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Question of the Week: Minerals

Question: “Hi Denise, I hope things going good for you.  Got a question – if I owned a 40 acre tract of land and also owned the minerals. If I failed to pay the property tax, and it is eventually sold at auction — do I lose the minerals too?”

Answer: Sometimes surface rights and mineral rights are severed–separated–via a deed. It might say the sale is of certain described real estate, but with the mineral rights reserved to the grantor. Sometimes the deed is for the mineral rights, and the grantor keeps the surface for sale later or passing to heirs at death. Sometimes an owner will deed the minerals to himself, just to legally separate the minerals from the surface. When that happens, the surface rights and mineral rights are each assessed separately for taxes.

At one time, the owner of the mineral estate paid the ad valorem taxes every year. Now, he can choose to do that, or he can pay a one-time deed tax equal to $1 per $1,000 of value of the mineral interest. Most people elect the one-time charge. That is why you almost never see mineral interests up for sale at the tax auctions. Instead, the owner pays the one-time fee and then, when minerals are actually extracted, it pays the severance tax based on weight or value of material extracted.

If an owner fails to pay the taxes on the surface, that does not affect the mineral rights. The surface will be sold and the minerals will remain in the name of whoever owns the mineral rights.

If the minerals have not been severed, then a sale of the land includes the surface and the minerals. Sometimes investing in minerals rights sold in older tax sales can be very profitable. Other times, investing in seemingly worthless land that includes valuable mineral rights can be incredibly profitable. Taking possession without actually mining or drilled has to be done exactly right, but it’s not really complicated or hard. To find out about this and many other out-of-the-ordinary tax investing strategies, check into our Advanced Tax Strategies live class or video, HERE.

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Question of the Week: Sewer and Other Liens

This question comes from an investor who wants to buy a tax sale property that has a sewer lien on it. He’s willing to do that, and pay off the lien, because the property is worth it. But, he’s concerned that if the taxpayer redeems, will be be repaid for the money he spends to clear the sewer lien?

The answer is, YES., according to the Alabama Supreme Court decision in Morris v. Card, 223 Ala. 254, 135 So. 340 (1931). It is an old case, involving a 1919 tax sale, but it is still valid law. The investor paid off some sidewalk and street improvement assessments. The court said those amounts should have been included in the redemption calculations. For you lawyers out there, the actual quote from the court is at the end of this article.

What other things might this apply to? I think paying off HOA liens would use the same logic. What about paying HOA dues to avoid liens, or cutting the grass to avoid a nuisance lien? There is no statutory or court guidance on those issues, but I think it is logical that you should be paid to do things that prevent liens, just the same as you are entitled to payment for clearing liens.

Properties with local government liens usually do not get redeemed because the price tag is just too high. People usually have truly abandoned the property, because of the liens and the fear of foreclosure. That makes them good properties to target. To learn about other tax sale strategies, many of which are VERY profitable with almost no competition, come to one of our Advanced Tax Sale Strategies classes, or purchase the video. For more information, click HERE.

The actual quote from Morris (223 Ala. 258, 135 So. 343) is “The decree fixes the amount necessary to redeem and takes no account of the sidewalk and street improvement assessments paid by Morris to clear the property of said liens. These amounts should have been included in the amounts necessary to redeem. Wartensleben v. Haithcock, 80 Ala. 565, 570, 1 So. 38; Cobb v. Vary, 120 Ala. 263, 24 So. 442; Turner v. White, 97 Ala. 545, 551, 12 So. 601; Acts 1915, § 240, p. 475. For the failure to allow such municipal taxes and assessments amounting to approximately $ 322.27 and lawfully paid by respondent in the original bill and complainant in the cross-bill, the decree is reversed, and the cause is remanded for proper calculations of the amounts of due redemption charges and interest.”

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Question of the Week: Indemnity Agreement

This question comes from Mobile County. A tax sale investor wanted to exchange his tax certificate for a tax deed once he passed the three year date. The Probate Judge’s office told him that he would have to sign an indemnity agreement before they would give him the tax deed. They wanted him all tied up with legal documents before they would give him what he was entitled to!

