Redemption Rights After a Tax Sale

This issue comes up ALL the time. Finally we have some guidance from the Alabama Supreme Court.

After a property is sold for unpaid ad valorem taxes, the owner has three years to redeem.  The cost to redeem starts with the amount paid at the auction, plus 12% interest.  If the tax sale purchaser paid real estate taxes in subsequent years, those will also have to be reimbursed, plus 12% interest. If the property contains a residential structure, the redeeming owner will also have to pay insurance premiums and the value of “preservation improvements.”

When the owner wants to redeem, he or she goes to the local Probate Judge’s office. The Redemption Clerk looks up the tax sale auction payment, any subsequent taxes paid or due, and calculates 12% interest on that number. The owner pays that amount and receives a Redemption Certificate. The Redemption Clerk then notifies the tax sale purchaser that money is waiting for them in the Probate Judge’s office because of the redemption.

What if the property contained a residential structure?  The purchaser is entitled to additional sums, but the Redemption Clerk just issued a Redemption Certificate! Who is entitled to possession of the property? Does the owner have to pay the additional sums before redemption is complete, or is it now already complete and the purchaser just has a claim against the owner for additional money?

No one knew the answer until very recently.  Arguments sometimes became very heated when the owner showed up and demanded possession, but the investor or its tenant refused to vacate.  On occasion, firearms were involved!

On August 27, 2010, the Alabama Supreme Court issued its opinion in the case of Ross v. Rosen-Rager.

Here’s the background of that lawsuit: Ms. Campbell had a mortgage on her property, in favor of MERS.  She failed to pay her real estate taxes, and Madison County sold the house at the annual auction. Ross bought the property, and put tenants in possession.  MERS then foreclosed on its mortgage, and redeemed from the tax sale by paying the amount calculated by the Redemption Clerk, but no insurance premiums or value of improvements. MERS later sold the property to the Rosen-Ragers.

The Rosen-Ragers demanded possession, and Ross refused to deliver it. Ross continued to put new tenants in the property. Everybody landed in court.

The Alabama Supreme Court said that redemption occurred when the Redemption Certificate was issued by the probate judge’s office.  Yes, there might be additional money owed to Ross, but that did not affect the date on which redemption occurred.  When the case was tried in Madison County, the jury imposed compensatory and punitive damages against Ross for his refusal to deliver possession.  To be fair to the jury, Ross did seem to act in a very high handed and confrontive manner, and did have a long history of this type of activity. To be fair to Ross, no one knew the answer to this question, and there was no appellate direction, so he can hardly be faulted for making the wrong decision. Despite that, the Alabama Supreme Court upheld the award of punitive damages.

The court said the only remedy Ross had at the time was to contest the redemption certificate. In my next post, I’ll tell you how you can do that, if you find yourself in a similar situation.