It is critically important that tax sale investors be able to do their own due diligence, or order a title report. In Jefferson County, I recommend Cynthia Easton at Land Title Company of Alabama, 205-251-2871. Title reports generally run $300, but can be more if title is an absolute mess. If you later quiet title and purchase title insurance, the $300 is credited against the cost of the title insurance.
Pre-purchase, you need to know:
- Was the owner at the time of the auction the same person as the assessed owner? In other words, was the name called off at the auction REALLY the owner of the property at that time? You are looking for voluntary and involuntary transfers, or death of assessed owner. Unless probate has been opened, a title report will not reveal if the assessed owner died. You might have to do some leg work, and talk to the neighbors. Wrong name at auction = Void Tax Sale. Consequences of void tax sale are a “redemption” by real owner, but no interest, no improvements, no insurance, and (if it is longer than 2 years since the tax auction) loss of ability to obtain refund of overbid.
- Are there any recorded local government, library, or fire dues liens? If actually recorded, they will show up on a title report. You must still call local government, fire district, and/or library district (if they separately assess) to see if anything is “in the works.” It might not be recorded until after the tax sale, but will still be a valid lien on the property. Local government liens trump tax sales. Local government must reimburse investor for taxes and interest if local government forecloses, but they do not have to pay investor for improvements or insurance.
- Are there any other recorded liens? All lien holders must be sent a certified mail, return receipt requested notice advising of the tax sale, and the contact information for the current investor. Each lien holder has one year from receipt of that notice to redeem, or the three-year administrative period, whichever is longer. If the investor never sends the letter, because it did not do title work, then those redemption rights will be a cloud on title for up to 20 years after the tax sale. Lien holders include mortgage lenders, IRS, Alabama Department of Revenue, Medicaid, judgment creditors, etc.