A mobile home is considered personal property unless you complete some paperwork to have it officially considered real property. Almost nobody does that paperwork, so the mobile home remains personal property.
On the other hand, if you own a mobile home and put it on land that you also own, you pay ad valorem taxes on the land and the mobile home.
What happens after a tax sale? Who gets the mobile home? The brand new case of Greentree-AL LLC v. Dominion Resources L.L.C. answers that question. It says that the mobile home is not part of the tax sale. Only the land passes. Investors BEWARE: If you buy tax sale property with a mobile home, and rent out the mobile home, you probably won’t be entitled to keep the rents if the owner redeems!
The issue in Greentree was a lien on the mobile home. Greentree provided the financing to purchase the mobile home. The owner did not pay her real estate taxes. St. Clair County sold the property at the annual tax auction in May 2005, and Dominion bought it. It’s not clear from the court opinion, but it seems the owner continued to live in the mobile home, and to make her mortgage payments.
Dominion received a tax deed in May of 2008, and then filed an ejectment action and had the former owner thrown off the property. That’s probably when she decided to stop making her mortgage payments. Perhaps it happened earlier.
Either way, Greentree wanted to repossess the mobile home. Dominion said it was THEIR mobile home because of the tax sale, but if Greentree wanted to redeem, it could do so for almost $37,000. That figured included $10,000 in preservation improvements (disputed by Greentree) and almost $10,000 in legal fees (also disputed by Greentree as not allowed under the statute.) Greentree sued Dominion to regain possession of the mobile home.
The trial court ruled in favor of Dominion, and said Greentree must redeem before it could get the mobile home. Greentree appealed to the Alabama Court of Civil Appeals. The higher court ruled in favor of Greentree. It said that mobile homes are personal property, and just because someone has to pay real estate taxes on them, does not convert them into real property. The court said that a tax sale transfers only the real property, not personal property. As a result, Greentree was entitled to repossess the mobile home.
The court pointed out that it was NOT making a decision about whether Greentree might need to reimburse Dominion for that part of the taxes attributable to the mobile home. It was also NOT making a decision about whether Greentree might owe Dominion some money for taking care of Greentree’s collateral in the meantime. Those decisions would have to be made by the trial court, after the appeal.
I’ve been in communication with the owner of Dominion Resources, who says he is deciding whether to file a petition for certiorari with the Alabama Supreme Court, and let the highest court in this state make a decision. To read the Alabama Court of Civil Appeals decision, click HERE.
On June 30, 2011, the Alabama Supreme Court considered a case in which a mortgage lender and the property owner both claimed surplus funds after a tax sale. Thank you to Gary Boyd, with Alabama Tax Properties, for letting me know about this decision.
In a nutshell, Summers mortgaged his property. Ultimately, First Union National Bank of Florida ended up owning the note and the mortgage. Summers didn’t pay his real estate taxes, which amounted to $447. At the tax sale, the winning bid was $9,600. That resulted in an “excess” or “surplus” amount of $9,153.
Later, the bank redeemed. In some counties the redeeming party receives a credit for any surplus funds. In other counties, you must redeem and then apply for the surplus funds. In Lee County, where the tax sale occurred, First Union had to pay the full redemption amount of $17,380.69.
Afterwards, First Union and Summers both applied for the $9,153 of surplus funds. Lee County said that under the statute, only the “owner” was entitled to the surplus funds. As a result, it denied First Union’s claim and approved Summers’. First Union appealed to the Alabama Supreme Court.
First Union had two arguments:
The Court said they weren’t going to get hung up on teeny technicalities about where title might be resting. What was important was, “What did the legislature intend when they passed the law about surplus funds?” After considering other statutes, and the overall picture of the tax sale laws, the court decided that “owner” meant the person in whose name the taxes were assessed, not the mortgage lender.
As a result, Summers was entitled to the surplus funds, not First Union. If you want to read the decision yourself, you can click HERE.
This still leaves open some other questions.
I know some of you out there have a tax sale investment strategy that targets making claims for surplus funds. This might change your strategy. Others of you sell real estate and hold the financing. You might want to take the Court’s suggestion and protect yourself by escrowing taxes and insurance, just like the big lenders.