The indemnity agreement said the investor would protect the county from any and all claims related to the tax sale property. In other words, if anyone at all sued the county for anything at all about the tax sale, even claims the sale process was void, the investor would have to pay up!

He asked my opinion, and I told him the ONLY requirement for getting a tax deed was paying a $5 fee. I told him to stand firm, refuse to sign the agreement, and insist on getting a tax deed.

He did exactly that. The Probate Judge’s office backed down and said he was not required to sign the agreement, but they were required to give it to him.

Any such “requirement” is just an internal procedure that has nothing to do with the law. If you are asked to sign anything at all before being given a tax deed or tax certificate, check with an attorney before signing away your life. Just because someone asks for something, doesn’t mean they are entitled to it. Even county officials.

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Question of the Week: Quitclaim & Quiet Title

This question comes from someone who bought a tax deed from the State two months ago, found the former owner, and wants to obtain a quitclaim deed from that person. The investor asked, “If I get a quitclaim deed, can I file my quiet title lawsuit right away, without having to wait three years?”

The answer is that the quitclaim deed gives him the owner’s redemption rights. Afterwards, those rights no longer exist since the tax deed and the redemption rights kind of got merged into each other, and now only the deed survives and is the winner. Quiet title lawsuits are to get rid of other people who might have rights in the property. The quitclaim deed does that all by itself, assuming there are no other owners and no lienholders. A quiet title lawsuit is not even necessary.

If there are lienholders, the investor might have to send out the certified letters and wait one year from RECEIPT (not from date of mailing) to clear out those redemption rights. After the year, the investor can file the relatively fast and cheap and easy in personam quiet title lawsuit. No guardian ad litem (GAL) is required because the GAL represents the interests of the unknown defendants. If all of your defendants are known and you can serve lawsuit papers on them, there is no need for a GAL.

In the question I received, there were no lienholders and no other person with ownership rights. In that case, with a quitclaim deed, the investor is good to go. I told him to approach a title insurance company to get title insurance on the property. That way, if there are any surprises, he learns about them BEFORE he gets ready to sell or finance.

Do you want to learn more about easy tax sale strategies to make wise decisions, avoid problems, and speed up the process? Check out the Alabama Tax Sale Investing introductory course, available live at locations around Alabama or over the Internet. Click HERE

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Fair Housing Exemptions

The most likely place for landlords to violate the Fair Housing laws is in the area of emotional support animals. Many small landlords think they are exempt, and can refuse to allow emotional support animals. Watch my video to learn about the Fair Housing exemptions. One of them applies to owners of single family rentals, but there are SEVERE limits on the exemption. “Know Before You Say No!” is my advice.

Link to YouTube video HERE. If you want more information about the Fair Housing laws and how to navigate those pitfalls, check out our Fair Housing for Landlords class and classroom videos, HERE

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Termite Protection as Preservation Improvement

Subterranean Termite Tube Into House

Do not overlook termite protection as a preservation improvement for a tax sale property. There is a foreclosure redemption case that says the redeeming borrower must pay for termite protection.  Durr Drug Co. v. Acree, 241 Ala. 391, 2 So.2d 903 (1941).  Foreclosure redemption includes all “permanent improvements” but that has been defined as any repairs or upgrades. A termite bond is not an upgrade, like adding a bathroom or something. So, it must fall under “repair.”

Because the tax sale “preservation improvements” include repairs, then I think the Durr case is good support for being able to collect them in a tax sale redemption. The statute says “preservation improvements shall mean improvements made to preserve the property by properly keeping it in repair for its proper and reasonable use, having due regard for the kind and character of the property at the time of sale.”  I certainly think termite control qualifies.

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Online Deed Research

The following counties have deed research capabilities on the county websites. Click on the county name to link to each one’s portal. Baldwin, Houston, Jefferson, Madison, Mobile, Montgomery, Shelby and Tuscaloosa Counties.  They are slightly different from each other, because they use different services to host their deed records. Check your county’s website to see if they have dedicated links on their site.

