Tax Sales and Improvements

This post is for the lawyers who believe “there’s a way around that rule.”  There is NOT!  Pay attention.

The tax sale statutes require a redeeming owner to also pay the value of improvements made by the investor in only two circumstances:

  1. the property contains a residential structure, in which case the investor can recover the value of preservation improvements only; or
  2. the property is within an urban renewal or urban redevelopment district, in which case the investor can recover the value of all improvements. There is  no requirement for any residential structure before this section comes into play.

At least once a week, somebody asks me, “Denise, what if I made improvements to a commercial property? Or added a garage on to a house? Can’t I at least recover my costs?  What about the rule of equity that says if I improve somebody else’s land, then in all fairness they should pay me back?”

Nice try, but no trophy. Equity requires good faith. If you have actual notice the property belongs to someone else, you cannot make the owner pay, unless a statute (such as the tax sale statute) carves out a specific exception.  Even if you own the property, but you should have known that somebody has a right to redeem, you are not acting in good faith if you make unauthorized improvements.

Here are the rules of law involved:

  • If you know somebody has redemption rights, you cannot recover in equity for unauthorized improvements.  McCloud v. AmSouth Bank, 540 So.2d 75, 76 (Ala. Civ. App. 1989)
  • Not knowing the rules about improvements, or redemption rights (administrative, judicial, and lienholder periods) will not save you.  Ignorance of the law is no defense to its operation.  Jones v. Watkins, 1 Stew. 81 (Ala. 1827)
  • Statutes must be strictly construed. They cannot be interpreted to grant more rights than they say.  Buzzanca v. Hagwood, 265 Ala. 404, 91 So.2d 703 (1956) The tax sale statutes give investors the right to recover the value of improvements in only certain limited situations. You cannot expand that to more than the statute says.

As an aside, I’m seeing more and more investors attempting to claim unauthorized things as redemption costs. You cannot make the redeeming owner pay your legal fees (unless you file an ejectment lawsuit and the statute says you can recover), travel expenses, appraisal costs, title searches, time and trouble in due diligence, or other such things. You can make the redeeming owner pay for taxes and interest, plus improvements and casualty insurance in the two limited circumstances described above. That is all.