I’ve received many questions regarding the proper ownership of surplus funds after a tax sale. This arises when, for example, a property is auctioned because of unpaid ad valorem taxes in the amount of $500. Bidding is aggressive, and the winning bid is actually $5,000. Of that money, $500 pays the taxes. Who is entitled to the other $4,500?
The Alabama Code says the “owner” is entitled to the money. But, is that the owner immediately prior to the tax sale, or the person who HAPPENS to be the owner years later, when someone files a claim and asks for the money? As is often the case these days, if the bank forecloses a few months after the tax sale, is the BANK entitled to the surplus funds?
Again, we don’t know the final answer on this because the Alabama Supreme Court has not yet spoken. Every county has a different answer for its own internal procedures when processing claims for surplus funds and deciding whether someone is entitled to them or not. A Jefferson County class action lawsuit resulted in a ruling that the “owner” entitled to the surplus funds is the person who owned the property immediately prior to the tax sale. This decision is not binding on any other county in the state, but it is very instructive and other counties might follow its lead. If you want to read the decision, you can read it and download it by clicking HERE.