I’ve encountered some browser issues with the county websites. Sometimes the search feature works in Chrome, but not Microsoft Explorer. Sometimes the reverse. Please try a different browser if yours does not work for the search function.

Other counties use a service by a company named Syscon, and you have to go to THAT website for your research. Currently, you use Syscon for the following counties: Bibb, Calhoun, Clarke, Clay, Coffee, Colbert, Coosa, Cullman, Dale, Dallas, Elmore, Franklin, Geneva, Henry, Houston, Lauderdale, Limestone, Monroe, Talladega, Walker, Wilcox, Winston. Click HERE to get started.

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Is Self-Help Possession Okay?

Tax sale investors are entitled to possession of property as soon as they obtain their tax certificate. That is in the statutes, at Ala. Code Section 40-10-74. But, what does that mean? If property is vacant, can the investor change the locks and take over the property?

I think the answer is no. Some other lawyers disagree with me. Some agree. You pick your expert and your strategy, and go with it, in my opinion. Here are my arguments why self-help possession is dangerous.

The statute that allows possession also says that if possession is not surrendered within six months after demand, then the certificate owner can file an ejectment lawsuit. It does not say, “If somebody is occupying the property and does not surrender possession….” I take that to mean that surrender of possession by the owner, or ejectment lawsuit by the investor, are the only two choices for lawfully gaining possession.

In addition, the 1943 Alabama Supreme Court case of Tensaw Land & Timber Co. v. Rivers (244 Ala. 657, 15 So.2d 411) says that “a suit to oust one in constructive possession when no one is in actual possession is as necessary as a suit against one in actual possession.” In other words, even if nobody is there, you must file an ejectment lawsuit to gain lawful possession. This is an old case, but it has never been overturned and is still good law.

In a quiet title lawsuit, the plaintiff must be in peaceable possession. It cannot have gained possession by fraud, trickery, violence, or breach of the peace. Turnley v. Hanna,  67 Ala. 101 (1880) I think this rational applies to tax sales possession, also.

Finally, things will be too much of a mess if courts have to constantly decide where to put the line, and when people have gone over the line. What if the owner went to WalMart and the investor changed the locks? What if the owner had not been to the property in many months, but was paying the power bill and cutting the grass? What if they were working on it every now and then, as they saved money from their paycheck? What if they had been sick for six months and unable to go to the property? Is it really fair for an investor to swoop in, take possession, make improvements, and make a property too expensive to redeem? I think the courts would say, “No, it’s not fair. You can’t do that.”

A far more sensible rule is the one I advocate, and the one supported by the 1943 decision. If an owner surrenders possession (either by telling you that or signing a lease with you) then you can go into possession. If you have an ejectment order, then you can go into possession. If the owner TELLS you the property is abandoned and you can do whatever you want, you can go into possession. But, they have to tell you. Legally abandoned is completely different from “vacant and in really bad shape for many years.” (see case cites, below)

If someone tells you they intend to redeem, the property is definitely NOT abandoned.

Finally, if you have done everything you can to find the owner but can’t, then you just have to punt, as they say. Post your no trespassing notices. Talk to all the neighbors and tell them your plans. Board up the windows. Lean a 4×8 sheet of plywood against the front door, with several colors of paint on it, like you are trying to decide paint colors. Let things “season” for 60-90 days, to see if anybody comes out of the woodwork. If not, then proceed slowly and cautiously.

Relevant case cites:

•“Abandonment  is the relinquishing of a right or interest with the intention of never again claiming it.” L&N Enters., LLC v Lioce Props, LLP, 51 So.3d 273 (Ala. 2010) •Abandonment implies a voluntary act.  Rowland v. Landiga’s Heirs, 21 Ala. 9 (1852) •Abandonment is a jury question.  Buck v. Louisville & N. R. Co., 159 Ala. 305, 48 So. 699 (1909) •Temporary failure to maintain property is not an abandonment unless coupled with intention.  Hughes v. Anderson, 79 Ala. 209 (1885)