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.