Foreclosure, Permanent Improvements, and Redemption


Teaser alert: Redeeming borrower must pay value of subdivision houses built on lots that were unimproved at the time of the foreclosure!

Here is the most recent Alabama Supreme Court guidance on additional redemption costs after a lender foreclosure.

The general rules is: In addition to all other charges, the redeeming party must pay the value of all permanent improvements made after the foreclosure. (Note, this is different from tax sale auctions, in which case the redeeming party need pay only the value of preservation improvements, and then only if the property contains a residential structure. There are exceptions, but they are very limited.)

What is meant by “permanent improvements?”

In the May 13, 2016 decision of E.B. Investments, LLC v. Pavilion Development LLC, the current owner of the property built subdivision houses on three of the lots that had been vacant at the time of the foreclosure. The redeeming party claimed it should not have to pay for the value of those subdivision houses. The Alabama Supreme Court disagreed. It said, “In this case, we hold that the houses constructed upon lots subdivided for the purpose of residential development were valuable and useful additions and improvements to the property suited to its reasonable necessities, character and use. Thus, the values of those improvements was recoverable as lawful charges under § 6-5-253(a)(1).”

As an aside, the court also found that it is the VALUE of those improvements, not their COST, that determines the additional redemption costs.

To read this decision in its entirety, click HERE