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Here is a question that I recently received:
“We keep hearing from folks that if a property is sold for taxes, all the mortgages and other liens are wiped out. Is that true? Do you know where the law is on that? We want to buy tax certificates but want to make sure we aren’t buying a bunch of old mortgages to go along with it.” (edited)
First, a disclaimer: I am not an attorney or a real estate agent. The below answer is strictly my personal opinion based on my personal observation and experience.
Short Answer: Mortgages and liens are NOT automatically wiped out as a result of a tax sale and I don’t know what Alabama code section applies to this subject. You won’t be “buying” mortgages per se but you may be obligating yourself to deal with residual mortgages, liens and judgments as you navigate the tax property investment process.
Long Answer: When a parcel of property is sold at tax sale, it can have practically any kind of lien, mortgage or judgment attached. In fact, if the property taxes have not been paid, it is VERY likely that other obligations related to the property are also unresolved.
I am only aware of the following ways that a mortgage, lien or judgment can be removed:
- The obligation is satisfied (paid) or otherwise expires.
- The lien is voluntarily abandoned or removed by the lien holder.
- The lien holder exercises what may be a right to redeem the tax deed by paying the tax deed holder.
- The lien is negated or removed as a result of a “quiet title” order or some other type of court action.
I don’t recall ever hearing of a ruling that diminished the position of the tax deed holder, as long as the tax deed holder didn’t do something foolish. Normally, the other parties that once held an ownership, mortgage, lien, or judgment interest in the property, will have the opportunity to “redeem out” the tax deed holder at some point in the “quiet title” process. They seldom do—even if it is the IRS.
In my opinion, functionally, there is no property interest that has a higher priority or carries more potential “weight” than an Alabama ad valorem property tax lien. That does not mean that you will always be 100% satisfied with the outcome but your tax deed interest will receive “first place” attention in the process.
Maybe you have a tax certificate and:
-Your investment objectives have changed, or
-You really would like to have the cash right now, or
-You’re not sure that tax lien investing is for you anymore.
Maybe you have a tax deed and:
-You like tax certificates but don’t really “have the stomach” for tax deeds, or
-You don’t look forward to taking an aggressive position to resolve your tax deed, or
-You don’t know what to do with a tax deed and really don’t want to learn right now.
If any of the above scenarios even remotely describe the way you feel about an Alabama tax lien asset that you currently own, I encourage you to contact me to discuss your options. Usually, if your asset has any residual value, we can negotiate a transaction that will be positive for all parties.
Call, text or e-mail:
Let me just take a moment to give a short “primer” on what one might do in the event they find themselves with a tax deed. Let’s use as an example property, a tax deed property located at 6255 Crest Green Rd, Birmingham, AL 35212 (which, by the way, is still available for purchase for a few more days).
DISCLAIMER: I am not an attorney and nothing that I say should be construed to be legal advice.
Here’s what I would do if I purchased a tax deed on the subject property (which happens to be a townhouse condominium):
1. Record the tax deed with the Jefferson County Probate Judge. This will probably cost less than $50.00.
2. Take the recorded tax deed to the Jefferson County Tax Assessor’s Office and have the property assessed in my name (so I will get future tax notices).
3. Call my insurance agent and get the property insured as a “rental” property.
4. Order a title search, so I can find out (a) if there is a mortgage, (b) if there are other liens, such as condo association, sewer liens, etc and (c) find out what other “players” may be involved in the title history.
5. Determine if the property is occupied by putting a letter on the front door or an obvious sign on the front making it easy for someone to call me if they have an issue. If I don’t get any phone calls from tenants or owners, I go to #6 below. If I do get a call from someone “claiming” to be a tenant or an owner, I engage my favorite attorney for help and do what he or she advises me to do.
6. Contact the condo/homeowner’s association and let them know what I am doing in terms of attempting to take possession of the property and that I intend to pay up any legitimate liens.
7. As the owner of a tax deed on this property, I have the legal right to the use and possession of the property. I am going to take possession of the property (assuming no one is occupying the property). I would change the door locks and secure the property, leaving my signage up the whole time. I want to be very “public” and “visable” about what I am doing.
8. Determine a budget to get the unit “rent-able”.
9. Execute clean up and rehab efforts, being sure not to do anything other than what is absolutely necessary for repairs and restoration.
10. Engage a local real estate management company to manage the rental property for me (of course I can do this myself if I want to).
11. I am going to include in my lease agreement, a phrase that reads: “This property is a tax sale property (tax deed) and may be subject to redemption at any time. In the event of a redemption, you may be required to move out. You will be given as much notice as possible.”
12. Take my rent checks to the bank!
Every situation is at least a little bit unique, but from my experience, the above scenario would not be unusual.
Historically, for the sale of a tax certificate, we have charged 3% of the State amount due or $100, whichever is greater.
In an effort to show appreciation to current and future customers, we will guarantee that you will not LOSE any money, given the following conditions, when you buy tax certificates through us:
1. After you purchase a tax certificate from us and the property is redeemed, and has not earned enough interest to cover our fee, we will give you a CREDIT for the amount of our fee that was not covered by the interest earned.
