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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.

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Inheriting a Tax Certificate

The email question asked, “My mother owned several tax certificates. She died last year. In her will, she left her entire estate to me. Does that give me the tax certificates, and allow me to get tax deeds? The local probate judge says I cannot get deeds unless I have a written assignment of the certificates. The judge says the will does not qualify as an assignment. Is that right?”

As a starting point, the statutes are very clear that tax certificates can be assigned “in writing or by endorsement.” An endorsement is like endorsing a check. You remember checks, don’t you? Of course, a written assignment on a separate piece of paper is always safest, though.

But, what about a will? Does that qualify? For over one hundred years, Alabama courts and Attorney General opinions said, “No.” Then, in 2012, someone asked, again, for an Attorney General’s opinion on the subject. Government officials can ask for an AG opinion about something related to their job. Not you or me, though. Don’t get your hopes up about free legal advice.

The AG’s opinion, Number 2012-012, says the Alabama Supreme Court decision that started all the trouble ACTUALLY said something different than what everybody thought. That’s not uncommon, by the way. Those old 1800’s decisions are really hard to read. Some people don’t even try. They rely on Headnotes, which are kind of a “cheat sheet synopsis” of the court opinion.

The AG said that when you read the entire decision and all of the facts, it was clear the Supreme Court said the local probate judge could not issue a deed to someone because they were not an actual heir, NOT because heirs could not inherit tax certificates under a will.

As a result, the AG revoked all of its prior opinions that relied on that decision. The opinion says, “Yes, you can inherit a tax certificate under a will, and receive a tax deed.”

Of course, that leaves open the question of what happens if someone dies without a will. Nobody knows, for sure. Maybe probate will have to be opened. Let’s hope this issue never comes up for any of you!

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“For Sale” Signs on Property

Putting “for sale” signs on tax sale properties comes up often. Today, I received a question from someone who had been given a price quote by the State, planned to pay the full quoted price, and would receive a tax deed. Her question was, “Can I immediately put a sign up indicating I will own this property soon, and asking people to contact me if they are interested?”

There are several reasons why she cannot, and SHOULD not, put up such a sign until AFTER she has her deed.

  • It is not her property until she actually receives the tax deed. If she puts up a sign, she is trespassing and could be subject to criminal prosecution.
  • Just because she is willing to pay the quoted price does not mean she will get the deed. Taxpayers sometimes redeem right before the deed is signed by the Governor. That happens because the State is legally obligated to notify the former owner before the tax deed is signed, to give them the chance to redeem before that happens.
  • Shining a spotlight on a good property might cause a vulture investor to buy up the taxpayer’s rights and redeem it from the State. The lady who asked for the price quote will lose her deal. Laying low is the best policy, until she has that deed.

Another person’s “sign” question had to do with posting a property as “No Trespassing” and if that were enough to establish possession. Answer: It is an indication of possession, but is not enough all by itself. If you do not want to get an ejectment order, do as many things as you can to take possession. Rent the property out, even if just for garage sales or growing turnip greens. Put up “For Sale” signs. You don’t have to actually sell it to anyone who asks. Keep the grass cut or the frontage mowed. Put out survey stakes approximately along the property line, every 10 or 12 feet, with orange flagging on them. Put your phone number on a No Trespassing sign. The thing about possession is that it is supposed to alert people there is a “new Sheriff in town” and they should ask questions if they are the former Sheriff.

Remember, if you have a question, you can always write. If it’s something I think might interest other people without giving away any of your tactics or secrets or identify, I might make a blog article about it.

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Quieting Title

Quieting title quiets all the ghosts that “haunt” a property’s title. It is a lawsuit that results in a court order saying nobody else has any claims or redemption rights regarding a particular property. You do not receive a warranty deed from the court, because you already own the property. But, the result is basically the same thing as if you had received a warranty deed.

After such an order you can get title insurance. That means you can borrow money against the property, and you can sell it for full market value. You no longer have any worries about doing whatever you want on the property. No matter what marketing you might have seen, you cannot get title insurance in Alabama on a tax sale property unless you have a quiet title order OR quitclaim deeds from everyone that might have any rights. You can, in other states. Not Alabama.

There are three ways to quiet title through the courts. Two of them are pretty quick, easy and cheap. They are simple enough for Do-It-Yourself, without an attorney. The third way is a little bit trickier, and I usually recommend people hire a lawyer for that one.

