Remember, if someone redeems after an Alabama tax sale or a foreclosure, and if they are liable for improvements the investor has made, they are liable for the VALUE of those improvements, not just the COST.
Foreclosure investors are entitled to the value of all improvements, whether they are repairs, upgrades, and/or a brand new structure added to the property. There is no limitation as to property type.
Tax sale investors are entitled to only preservation improvements, and even that is only if the property contains a residential structure. They are not entitled to upgrades or brand new structures. There is an exception for properties located in specifically designated blighted areas, but that’s outside the scope of this post.
To make the point about VALUE perfectly clear, let’s look at an example. Depending on the market, the house in the photo might be worth around $15,000. A tax sale investor replaces rotten siding, other rotten wood, and makes interior repairs. The cost adds up to $8,000.
Once the repairs are finished, the house can be sold for $40,000. The preservation improvements COST was $8,000, but they increased the value of the property by $25,000. The value of the preservation improvements is $25,000. That is what must be paid (in addition to the taxes and interest) in order to redeem.
Don’t forget that you are also entitled to interest on the increased value, at 12% per annum. This is to protect you as the property value increases over time. The value of the improvements is calculated as of the date they are completed. If several years go by, the property will be worth even more. But, you are entitled to only the value on the date of completion, plus 12% per annum interest.
The same principle applies to foreclosures and all improvements after foreclosure and before redemption.
Many of you are leaving money on the table by asking for only your costs when a former owner asks to redeem. Don’t cry over spilled milk. Just resolve to do better in the future.