2. Applies to tax certificates only.
3. A CREDIT can be applied to future purchases only. No cash refunds.
4. This policy does not take into consideration ANY other out-of-pocket costs that you might incur in making a tax certificate purchase (such as postage, cashier’s check fees, money order fees or wire fees, etc.).
5. This policy DOES not cover a situation where you do something stupid! For example: If we send in the purchase amount that the State requires, then the State amends that amount and gives you time to respond—-AND YOU DON’T RESPOND, OR ASK FOR MY HELP OR OTHERWISE LET ME KNOW SO I CAN INTERVENE, then the purchase expires—-you will NOT get a credit for our fee.
6. It will be the purchaser’s responsibility to provide documentation of some kind indicating the exact redemption proceeds amount (check copy or other documentation from the appropriate tax collection official).
7. Upon our receipt of the appropriate documentation, we will issue a “credit memo”, to be applied to future purchases.
This virtually eliminates the risk of losing money on our fees when you buy from us!
Stay tuned for the next list of available properties!
I recently received the following questions from a reader:
“I read article regarding the case where the tax investor was asking for payments for insurance and preservation but courts denied. I also read case regarding void tax deed. My question to you is how as investors do we verify that owners have been properly notified so that deeds will not be void? Any clarification in this would be very helpful. Regarding the insurance are most investors purchasing home or renters insurance on the property? “
I think you are asking how can you know that the county has given sufficient notice of tax sale to the owner so that the tax deed will not eventually be declared invalid. Answer: I don’t know of any way to know for sure but I have two thoughts:
(1) Once you the investor get the tax deed, you can verify owners by having a title search done and then notifying all parties on the record of title via certified mail, return receipt requested. This should force something to happen pretty fast IF there is a problem with the validity of the sale.
(2) There is some degree of responsibility on the State and the County to accurately advertise and properly sell the tax certificate. If the amount of monetary damage incurred as the result of an invalid sale/tax deed is significant, you can always consider litigation against the appropriate governmental office.
Regarding insurance–my observation has been that once a tax deed is acquired, at least some insurance companies will issue a “tenant-fire” insurance policy for a nominal premium with a moderate deductible.
According to a recent Alabama Supreme Court ruling in FIRST UNION v LEE COUNTY, Alabama may NOT be a “title state” after all when it comes to refunds of excess bids from tax sales.
The term “title state” means that in the State of Alabama, the holder of a mortgage (mortgagee) is for all practical purposes, the owner of the property.
When a property is sold at tax sale for non-payment of property taxes, any amount bid in that exceeds the amount of taxes and fees is referred to as the “excess bid”. Alabama Code Section 40-10-28 provides for the disposition of the excess bid.
For those that have dealt with excess bid refund issues in this state, you know that a major concern of all parties has been adequate notification/protection of mortgagees.
To demonstrate the issue, let me give you a hypothetical situation:
John Smith has a home valued at $200,000. He paid $250,000 for it three years ago but the bottom fell out. USA Mortgage holds a mortgage on his property for $200,000. The 2010 property taxes came due on 10/1/2010 and for whatever reason,were not paid. John Smith’s property is then sold at tax sale in May of 2011—-for the amount of taxes and fees due—–plus a $30,000 excess bid.
Code Section 40-10-28 basically states that the “owner” is entitled to the excess bid. If we interpret that simply and literally (which is by the way very close to what happened in FIRST UNION v. LEE COUNTY), then John Smith could walk in, pick up his $30,000 and go on a decent vacation. If he is facing foreclosure anyway, why not have a little fun with the deal? The obvious big loser, USA Mortgage, is now stuck with a $30,000-plus tax bill for 2010 in addition to foreclosure expenses in a “bear” real estate market..
Read the case to see alternatives that the Alabama Supreme Court suggested.
Sorry for the delay in updating website and lists. We had an interruption on April 27th. It was the Shoal Creek Valley tornado. We were very fortunate in that (1) no family members were injured and (2) we still have a house, although significantly damaged. We had dear neighbors who were not so fortunate. We are thankful to the Lord for his provision and protection. Go here if you want to know more about what happened in our valley.
NOTE: The Boyd Family needs only your prayers. If you would like to help, please donate to the Lee and Crawford Families. Thank you.
I apologize for not having been responsive to questions. I will try to get caught up on those.
We do have some properties available. Let us know if you have interest.
In our effort to build business relationships based on trust and integrity, it occurred to me that it might be helpful to let folks know our terms for selling tax certificates and tax deeds.
1) Tax Certificates-Our commission is 3% of the State price or a minimum of $100.00. For example: if the State amount is $4,832.95 the total amount would be $4,977.94. Our fee in this case would be $144.99.
2) Tax Deeds-Our commission on tax deeds is 10% of the State price.
You may be asking “What do I get for the commission that I pay?” Fair question:
1) You get to “buy it now” instead of waiting in line just to see if you even have a chance to buy it from the State yourself.
2) You get the benefit of having us shuffle all the paperwork which includes getting a cashier’s check, mailing it certified mail to the State, and doing it within the time constraints required. Oh yeah, did I say everything has to be accurate as well?
3) You get the benefit of having someone with over 27 years experience dealing with the State to oversee the process.
Can you do this yourself? Absolutely.
But we would be glad to do it for you and let you do what you do best.
Let us know if you have questions.
4 ways (more…)