By David King, Esq.
Every year, counties throughout the State of Alabama place property on the auction block where the present owner has not paid the property taxes that came due the prior October. At that time, bidders compete against one another to stake a claim in that property. (Other tax properties listed for sale can be found at www.revenue.alabama.gov) If someone obtains one of these properties as the highest bidder, there are several legal questions that arise: Do I own it? If not, when? What can I do with it?
When a property is sold at a tax auction, the purchaser receives a tax certificate. This is not a deed but is a record that the purchaser now holds a right in the property. The holder of a tax certificate is now responsible to maintain the property taxes on their new piece of property, or else the property will go back on the auction block at the next tax sale. The prior owner still has a period of three years to redeem the property. In order to redeem the property at this point, a prior owner will have to reimburse the holder for back taxes, interest, and fees to the state for the cost of the sale and potentially for certain improvements or maintenance to the property.
If the owner of a tax certificate makes any improvements on the property during that three year time frame (such as building a house or renovating a property) their improvements and the money they put into the property is at risk. A prior owner can come back and redeem the property. If improvements have been made on the property, when a prior owner attempts to redeem, they can dispute the improvements and create issues in receiving back the full value of money invested in the property.
Three years after receiving a tax certificate, or three years after the property is first placed for auction, if the holder has maintained the taxes on the property they have a right to purchase a tax deed. A tax deed can then be recorded at the county courthouse and we now see the holder having his first right of ownership in the property. The tax deed gives the holder new rights in the property such as the right of possession and the control of the property. The tax deed also protects the owner from this point if they want to make improvements on the property that they can begin to do so.
A prior owner can still make attempts to redeem the property after a tax deed is recorded by the holder. However, the prior owner is now responsible for additional costs and expenses that the holder has made towards their ownership in the tax property. Further, in order to redeem the property at this point, it is likely that the prior owner will have to file a lawsuit to have possession of the property returned to them.
A tax deed alone does not clear up all issues regarding the property. Although a tax deed holder will then have certain rights under the property, a property tax purchase is difficult to convert into property that can later be sold. It is possible that in order to clear the title fully a holder may have to institute a specialized lawsuit known as a quiet title action. Quiet title actions will be discussed in a future blog post on this site.
(David King is an Attorney with Williams & Associates, LLC. As a component of his practice he deals with matters involving real property and title work.)