Quitclaim deeds are easy to prepare. Sometimes you need to hire a skip trace to find people. I usually offer to pay someone for their time meeting me to sign the deed, “up to $200.” That lets me dangle money in front of them, but it does not make it seem like they are doing any important or valuable. If they thought that, they might want more money. I just act like it’s a very routine paperwork thing the lawyers are making me do. “No big deal.”

If you would like to learn how to quiet title, try to take one of our classes on that subject. Currently, there is one scheduled in Birmingham on Saturday, January 25, 2020 from 8:30 am to Noon at the Marriott Courtyard, 4300 Colonnade Parkway. Come with information about a property you would like to quiet title on. For the two easier methods of quieting title, we’ll walk through all of the steps and forms right in class! Come prepared with information about one of your properties, if you would like to use it in class as an example.

I also tell you what you need to know about the 3rd kind of quiet title, and provide some forms. We won’t provide a step-by-step for that one, though, because I really strongly encourage getting a lawyer. But, if you are up for it, you’ll receive all the information you need. We will also spend a little bit of time going over quitclaim deeds, with those forms.

Click HERE for more information about the class, reviews, schedule, and registration link.

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Big Changes for 2020

What is 2020 bringing for Alabama tax sale investors? Lots of changes!

Interest rates are dropping to 8 percent across the board, although that was probably not the intent. Some local redemption offices will still allow 12% on auctions that occurred before 2020. The rules are quirky.

Payment for improvements will turn into a logistical nightmare, with taxpayers able to regain possession before they pay for improvements. The intended upside for investors was the “sudden death” provision if the taxpayer misses its deadline to pay, but actual implementation at the county level will change that. The best option for everybody? Get the law changed, again!

The Alabama Department of Revenue has plans to break the logjam caused by the ten-fold increase in price requests, the vast majority of which NEVER turn into a purchase.

Birmingham Land Bank will be selling commercial as well as residential properties. Changes to the process will make it easier to buy in 2020. Right now, they have 22 residential properties already in inventory with warranty deeds and title insurance, for immediate closings upon payment of $3,000 to $4,500. More cities are expected to implement their own local Land Banks, including several in Jefferson County.

Mobile County will join Shelby and Baldwin in switching to tax lien sales, as will several of the smaller counties. Mobile plans to have an online auction rather than the traditional method. As of the date of this blog post, it will be the only one for 2020.

An important new appeals court decision means a redeeming owner will have to pay you the reasonable rental value of tax deed property from the deed date up until the date of redemption, on top of the other redemption charges.

FYI, one of the pre-filed bills for the 2020 legislative session seeks to abolish state sales taxes and income taxes and replace them with an 8.03% consumption tax on all goods and services. It doesn’t have anything to do with tax sales, but I though you’d like to know about it!

If you are interested in details about these and other changes, plus explanations of what they mean to you, your strategies, your new opportunities, and your new perils, please attend one of our classes on “2020 Tax Sale Changes.” The class is 4 hours, but every single minute is important! You can attend in Birmingham or Orange Beach, in person or live over the Internet. Streaming video also available. For details and registration links, click HERE.

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Question of Week: Sale to Former Owner

This question comes from Mona Lisa Zimmerman.

“I have just received a tax deed on yesterday for a property in Jefferson County, Bessemer, AL. I am in the process of sending a certified letter to the previous owner, who still has possession of the property (is living there), asking them to vacate the property. I am willing to sell the house back to them. Can I sell it back to them at a fair market value or can I only sell it to them for the taxes I’ve paid plus interest? Also, please verify that these are the correct steps for me to take:
1. Send a certified letter letting the previous owner know that I have purchased the property via a tax deed and ask them to vacate.
2. If they don’t vacate by the specified date (I’m giving them 2 months), start the ejectment process.
3. Alternatively, I will rent to them if they want to stay.
Thank you! “

My answer: Many people sell properties back to the owners at fair market value after they’ve received a tax deed. Technically, the owner can redeem by paying only the taxes plus interest. Many owners do not know that. I am not sure if it is fraud or not to tell someone they must pay fair market value. I am not condemning the people who do that, because I’m truly not sure in my own mind. I would not do that, because it would make me nervous and uncomfortable and it would feel wrong. But that’s just me. It doesn’t mean that is the only correct response.

