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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 the Week: Insurance

Someone wrote and asked the question, “Where can I find insurance for my tax certificate property?”

I think it will require a work-around. The problem is caused by the fact that you do not yet have ownership. The insurance industry says you do not yet have an “insurable interest.” If the house burns to the ground, you have lost your possession rights, until such time as there might be a redemption. It’s hard to put a price tag on that, to know how much the insurance check should be. You have lost the possibility of maybe owning the property in the future, but that is pretty far-fetched to an insurance company. The easy answer to these difficult questions is for insurance companies to say, “We won’t insure your tax certificates.” Because Alabama is the only state that has the tax certificate and possession format, the market is just not large enough for insurance companies to figure out a risk vs. premium structure.

On the other hand, they do have a lot of nationwide experience with a different kind of delayed ownership situation. That is when someone sells property on a contract for deed or similar arrangement. The buyer does not get a deed until some time in the future, when they’ve made all their payments. Despite that, they are able to buy full value property insurance.

With that in mind, I recommend the following work-around. Acme LLC buys the tax certificate. It then “sells” the property to Jim Acme (sole owner of Acme LLC) on a contract for deed. The contract requires Jim Acme obtain casualty insurance. Jim goes to his insurance agent with his contract for deed and obtains property insurance. Jim should disclose to the agent that it is tax certificate property he is buying. Full disclosure is important with insurance companies. Otherwise, if you have a loss they will claim fraud and refuse to pay your claim.

Note: Big changes are coming in 2020, that can affect the insurance issue. Be sure to attend the class on “2020 Tax Sale Changes” in a city near you, or watch the streaming video. Click HERE for more information.

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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.