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New Alabama Tax Lien Sale Procedures

Twenty-one counties will use the new “tax lien” auctions in 2021, instead of the traditional “tax certificate” sales. Everything is different, and much easier. Effectively compete against the hedge funds with very small amounts of cash. Earn higher interest rates. Get good title more quickly. Bid online. To learn more, sign up HERE for one of our classes, which include due diligence forms for attendees. The 2021 county list is below. There will probably be more in coming years.

  • Autauga
  • Baldwin
  • Calhoun
  • Cherokee
  • Cleburne
  • Conecuh
  • Cullman
  • Dale
  • Dekalb
  • Elmore
  • Etowah
  • Franklin
  • Jackson
  • Lamar
  • Marengo
  • Mobile
  • Randolph
  • Shelby
  • Talladega
  • Tallapossa
  • Walker

Class information, dates, and registration link HERE

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Disastrous New Alabama Supreme Court Decision

Alabama Supreme Court case of Stiff v. Equivest Financial LLC (read entire decision HERE) involved a tax certificate auction held inside the county courthouse rather than outside, in front of the main entrance. The statute says the sale must be in front of the main entrance.  Virtually all counties holding certificate auctions have conducted them in the wrong place for several decades.

The court ruled that if the auction occurred in the wrong place, the tax sale was void. This applies whether somebody bought at the auction or there were no bidders and it was sold to the State and then purchased over-the-counter by an investor.  These are the consequences of a void tax sale:

(1) Taxpayer can get the property back, but must pay investor for taxes plus interest. That is because a specific statute requires that if a tax sale is void.

(2) If there was an overbid, the interest is on only the taxes, not the overpaid.  If a hedge fund paid $30,000 to get a tax certificate for taxes due of $1,000, then the taxpayer pays interest on only $1,000. The investor gets the entire $30,000 back, but earns a TINY amount of money on its investment.

(3) Investors who took do-it-yourself possession and made improvements will not be paid for those improvements.

(4)  MAYBE investors who took possession after an ejectment order are safe, because MAYBE the claim of a void tax sale would be a compulsory counterclaim. If so, and if not asserted in the ejectment lawsuit by the taxpayer, it is lost forever. In other words, if the taxpayer does not counterclaim in the ejectment lawsuit and tell the court the tax sale was void, then they might have lost that argument and can’t ever use it in the future.  This is just my theory.

(5) Investor who took do-it-yourself possession and rented a property out will be required to pay all of those collected rents over to the taxpayer.  Same theory as #4 if the investor had an ejectment order, though.

(6)  Investor who took do-it-yourself possession and used a property themselves as a residence or business or other use will be required to pay the reasonable rental value of their use to the taxpayer. Same theory as #4 if the investor had an ejectment order, though.

This was a 5-4 decision. The majority opinion threw out an offhand comment that they knew this would upset the apple cart in a dramatic way (my words) but, not to worry, there is a statute that says investors must still be paid for taxes and interest.  Apparently, they did not think through these other situations very carefully.  I will keep everybody posted as to any motion to reconsider.

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Twitty Burgers

Just a whimsical piece. I’d been talking about tax law all day long, so that was on my brain. My husband has often been told he bears a striking resemblance to Conway Twitty, back when Conway was alive. He (my husband, obviously not Conway) mentioned it a few minutes ago. So, that slammed Conway Twitty and tax law together in my brain, and made me remember a famous decision I learned in law school.

Conway got the bright idea to create a burger franchise called Twitty Burgers. Short story, it went bust, the investors all lost their money, but Conway repaid all of them, in full. Then he claimed those payments as a deductible business expense on his taxes. The IRS strongly disagreed. The case went to court. The judge who ruled in his favor also shared an “Ode to Conway Twitty” in his published decision. I thought you would enjoy it. Of course, the judge needed to stick to his day job and not go into song writing, but it is nice piece of levity for a usually boring subject.

Twitty Burger went belly up
But Conway remained true.
He repaid his investors, one and all.
It was the moral thing to do.

His fans would not have liked it,
It could have hurt his fame,
Had any investors sued him
Like Merle Haggard or Sonny James.

When it was time to file taxes
Conway thought what he would do
Was deduct those payments as a business expense
Under section one-sixty-two.

In order to allow these deductions
Goes the argument of the Commissioner.
The payments must be ordinary and necessary
To a business of the petitioner.

Had Conway not repaid the investors
His career would have been under cloud,
Under the unique facts of this case Held:
The deductions are allowed.

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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.

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Tax Sale Property Research

I’ve been asked for my personal checklist of property research items. This is separate from things disclosed by a property inspection, such as condition of roof, flooring, etc. Here is my list. Sometimes I run across things that cause me to investigate other matters, but this is a good start. Answers to the following questions help me evaluate risk and value.

