Posted on 11 Comments

New Lien Holder Redemption Decision

The issue involves a lien holder who did not receive notice of the tax sale until more than three years after auction. As you know, lien holders are given extended redemption rights in Alabama because they do not receive pre-auction notices. Investors must send CMRRR notices to all lien holders about the tax auction. The lien holder then has one year from receipt of the notice to redeem, or three years from the auction, whichever is longer.

If it is more than three years after the auction, but less than one year from the notice, how does the lien holder redeem? Is it judicial redemption with a lawsuit against the investor in Circuit Court? Is it judicial redemption by filing a redemption counterclaim after the investor files an ejectment lawsuit in Circuit Court? Or is it statutory redemption, with a petition by the lien holder in Probate Court?

This came up recently in Jefferson County. The lien holder contacted the investor to redeem. There was a difference of opinion about the value of the preservation improvements. The investor filed an ejectment lawsuit in Circuit Court. It asked for attorneys fees, which is allowed if someone answers the ejectment and asks to redeem instead of having their possession rights terminated.

The lien holder threw everybody a curve ball. It filed a petition to redeem in Probate Court, where attorneys fees are not allowed under the circumstances. The lien holder then asked the Circuit Judge to put a temporary hold on the ejectment lawsuit until redemption could be completed in Probate Court.

The Circuit Judge agreed with the lien holder that it had statutory redemption rights even though more than three years after the auction. As a result of prior Alabama Supreme Court decisions, that automatically meant Probate Court had exclusive jurisdiction over redemption. The Circuit Judge put his case on “hold,” waiting to see what happened in Probate Court. As a practical matter, once redemption could be completed in Probate Court, the investor would no longer have any claims for ejectment. At that point, the ejectment lawsuit would have to be dismissed, and the investor would not be entitled to collect any legal fees as a consequence.

This is only a decision of one Circuit Judge in Jefferson County. It is not binding on any other courts. But, it is a warning to everyone about how courts might think about this issue. Bottom line, at least in Judge Hughey’s courtroom in Jefferson County: Lienholders who still have redemption rights even after the initial three years can redeem through Probate Court. In other words (1) more streamlined; (2) faster; and (3) no attorneys fees add-on caused by defending an ejectment lawsuit with a redemption counterclaim.

Warning to investors: Don’t be so quick to file ejectment lawsuits as a tactical move when in a redemption dispute with a lien holder. You might find yourself having to pay your lawyer thousands of dollars for THAT, but not getting reimbursed by the redeeming party.

11 thoughts on “New Lien Holder Redemption Decision

  1. “The lien holder threw everybody a curve ball. It filed a petition to redeem in Probate Court”- Was the lien holder the previous owner under the circumstances of a void tax sale? In any, case would the previous owner have to be dead for there to be jurisdiction in probate court?

    1. For most people, “probate court” indicates somebody died. Actually, probate courts have jurisdiction over a wide variety of things, including adoptions, emancipation of minors, and legal proceedings related to tax sales. So, nobody died in my article. Lienholders have redemption rights because they have a “dog in the fight” when a property gets sold for unpaid taxes. Suppose you loaned your child $50,000 to buy a house and took a mortgage back. Your child didn’t pay the taxes of $600 and I bought the property at the tax auction. Technically, because my tax auction purchase trumps your mortgage, you just lost your mortgage. That means you cannot foreclose the property and try to sell it to get some of your money back. You are just out $50,000 because your child failed to pay the taxes. That’s not fair, is it? As a result, the law gives all lienholders the right to redeem property from a tax auction. That puts the title back into the taxpayer’s name (in my example, your child) and then the lienholder can foreclose their mortgage or other lien, sell the property, and try to collect their money.

  2. There is some debate as 2 whether 40-10-120 stops probate jurisdiction after 3 years – mad co probate told me so – in this case the investor might b able to petition al civ app 4 mandamus 2 prohibit probate or wait till probate ct orders redemption then appeal 4 void judgment

  3. I go in next week to file ejectment, the owner has been saying he’s going to redeem a year now and still hasn’t. How do these changes pertain to my situation? Will I not get my money back for filing ejectment whenever they do redeem? I don’t mind owner redeeming, but since I’ve been patient I would at least like to repair and rent out to get my money back until the owner really redeems. I’m handling everything on my own no lawyers

    1. Tamika, the decision does not affect you unless it is the lien holder who tries to redeem. File your ejectment lawsuit. Since you will be representing yourself, you won’t be entitled to legal fees anyway.

      1. I don’t know that u can force redemption by filing ejectment – as in the case Denise wrote about the owner/lien holder can allow your ejectment without filing a motion 2 redeem – subsequent to disposal of your case they might not b precluded from filing 4 ejectment & redemption against u without paying your attorney’s fees

  4. Does that mean that the lien holder is still required to pay back preservation cost to the tax lien purchaser.

    1. Yes, the lien holder still has the same obligation to pay for the increased value due to the preservation improvements. It is not “reimbursement” though. Be careful about two things. (1) If you are in litigation, you will probably need an expert witness to testify as to the before-and-after values. You might be able to testify yourself, but not as persuasive to judge as an expert. There is a Supreme Court decision saying what you spent on improvements is evidence of the increased value (meaning gets taken into consideration, along with everything else) but it is not enough, all by itself, to win on that issue. (2) In one recent case, the investor spent over $50,000 on improvements but did not pull any permits, did not hire any licensed subs, and redeeming party claimed all the work was done in a shoddy and substandard manner. The court ruled that despite all the expenditures, they added no value at all, and awarded the investor $0 for improvements.

      1. An investor who bought a tax certificate in 2012 and then didnt pay subsequent taxes would be considered a Lien Holder to a new investor who bought 2017 through 2019 taxes correct?

      2. Maybe not, because of Rioprop

      3. Gotcha! I don’t know all the details of the case I was speaking of either. Thanks for responding!

What do you think?