Representative Rodgers of Jefferson County has introduced a bill in the Alabama State House to amend the tax sale redemption statute. It is HB 388
Representative Rodger’s bill, if successful, would:
Folks, do NOT take for granted that no one would vote for this bill. I once spoke to a state legislator who was horrified about a new law and its consequences, and said it must have been passed before he was elected, because he would NEVER have voted in favor. It turns out, he was one of the sponsors, but obviously never even read the bill before agreeing to sponsor it! (I could not possibly make up stuff this good. This is a true story!)
If you are opposed to this bill, please contact your state representatives and senators to tell them. After recent Alabama Supreme Court decisions regarding redemption, preservation improvements, and insurance premiums, a 1% redemption interest rate will destroy tax sale purchasing in this State. Not only that, the State will end up with a LOT more properties on its rolls. It might make more sense for people to take their property tax money, invest it in something at 5% interest, and then years later buy their (auctioned) property back from the state at only 1% interest. This proposed law is insane!
I suspect Representative Rodgers is simply grand-standing for his constituents and has no reasonable expectation this bill will pass. But, it is irresponsible to waste everyone’s time posturing when there are important issues that require our elected officials’ full attention. Shame on you, Representative Rodgers, if this bill is simply an attention grabber. Shame on you, also, for not thinking through the consequences to State and County coffers if investors stop going to tax sales. Maybe your time would be better spent raising money for a fund to help poor constituents pay their taxes, instead of destroying the entire system for the whole state.
Just a reminder to be very careful if you plan to invest in Alabama tax sale properties this Spring. The recent case of Mitchell v. Curry (Alabama Court of Civil Appeals, September 10, 2010) could cost you tens of thousands of dollars. Mitchell lost his property at a tax sale in 2004. There were no bidders, so the property went to the State. Curry purchased from the State, and received a tax deed in 2007.
Curry made improvements, paid insurance premiums, and put a tenant in the property and collected rents.
In 2008, Mitchell filed a lawsuit asking for the right to redeem. He claimed he did not receive proper notice of the sale from the state to Curry. The court agreed, and held the tax sale was void. The court also decided that because the tax sale was void, Curry was not entitled to keep the rents he collected in the meantime. Mitchell was allowed to redeem by paying the taxes due from 2004 to the present, plus costs of improvements and insurance premiums.
BUT, Curry had to pay Mitchell the rents he’d collected, approximately $16,000!
As a procedural note, Mitchell claimed Curry had collected over $16,000 in rents. Curry did not contest the amount, but simply his right to keep the rents. After Curry lost on the issue of whether he had to pay the rents over to Mitchell, he THEN alleged that he’d collected only $6,000. The court said Curry raised that issue too late, and he was stuck with the $16,000 figure.
Read the entire decision HERE. When targeting tax sale purchases, make sure the newspaper notices for that property were accurate. Also check to see if the person on the tax sale advertisement is still the owner of the property. An intervening sale, or foreclosure, could make the tax sale void. If buying from the State of Alabama, make sure that last notice was in fact sent, to the proper address. If you don’t engage in this due diligence, there could be seriously bad consequences for you.
I am offering a FREE one-hour webinar with recent updates regarding Alabama tax sale investing. If you are a blog subscriber, or if you have previously attended any of my tax sale seminars or webinars, you are eligible for free admission to this live webinar. The webinar is Friday, January 28th from 6pm to 7pm CDT. After you register, you will be sent the link to sign on.
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One of my readers has asked me to throw out this question to the general population. In light of the recent Alabama Supreme Court case of Ross v. Rosen-Rager (see earlier post in this category if you do not know about this case), how does a tax sale purchaser ensure payment for preservation improvements and/or insurance premiums?
The Supreme Court case says the investor should somehow, through the courts, attack the validity or legitimacy or issuance of the Redemption Certificate. That is the paper the owner receives when they pay the Probate Judge for the tax sale auction purchase price, plus all intervening taxes, plus 12% interest. The redeeming party is not required to pay the value of preservation improvements, nor insurance premiums, in order to receive a Redemption Certificate.
What do you think the investor should do in this situation?
On November 24, 2010, the Alabama Supreme Court issued a shocking new decision that dramatically affects all tax sale purchasers. The issue involves redemption rights, and whether the former owner must pay insurance premiums and preservation improvements before redeeming.
