Alabama Tax Certificates
People who own real property have to pay property taxes. The state or local authority collecting the taxes uses the funds to pay for things like roads, schools, libraries, and public services. Typically, the tax due is based on the assessed value of the property, and the money is either paid through the mortgage company or directly to the tax collector’s office.
When property owners fail to pay their taxes, the overdue amount becomes a lien on the property. The owner is subsequently unable to sell or get a new loan on the property with such a lien. But a lien can be sold by the local government to raise funds. When the tax lien is sold, it is done so in the form of a tax certificate.
What is a Tax Certificate?
In Alabama, when the State and/or an individual purchases interest in a property at a tax sale, the first document produced is a tax certificate. A tax certificate is a certificate of purchase of the County/State’s tax interest in the subject property.
Tax Certificates in Alabama
Alabama has two different types of tax sales. A sale of lien system is somewhat new, which allows foreclosure after three years. Most counties still use a sale of land system, which gives the purchaser an interest in the property sold, evidenced by a certificate, which can be exchanged later for a deed to the property.
Sale of Land System
Established by Alabama Code §§ 40-10-1 through 40-10-143, this is a system used by a majority of the counties in the State to handle the sale of property rights due to delinquent taxes.
Property taxes in Alabama are billed in October of each year and considered delinquent if not paid by December 31. After January, the steps leading up to the sale of a tax certificate can begin.
The probate judge in a particular county will receive a list of delinquent taxpayers and will use the list to schedule hearings, giving the property owner an opportunity to show cause why a sale of the property should not be made.
Notice of the hearing must be served by hand or by registered or certified mail. If the property owner can give no valid defense for the nonpayment, a notice of sale of the property must be made via publication. Failure to do this could invalidate a sale.
Tax sales are conducted periodically in person and online. The probate court in Alabama must sell the tax certificate for at least the amount of the tax lien, which generally equals the taxes owed plus any fees due. If a private party does not purchase the property, the State of Alabama can do.
Right of Possession with Tax Certificates
The right of possession with respect to tax certificates is set forth in Alabama Code § 40-10-74, which states that the purchaser of a tax certificate is entitled to immediate possession of the subject property.
If the owner has not surrendered possession of the property within six months of the demand, the tax purchaser may sue the owner for ejectment. In most cases, a lawsuit for ejectment, brought after the six-month demand for possession, is the prudent action.
The purchaser of a tax certificate also has the right to perform preservation improvements to the property. If the owner exercises their right of redemption, the purchaser is entitled to reimbursement for these improvements.
Right of Redemption with Tax Certificates
According to Alabama law, persons having an ownership interest in a property or who hold a lien or mortgage on a property at the time of a tax sale have redemption rights. These rights last three years, which are the longest in the country.
There is an administrative or statutory redemption period and a judicial redemption period. When a property is sold at a tax sale, any party with interest in the property can redeem the property within three years of the sale by paying past-due taxes, fees, and improvements. The judicial right of redemption allows a party with an interest in the property to file suit over a specified period after the statutory right of redemption has expired.
A tax certificate also entitles the purchaser to perform the duty of the taxing authority and collect full payment of the delinquent taxes. If the outstanding tax balance is resolved within the right of redemption period of three years, the investor is reimbursed their investment plus accrued interest and fees.
The laws regarding tax deed sales are continuing to evolve. It’s important to consult with an attorney who has experience in this area to protect your financial interests. For help with or questions about tax lien purchases, contact BHM Law Group, LLC at 205-994-0902.