  1. Was the assessed owner the owner on the date of the auction with no transfers or foreclosures?
  2. How did the owner acquire the property?
  3. What type of ownership did they acquire (life estate, joint tenancy, etc.)?
  4. Are there any liens?
  5. Has the property been through a prior auction? Who bought it? Why did they discontinue paying the taxes (educated guess)?
  6. What is the assessment history regarding improvements, values, homestead and over-65 exemptions?
  7. Did the tax bill go to an address different from the property?
  8. What other properties are/were owned by the same owner? Have any of them gone delinquent? Can I make an educated guess about why this property, among all that person’s properties, was neglected as far as paying the taxes?
  9. How can I be SURE as to the property address?
  10. What is nearby that might depress the value, such as gravel pit, game cock farm, junk yard, etc.?
  11. What is the neighborhood profile re: owner occupied or rental properties?
  12. Are there decent roads to the property?
  13. Is it landlocked?
  14. Is someone currently using it? Who? What is their relationship to the owner (tenant, relative, squatter)?
  15. Is the property inside an official urban renewal or urban redevelopment district?
  16. Is the property inside an Opportunity Zone?
  17. Is the property the subject of any eminent domain proceedings?
  18. Is it the subject of any unsafe structure condemnation proceedings?
  19. Are there orders in process to clean garbage, cut dead trees, etc.?
  20. Is there a stigma to the property, such as murder, suicide, sink holes, etc.?
  21. Is the property listed for sale with a real estate agent or on one of the FSBO sites?
  22. Is the taxpayer still alive? If deceased, who are the heirs? Where are they?
  23. Where does the taxpayer live? What does that information tell me?
  24. What other properties does the taxpayer own?
  25. Has the taxpayer filed for bankruptcy?
  26. Is the taxpayer in prison?
  27. Where are nearby sex offenders, if any?
  28. What does a Google search reveal about the owner and how does that affect my educated guess about likelihood of redemption and/or buying out rights via quitclaim?

I hope this helps. If you need guidance on doing the research that will answer the questions above, I have one-on-one personal training sessions (over the Internet, but no computer skills required on your end) to teach you my tricks and how to interpret what you find. Click HERE for details.

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Shelby County Tax Auction Will be Online 4/1/20

Because of COVID-19, the Shelby County, Alabama, tax auction will take place online, rather than at the county courthouse. It will still be on the same scheduled date, April 1, 2020. Remember, Shelby County switched to a lien auction system last year, and will be doing lien auctions again. For more information, visit www.govease.com (the company that will be hosting the auction platform) or Shelby County’s website at https://ptc.shelbyal.com/caportal_mainpage.aspx

As of 2:00 pm on March 23, I don’t see any links for the Shelby County auction, but continue monitoring those two sites. You will need to register at govease.com, so do that as soon as possible. They also have some online training videos that are free, about the online auction process.

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Mobile County Online Tax Lien Auction

Mobile County has now set its auction date. It will be an online lien auction on May 4, 2020. For more information, registration, and training, click HERE. The company hosting the auction is based in Mississippi, and has done online tax auctions for that state and for Tennessee. Hopefully that means everything will run smoothly.

If the link above does not work, copy and paste the following into your browser: https://govease.helpscoutdocs.com/article/97-alabama-tax-lien-auction-overview

Remember, this is a tax LIEN auction, not the old-fashioned tax certificate auction. There will be no rights of possession, no ability to make improvements, but also a much shorter and easier path to clear title with the ability to get title insurance. If you are unclear about the differences, and how that affects your strategies, think about signing up for our Intro to Tax Sales class, HERE. Even if you’ve taken it before, a LOT has changed in the last couple of years: some bad things, some great things, and some new opportunities.

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Question of the Week: Mentoring Services

Everybody asks, but I rarely have any vacancies for new clients. Right now, there ARE some available slots for new mentoring clients in Alabama tax sale investing. Clients are provided 10 target properties that have been vetted and a strategy identified, complete with cost and profit estimates. Choose among package profiles:

  1. High Dollar Redemption Income (more than 12%)
  2. Rental Properties
  3. Flipping (tax certificates and tax deeds)
  4. Blended portfolio of the above strategies

Mentoring services include step-by-step instructions and personalized service for your individual package of properties.  Photos, spreadsheets and market analysis available for all properties.  Reputable third party service providers (such as contractors and property managers) are also identified.

Already know HOW to do it, and just need someone to identify properties for acquisition?  Those services are also available.

Denise Evans
THE nationally recognized expert in Alabama tax sale investing

Call 205-646-0453 to discuss your needs, or email Denise@TaxSales-Alabama.com

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When Can You Quiet Title After Tax Sale?

I’ve been hearing rumors lately about lawyers telling people they can’t quiet title on their tax sale property until at least 10 years after the auction, 10 years after the tax deed, or never. Take your pick. They are all wrong.

I can’t imagine why anyone would say “never.” That’s just completely not true.

The ten year urban legend comes from lawyers remembering the 10 year number from law school. If there is a boundary line dispute or a title issue, and one party has possessed the property and paid the taxes for 10 years,they can quiet the title. That is because the 10 year statute of limitations has expired.

Tax sales have a special and different rule. It is called the Short Statute of Limitations, because it is only 3 years. So, let’s start with that.

If a tax sale is void, it can be “cured” by 3 years of adverse possession after the tax deed date. That is when someone can quiet the title. That’s similar to the 10 year general rule that lawyers remember from school, but shorter.

If the tax sale is valid, then we have to think about redemption rights, not statutes of limitations.

When will all the redemption rights have expired? Some experts say 3 years after the tax deed, no matter what. An investor can surrender their certificate and get a tax deed three years after the auction. So, those experts think you can quiet title 6 years after the auction.

Some experts say that as long as the investor is exclusively and peaceably in possession on the tax deed date, then all redemption rights are over when the tax deed is issued, and title can be quieted on that date.

All of those opinions are related to something called “judicial redemption rights.” The law is in flux right now for a variety of reasons related to new interpretations of old statutes, and new statutes that might have changed things.

I, personally, would file quiet title as soon as I got my tax deed, assuming I was exclusively and peaceably in possession on that date.