Tax Sale Excess Funds Statute Amended Again

On April 10, 2014, Governor Bentley signed into law another amendment to the excess funds statute, Alabama Code 40-10-28.

For newbies, the excess funds are the tax sale purchase price over and above the taxes due on the date of the auction. If the taxes were $1,000, but bidding increased the final purchase price to $50,000, then there will be $49,000 of excess funds. “Who gets the money?” is the question.

A prior amendment said that for tax sales after August 1, 2013, the only people entitled to the excess funds were people who redeemed from the tax sale. In other words, no more getting the pot of gold and keeping it. This was in response to lobbying efforts by Alabama bankers who were distressed at a recent court decision. It allowed an owner to default on his mortgage, fail to pay his property taxes, lose the property in a tax sale, and then claim the excess funds as a nice little cash bonus. The bank, on the other hand, had to redeem from the tax sale, including payment of the excess funds amount, before it could proceed with foreclosure.

The new amendment just signed into law does two things:

  1. It makes the prior law retroactive, so now NOBODY can claim the excess funds unless they redeem the property. It does not matter WHEN the tax sale took place. All you people out there who track down former owners of tax sale property, and work with them to claim the excess funds and split the proceeds, your business model just disappeared.  You can no longer get that money.
  2. It provided a mechanism for demonstrating proof regarding redemption rights after the passage of the initial three-year period.

To read the new law, click HERE