DANGER WILL ROBINSON!!! DANGER WILL ROBINSON!!!
If you don’t understand the reference, you are too young to be investing.
So here’s the scenario- Bob Borrower owned a valuable piece of real estate with a mortgage on it. Bob didn’t pay his property taxes, and the real estate was sold at a tax auction. Spirited bidding resulted in $50,000 of surplus funds, with Tina Tax Sale Investor ending as the winning bidder. Afterwards, Last State Bank foreclosed Bob’s mortgage, and Freddy Foreclosure Investor bought it on the courthouse steps.
Freddy Foreclosure Investor must redeem from the prior tax sale in order to clear up his title. Does Freddy have to pay the $50,000 in surplus funds when he redeems, or does he get a credit because the money is sitting in the County’s bank accounts?
Sad but true, Freddy must pay the $50,000 surplus funds, plus the taxes due at time of auction, plus interest. This is true for all tax sales occurring before August 1, 2013, when the law changed. That $50,000 will be paid to Tina Tax Sale Investor, who will get her money back, plus interest. She’s happy.
So, who gets the $50,000 still sitting the County’s bank account? Bob Borrower, that’s who. He is the ONLY person entitled to get that money. If he doesn’t know to claim the money, then 13 years after the tax sale the money will be the County’s to keep, forever.
Don’t bother arguing with me about what’s fair, what’s technically right or wrong, subtle points related to Alabama’s odd twist on title-theory mortgages, or any other arguments. The Alabama Supreme Court considered all of them in First United Security Bank v. McCollum, decided on November 30, 2012. They decided that Bob Borrower is the only person entitled to that money.
I’m sorry. I know you don’t want to hear this. But, it’s how it is. You need to know this before you make some unwise investing decisions.
For tax sales after August 1, 2013, whoever redeems is entitled to the surplus funds. Entirely different rule, starting with this year’s tax sales. Buyers Beware, for all earlier years.