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.