If a property owner in Alabama fails to pay their Ad Valorem taxes, the past-due amount will become a lien on the property. The taxing authority can eventually sell the lien in the form of a tax certificate. The purchaser of that certificate has the right to possess the property, which may involve a process of giving notice and even filing a lawsuit for ejection.
Assuming an investor purchases a tax certificate and gets an ownership stake in a property, that doesn’t necessarily mean they will immediately possess the deed. The original owner still has an opportunity to get their property back through the right of redemption, which can take several forms.
Right to Possession
If a private investor purchases a tax certificate at a state tax sale, it will contain a description of the property and the taxes owed. The investor is immediately entitled to demand possession of the property from the owner.
If the owner has not surrendered the property within six months of the purchaser’s demands, the purchaser can sue the owner for “ejectment” to remove them from the property.
Right of Redemption – Administrative Redemption
Whether or not the property owner is still in possession of the property, Alabama statutes give them an opportunity to get it back. The owner of a property that has been purchased at tax sale has the right to administratively redeem the property from the tax purchaser.
The right of redemption period is three years from the date of sale of the tax certificate. In order to administratively redeem the property, the owner must pay to the tax purchaser the back taxes paid, plus interest (8% on sales after 1/1/2020); any insurance premiums paid by the tax purchaser; and the value of all preservation improvements made to the property.
Issuance of Tax Deed
If the original property owner has not redeemed the property within three years from a tax certificate purchased by an investor, the tax purchaser can demand a tax deed from the appropriate probate court. This tax deed will give the tax purchaser all rights, interest, and title of the original owner who had a duty to pay the property taxes.
If the state purchased the property and later sold it to an investor, the tax purchaser can also request a tax deed that gives them all rights, interest, and title of the original owner who had a duty to the property taxes. When a tax deed is delivered to the tax purchases, this ends the owner’s legal claim to the property.
Right of Redemption – Judicial Redemption
Judicial Redemption comes into play once the property owner’s three-year right to administratively redeem the property has expired. From that point, the property owner will need to file an action in the court in the county in which the property is located in order to redeem the property.
The property owner has three years from the date when the tax purchaser became entitled to demand a tax deed on the property (i.e., the expiration of the administrative right of redemption period). However, this three-year period does not begin to run until the tax purchaser is in adverse possession of the property. This means the tax purchaser has taken control of the property exclusively, openly, and continuously from all other persons.
If the tax purchaser has a tax deed and is in adverse possession of the property, then the owner has only three years to file an action for judicial redemption. After the three-year period has run, the tax purchaser may quiet title to the property by suing all persons claiming an interest in the property. If the property owner maintains possession, meaning the tax purchaser has not taken control of the property, there is no time limit to judicially redeem the property.
Who Can Redeem the Tax Delinquent Property?
The owner (including his/her heirs or personal representative(s)) or anyone having a legal or equitable interest in the property may redeem the property. You’ll generally need written documentation in order to establish your right to redeem.
Cost to Exercise Right of Redemption in Alabama
The amount you have to pay depends on who buys the lien – the state or a private party. Generally, you need to pay the amount paid by the purchaser for the tax certificate, any interests, fees, additional taxes due, and the value of preservation and improvements made to the property to keep it safe and habitable.
For help with or questions about tax lien purchases, contact BHM Law Group, LLC at 205-994-0902.