Yes, Lisa, your outlined steps are correct. If you have only a tax certificate, you must give six months notice before you file your ejectment lawsuit. If you have a tax deed, you do not have to wait out any notice period at all.

There is currently a case pending in the Court of Civil Appeals about the ability to recover “mesne profits” when you sue for ejectment after you have a tax deed.

“Mesne profits” is a very very old Anglo-French word dating back to the time of King Henry II of England, who was the father of Richard the Lionhearted and King John of Magna Carta fame. It is a little bit earlier than Robin Hood. The concept is VERY old. Some people pronounced it as “main profits” because that is the French pronunciation. At the time, all English royalty was basically French by heritage. Some people pronounce the word “mez-knee”. Either one is acceptable.

It means that if you sue for ejectment after you have a deed, you are also entitled to money damages equal to the reasonable rental value of the property for the entire time of the unlawful occupancy by the defendant. The pending case will decide if that applies to a tax deed situation. As soon as there is a decision, I will let everybody know. You should always ask for mesne profits, if you have a tax deed, just in case the court allows it.

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Question of the Week: Day Care Tenant

An investor has been given a price quote for a tax deed on a property. The former owner operates a day care center there. The day care is still in business. The investor asked for my advice. Here it is:

An operating business or a property occupied by a paying tenant will probably be redeemed. On the other hand, they might be short of cash for the time being and willing to sign a lease. Getting that signed lease puts you legally in possession, which is important when burning off judicial redemption rights. Worst case–they redeem pretty quickly and you get your money back. Most likely case, they redeem after several years and you get the rent plus the interest. Best case, three years slip by without them redeeming, and you can now quiet title in yourself.

A day care raises some red flags, though. Are they licensed? If not, then they can be shut down by the authorities. Makes no different to the investor, except that the loss of income makes it even less likely the former owner will be able to redeem.

Liability issues are especially important with a day care. If a child is hurt or killed while on the premises, you better believe EVERYBODY–including the tax deed owner–will be sued. Under some theories of liability, the tax deed owner might be held liable. The investor should discuss with their insurance agent that the tenant will be an operating day care center, and make sure the investor gets the right insurance to cover such risks. Some companies will not insure properties with day care tenants. Some charge a higher premium. Also, the investor should check into getting an umbrella insurance policy. An umbrella picks up the difference between the maximum liability limits on all your other policies, up to the umbrella amount. For example, suppose you buy a $1 million umbrella, which is surprising cheap, btw. If your auto policy has $250,000 liability limits and your homeowners has $100,000 liability limits and your landlord property policy has $200,000 limits, then for whatever thing you get sued for, the umbrella will pick up the difference. It will add another $750,000 to your auto liability coverage, $900,000 to your homeowners, and $800,000 to your landlord policy.

If you are interested in landlord/tenant advice, be sure to visit our companion site, to read the blog articles and check out the class, video, article and book resources.

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Exciting Things in Birmingham’s District 9

In case you want to skip over this post, don’t! It is about how somebody else’s vision can bring personal financial rewards to you–the tax sale investor. Read to the end, please.

I just returned home from speaking at a Pastor’s Breakfast in Birmingham, at the invitation of City Councilor John Hilliard. I was the featured speaker with a talk about tax sale investing, meaning people were supposed to be excited about MY words. A wonderful bonus for me was listening to Councilor Hilliard’s talk about his vision for the people of his District, and viewing his video about a planned aviation high school. In my opinion, that would be a game-changer for so many families, so many futures. If you teach children it is okay to dream, because you are also giving them the tools to realize their dreams, then the repercussions will echo down through the generations. Our country was built on dreams, and our future will be designed by the dreams of the children now coming up in the school system. We should all help them dream big, because we will also reap the rewards.

If you haven’t already acquainted yourself with Councilor Hilliard’s plans, please do so right away. Lots of exciting things are in the future for District 9, and that means tax sale investors should target that area for purchases and rehab. The future of property values, in my opinion, is very promising! Don’t be left behind, saying something similar to “I wish I bought properties in Avondale when you could buy them so cheaply….” or any number of other examples. Be among the early birds to get in on District 9 and its future! Let other people be envious of YOUR ground-floor investments. To see what’s included in District 9, click HERE for a map and a locator.