The case is Ross v. Rosen-Rager. You can read the entire opinion by clicking HERE. My synopsis follows below.
The case is factually complicated. In a nutshell, though, it involves a tax sale purchaser (Howard Ross) and an attempted redemption. There were several people involved in the redemption and the later sale of the property by the redeeming party. Those facts are not really important to the decision, so we’ll just call all of them, generically, the RP (for “Redeeming Party.” )
The RP went down to the local Probate Judge’s office and asked for the charges necessary to redeem. The RP was told the charges known to the Probate Judge, being the tax sales price, plus subsequent year’s taxes, plus 12% interest. The RP paid, and was given a redemption certificate.
The Probate Judge was under no legal obligation to contact Ross to see if any additional money might be owed to Ross. As a matter of fact, the property contained a residential structure. Because of that, Ross was entitled to be reimbursed by the RP for Ross’s insurance premiums, and for the value of “preservation improvements” on the property.
The RP did not pay these charges to Ross. Ross claimed redemption was not successful as a result, even if the RP did have a piece of paper called a “Redemption Certificate.” Ross refused to surrender possession of the property. The RP sued to have Ross kicked out, and asked the court for compensatory and punitive damages!
The jury found against Ross, and gave the RP possession, compensatory damages, and a whopping $350,000 in punitive damages!
On appeal, Ross argued that the whole case should have been thrown out of court in the beginning, because redemption did not take place until he was also reimbursed for his insurance premiums and paid for the value of his preservation improvements. If redemption did not take place, then the RP was not entitled to possession. Howard could continue to enjoy possession of the tax sale property, and could rent it out to anyone he wanted.
Among other arguments, Ross said that the redemption statutes describe what charges should be paid to the Probate Judge. Next, the law says, “The proposed redemptioner shall also pay…” Ross thought that if the RP was still a “PROPOSED redemptioner” after paying the Probate Judge, then that means redemption was not yet complete.
Ross also argued that if he had to surrender possession of property without getting his other charges, he would have no leverage to use to collect that money, and would have to hire an attorney and sue each time, get a judgment, and then try to collect that judgment. The burden would be so great, that it would dramatically discourage people from buying at tax sales. This is despite the fact that the Alabama courts and legislature have always said they want to encourage tax sale investing, not discourage it.
Unfortunately, the Alabama Supreme Court did not agree with any of Ross’s arguments. They said that once the Redemption Certificate is issued by the Probate Judge, the tax sale investor is not entitled to possession any longer. The Supreme Court said the investor may file something with the courts to protest the redemption. They did not say:
Mr. Ross will be contacting some attorneys who specialize in procedural questions like this. He will be trying to obtain a road map regarding WHAT a tax sale investor should do in the future. As he obtains advice, he will share it with me and I will share it with you. If any of you have attorneys with advice, please let me know their words of wisdom. If any of you have contacts in the State Legislature, let me know so I can share with them my thoughts regarding some much-needed changes in the Alabama tax sale statutes, especially as regards redemption.
I wish I could be more optimistic regarding this situation. Be very careful when faced with a demand for possession by a redeeming party who has not yet paid for your insurance premiums or preservation improvements. Ask for legal advice before taking any action.
One last word–this is about filing liens for insurance premiums and preservation improvements. I know this a widespread practice. I would never do that, myself. I do not know of a single statute or court decision that gives the tax sale investor a lien for those charges. If nothing specific gives you such a lien, you probably cannot file a lien, lawfully. If you file a lien when you are not entitled to, the redeeming party might be able to sue you for something called “slander of title” AND get punitive damages from YOU! But, that’s just my opinion. If I knew everything, I’d be a highly paid “talking head” on some television news program, instead of just a modest author and seminar speaker.
My advice to you: Do not file any liens unless an attorney licensed in the state of Alabama, and who has malpractice insurance, tells you it is okay. Don’t be embarrassed to ask for proof of insurance! This is just good business. If anyone gets offended, then they probably don’t have malpractice insurance, and you should act accordingly.
Alabama Supreme Court only muddies the waters with its tax sale redemption decision. Case on motion for rehearing.
A good legal resource for landlords, tax sale purchasers and foreclosure purchasers. I recommend this attorney.
