the tax sale, then the tax sale is void. You can "cure" a void tax sale with 3 years of adverse possession that starts on or after the date a tax deed could have been issued, In other words, you start with the date 3 years after the tax sale, and if some time after that the investor adversely possesses the land for 3 years, then the statute of limitations expires and the heirs cannot claim the tax sale was void. If it was void, you are not entitled to possession and cannot maintain an action in ejectment, but you can at least start ejectment and force them into "redemption." Technically it's not really a redemption if the tax sale is void, but they do have to pay you for the taxes plus interest, and you have a lien on the property for that. If they don't pay, you can foreclose your lien, somewhat similar to a sheriff's auction.

If the owner died after the tax sale, then their heirs have simple redemption rights. You can file your suit to eject. They will either redeem (and pay your legal fees as part of the redemption costs) or they will default and hopefully you will get possession.

@Greg H., good point. I didn't think about FHA and their rules. But, a lease purchase is still the most viable option. @Helen Kirk, be careful when thinking about "part or all" of lease payment going towards note.  Set it up as if it were a fully amortizing loan.  That portion of each "payment" that would be principal can be used towards reducing the purchase price.  Otherwise, there is no time value of money component.  Besides being not smart, you also run the risk of the IRS imputing an interest rate to you, if you are audited. They will recharacterize part of each payment as interest, thereby increasing your income, causing additional taxes, penalties and interest.

I blogged about a recent Alabama Supreme Court case in which the payment was set up as 100% of lease payment going to reduce the note on the seller financing.  It was bad news for the seller. You can link to my blog from my website.  Click on the blog tab for "Financing" and then the article on "Seller Financing Pitfall."

Also, part of each payment needs to cover insurance and taxes.

I see no reason for WF to get involved. 

I don't know if 400 to 450 is affordable for them.

If this is your only seller-financed deal in a twelve month period, you will not run afoul of the S.A.F.E. Act, but you should learn more about this if you are going to get into such activities on a more regular basis.

Depending on the wording of their note, they might have a large deficiency balance due after the foreclosure. If they purchased their property from you for $22,000 in cash, then they would have a free and clear piece of real estate, and the bank (or its successor) would simply sue them for the deficiency.  In addition, with the wording of "after acquired property" clauses in mortgages, the lender MIGHT be able to make an argument that their mortgage re-attached to the property, and then foreclose a second time!

I would recommend renting it to them on a lease/option basis. This will give them time to go through bankruptcy and clear our the deficiency, or work something out with the lender about the deficiency. 

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.

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?

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.

Make sure you know the redemption rules in Alabama, and don't over-improve. Even with a tax deed, the former owner can still redeem by paying the taxes plus 12% per annum interest.  That redemption period runs for three years after the investor takes possession of the property. If the property contains a residential structure, the former must also pay the value of "preservation improvements" made by the investor, but not additions or upgrades.  The investor gets to keep any rents collected up until the redemption.

You must also make sure the tax sale was not void. The most likely culprits are death of property owner before tax sale, or sale of property to someone else but failure to assess in the new owner's name.  In other words, the wrong person's name was called off at the auction.  If the tax sale is void, the former owner (or heirs) can redeem for the taxes plus interest, but do NOT have to pay you for preservation improvements. Also, you will have to disgorge any collected rents.

Check with an Alabama attorney.  Ask a real estate agent in your area to recommend a closing company. Then call the closing company and ask for the name of the attorney they use. Then call that attorney. It will be your BEST chance at finding an attorney who knows this area of the law. It can be tricky for the uninformed.  All all-purpose attorney who does divorces and car accidents and DUI cases will most likely NOT know enough to help you properly.

Yes, this is called a "deed in lieu (that's French for "instead") of foreclosure" in Alabama.  People just shorten this and call it a "deed in lieu" or a "DIL."  In some states, a DIL is the same as a foreclosure. In other words, if there is a second mortgage on the property, and/or a tax lien, and/or a judgment lien, they are all wiped out by the DIL, the same as if there had been a foreclosure.  This is NOT true in Alabama.  A DIL in Alabama allows all junior liens to remain on the property.  Be sure to get a title commitment before going forward, and then also pay for title insurance and make sure the title insurance covers "the gap."  Here's the problem Even if there are no junior liens at 3:30 on Friday afternoon, but one gets recorded at 4:40 and closing takes place at 4:50 and the deed recorded the same day, the junior lien got recorded before the deed. Technically, it would remain on the property. This rarely happens. Most insurance companies insure "the gap" so even if this happens, the title insurance would take care of the problem. Some do not insure the gap. That's why you need to ask.

A DIL shows up as a foreclosure on the borrower's credit report. A borrower might prefer to just deed the property to the lender and simultaneously have the note marked "paid in full" and a mortgage satisfaction recorded in the real estate records. This is a matter for negotiation between the parties. An FDIC-insured bank is not allowed to do this because of issues related to accounting and transparency. A private lender can.

@Toi H., there are all types of properties on the state list. You've just been unfortunate if all you've encountered was unimproved land.