Property Tax Lien Attorneys in Birmingham
Investing in tax deeds can be a great way to invest in real estate without having a lot of upfront capital. But it’s essential to understand the risk and legal technicalities of tax deed investing.
A property owner, either an individual or a corporate entity, holds the title to a parcel of real property. Every year ad valorem taxes are due to the state, county, and city. If the property owner fails to pay those taxes, then the state has the right to sell the property to the highest bidder to cover the delinquent taxes.
This is where the tax investor comes into play. An individual or corporate entity has the right to purchase the state’s tax lien interest. The following articles will discuss various legal components of tax lien investing, including tax certificates, tax deeds, right of redemption, and the quiet title process.
What is a Tax Lien?
A tax lien is a lien placed on a piece of property due to an unpaid debt, usually property taxes. When property owners don’t pay their annual tax bills, the local tax authority has the power to place a lien on the property. When such a lien is in place, the property owner will be unable to sell or refinance without satisfying the debt and clearing the lien. The purpose of a tax lien is to compel a property owner to address unpaid debts.
Tax Liens vs. Tax Certificates
A tax lien refers to a property owner’s outstanding tax debt. Provided the property owner is unable to pay the debt for an extended period, which will be defined by the local tax authority, the next step is to issue a tax certificate.
In Alabama, the purchaser of a tax certificate is entitled to immediate possession of the property. They may also perform the duties of the state taxing authority and collect outstanding taxes due. If the owner fails to surrender possession of the property after six months, the tax certificate purchaser has the right to sue.
Tax Lien vs. Tax Deed – What’s the Difference?
Many investors and property owners get tax liens and tax deeds confused. While the terms sound similar, there are some differences. They are similar in that both processes are initiated when a property owner neglects to pay property taxes owed. But the similarities end there.
A government authority can choose to pursue a tax lien or tax deed when a property owner is delinquent on their taxes. As already discussed, a lien can be filed and subsequently auctioned off to an investor, who has the right to collect the back taxes.
A tax deed is different. This instrument gives the local government the right to auction off the property once the owner proves unable to pay the debt. An investor can purchase a tax deed at auction, giving you the right to foreclose on the property if the owner doesn’t pay the outstanding debt.
Right of Redemption and Judicial Redemption
If a purchaser (like an investor) buys a property at a tax sale, the owner has three years to redeem that property, which is referred to as “administrative redemption.” In Alabama, the owner can go to the probate court in the county in which the property is located and pay the purchase price plus interest, the value of any improvements, and the cost of insurance premiums paid.
After the three-year administrative redemption period expires, the property owner’s only recourse is to file an action in court in the county in which the property is located. This judicial redemption action must begin within certain time periods, which vary depending on the circumstances.
The Quiet Title Process
Tax deeds can be challenged in court because they are part of the State’s administrative foreclosure process. Whether your investment strategy involves acquiring property for investment, rental, or some other purpose, it should include quieting the title.
An action to quiet the title is a court case that names all parties as Defendants that hold an interest in the property at the time of the tax deed sale, giving each an opportunity to challenge the sale at the time of the hearing. If there are no challenges, the tax sale purchaser receives a judgment that legally quashes all named parties from having an interest in the property.
If you’re ready to maximize the value of your investments and want to ensure your rights are protected throughout the process, you need an experienced real estate investment attorney in your corner. For help with or questions about tax lien purchases, contact BHM Law Group, LLC at 205-994-0902 or through our website contact form.