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:
- WHAT the investor should file (this is a very complicated and technical field, and there are no statutes that say what an investor should do. The Supreme Court didn’t say. They threw out some suggestions, but I don’t think any of them will work);
- HOW LONG the investor has within which to file something;
- WHO is entitled to possession after the protest but before a decision;
- HOW the whole 10-day letter thing about the value of preservation improvements is supposed to inter-act with this strange protest filed in the courts; and/or
- WHETHER or not the investor has a lien on the property for the additional charges.
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.