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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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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: 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.”