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Disastrous New Alabama Supreme Court Decision

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.

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Twitty Burgers

Just a whimsical piece. I’d been talking about tax law all day long, so that was on my brain. My husband has often been told he bears a striking resemblance to Conway Twitty, back when Conway was alive. He (my husband, obviously not Conway) mentioned it a few minutes ago. So, that slammed Conway Twitty and tax law together in my brain, and made me remember a famous decision I learned in law school.

Conway got the bright idea to create a burger franchise called Twitty Burgers. Short story, it went bust, the investors all lost their money, but Conway repaid all of them, in full. Then he claimed those payments as a deductible business expense on his taxes. The IRS strongly disagreed. The case went to court. The judge who ruled in his favor also shared an “Ode to Conway Twitty” in his published decision. I thought you would enjoy it. Of course, the judge needed to stick to his day job and not go into song writing, but it is nice piece of levity for a usually boring subject.

Twitty Burger went belly up
But Conway remained true.
He repaid his investors, one and all.
It was the moral thing to do.

His fans would not have liked it,
It could have hurt his fame,
Had any investors sued him
Like Merle Haggard or Sonny James.

When it was time to file taxes
Conway thought what he would do
Was deduct those payments as a business expense
Under section one-sixty-two.

In order to allow these deductions
Goes the argument of the Commissioner.
The payments must be ordinary and necessary
To a business of the petitioner.

Had Conway not repaid the investors
His career would have been under cloud,
Under the unique facts of this case Held:
The deductions are allowed.

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Tax Sale Property Research

I’ve been asked for my personal checklist of property research items. This is separate from things disclosed by a property inspection, such as condition of roof, flooring, etc. Here is my list. Sometimes I run across things that cause me to investigate other matters, but this is a good start. Answers to the following questions help me evaluate risk and value.

  1. Was the assessed owner the owner on the date of the auction with no transfers or foreclosures?
  2. How did the owner acquire the property?
  3. What type of ownership did they acquire (life estate, joint tenancy, etc.)?
  4. Are there any liens?
  5. Has the property been through a prior auction? Who bought it? Why did they discontinue paying the taxes (educated guess)?
  6. What is the assessment history regarding improvements, values, homestead and over-65 exemptions?
  7. Did the tax bill go to an address different from the property?
  8. What other properties are/were owned by the same owner? Have any of them gone delinquent? Can I make an educated guess about why this property, among all that person’s properties, was neglected as far as paying the taxes?
  9. How can I be SURE as to the property address?
  10. What is nearby that might depress the value, such as gravel pit, game cock farm, junk yard, etc.?
  11. What is the neighborhood profile re: owner occupied or rental properties?
  12. Are there decent roads to the property?
  13. Is it landlocked?
  14. Is someone currently using it? Who? What is their relationship to the owner (tenant, relative, squatter)?
  15. Is the property inside an official urban renewal or urban redevelopment district?
  16. Is the property inside an Opportunity Zone?
  17. Is the property the subject of any eminent domain proceedings?
  18. Is it the subject of any unsafe structure condemnation proceedings?
  19. Are there orders in process to clean garbage, cut dead trees, etc.?
  20. Is there a stigma to the property, such as murder, suicide, sink holes, etc.?
  21. Is the property listed for sale with a real estate agent or on one of the FSBO sites?
  22. Is the taxpayer still alive? If deceased, who are the heirs? Where are they?
  23. Where does the taxpayer live? What does that information tell me?
  24. What other properties does the taxpayer own?
  25. Has the taxpayer filed for bankruptcy?
  26. Is the taxpayer in prison?
  27. Where are nearby sex offenders, if any?
  28. What does a Google search reveal about the owner and how does that affect my educated guess about likelihood of redemption and/or buying out rights via quitclaim?

I hope this helps. If you need guidance on doing the research that will answer the questions above, I have one-on-one personal training sessions (over the Internet, but no computer skills required on your end) to teach you my tricks and how to interpret what you find. Click HERE for details.

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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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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.

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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)