Tax lien sales are an inevitable consequence in a society where revenue from real estate taxes pays for a large portion of the infrastructure and government-provided assistance, such as schools, police, and libraries. Although the exact percentages vary, taxes assessed on real property account for a large portion of state and local revenues.
Government can’t afford to forgo property tax collections. But not every property owner can afford to pay what they owe. Failing to collect past-due taxes would be an unfair system for those who pay their bills and enjoy the services.
According to Alabama law, the state has the right to sell tax liens, or tax certificates, when a property owner is delinquent. The purchaser of the tax certificate, who is usually a private investor, also has the right to protect their investment by preserving or improving it. When it comes to the right of redemption and quiet title actions, documenting preservation improvements is vital.
Buying Tax Deeds in Alabama
In Alabama, once there is a tax lien on a piece of property, the taxing authority can sell the lien at auction and transfer a tax certificate to the new owner. The auction winner won’t immediately get a title to the property. But they do have the right to immediately demand possession of it from the owner.
If the owner doesn’t respond to the demand within six months, the tax purchaser can sue for ejection. Whether the tax purchaser takes possession of the property or not, the owner has the right of redemption under law, meaning they can try to get the property back.
Currently, many counties in Alabama require the redeeming party to obtain written verification from the tax purchaser of the presence or absence of additional expenses, like preservation improvements.
After owning a tax certificate for three years, the tax purchaser becomes entitled to a tax deed. The purchaser should have a marketable title before renovating or adding onto a property. To obtain a marketable title after getting a tax deed, the purchaser will need to be able to show three things:
- Adverse possession of the property for the statutory period of three years;
- That taxes due on the property have been paid; and
- That there are no minors, creditors, or others who wish to exercise a right of redemption.
What are Preservation Improvements?
Preservation improvements mean improvements made to preserve the property by properly keeping it in repair for its proper and reasonable use, having due regard for the kind and character of the property at the time of sale.
While there is no appellate decision defining precisely what is meant by “preservation improvement,” it is commonly argued that improvements to preserve a property can consist of anything necessary to return the property to habitability (but no upgrades or additions or changes). This will include things such as termite control and painting exterior wood.
It’s important to understand that there is not a presumption that any and all improvements can be redeemed if the owner exercises their right of redemption. Not surprisingly, there have been conflicts with respect to whether work done on a property was necessary, the value of the work, and whether it qualifies for reimbursement.
These disputes can lead to time-consuming negotiation and litigation, which impacts any return on investment and jeopardizes the property interests of the involved parties.
Getting Reimbursement for Preservation Improvements
Not every property you take possession of or get a tax deed issued on will remain in your name. Many property owners do exercise their right of redemption, either administratively or through the courts. Likewise, the seller may be compelled to transfer the title to you through a quiet title action, which could take some time to conclude.
It is important to thoroughly document the condition of the property once you take possession. It is also essential to keep thorough records of any preservation improvements made to the property. These records will be crucial to prosecuting any quiet title action and recovering the costs of the improvements in a quiet title action, administrative redemption, or judicial redemption action.
For help with or questions about tax lien purchases, contact BHM Law Group, LLC at 205-994-0902.