Introduction to the Alabama 2024 Legislative Changes
Alabama's tax sale landscape is undergoing transformative changes in 2024, with implications for investors navigating the state’s dual tax sale systems. Brian Seidensticker, CEO of Tax Sale Resources, hosted William Hereford, Partner at Burr & Forman, to unpack these legislative reforms and their impact on tax sale investors. This blog post captures the critical points from their discussion, providing a clear guide to understanding and adapting to these updates.
Alabama’s Dual Tax Sale Systems: A Quick Overview
Alabama operates two primary systems for real property tax collection:
1. The Historic Sale of Land System
This system involves public auctions of properties with delinquent taxes, where the highest bidder purchases the property. Surplus proceeds are held until redemption or claim by the rightful owner. If no adequate bid is made, the property is sold to the state and held for redemption.
2. The Lien Sale System
Introduced in 2018, this system allows bidders to compete by reducing the interest rate on delinquent taxes. Winning bidders pay the taxes owed, and the property owner retains the right to redeem their property by repaying the taxes and interest. If not redeemed, the lien holder can initiate foreclosure after a set period.
Key Legislative Changes in 2024
1. Efficient Surplus Property Management
A significant change involves properties held by the state for over five years. Starting January 1, 2025, these properties will be auctioned online, addressing inefficiencies in the current system where properties often languish without action.
- Why This Matters:
The online auction platform is expected to streamline the sale of thousands of properties, increasing their chances of returning to private ownership and generating revenue for counties.
- Implementation Timeline:
While the law becomes effective in 2025, the first auctions might not occur until 2026, allowing the state time to establish the necessary infrastructure.
2. Surplus Funds Compliance
Alabama’s approach to surplus funds was shaped by the U.S. Supreme Court's Tyler v. Hennepin County decision. Previously, property owners could only access surplus proceeds if they redeemed their property. Under the new legislation:
- Property owners can claim surplus funds without redeeming.
- Owners must sign a release relinquishing their right to redeem when claiming surplus funds.
Investor Concerns:
William Hereford raised concerns that this release requirement might still conflict with constitutional protections. Additionally, the change complicates redemption processes for investors who rely on cooperation with property owners.
3. Changes to the Lien Sale Foreclosure Process
Investors using the lien system now face extended timelines and stricter procedures for foreclosure. Key changes include:
- The foreclosure timeline is extended from three to four years.
- Mandatory detailed notice requirements to all interested parties, including a statutory warning about potential property rights loss.
- A new option for interested parties to request a public auction during foreclosure proceedings.
Impact on Investors:
These changes aim to protect property owner equity but may reduce profitability for lien investors. The possibility of court-ordered auctions could limit returns, and the additional year of holding costs adds financial strain.
4. Ensuring Payment of Subsequent Taxes
To address the issue of unpaid taxes following the initial lien purchase:
- If a lien holder fails to pay subsequent taxes, the property will be resold, including the redemption of the first lien.
- This ensures properties do not accumulate multiple unpaid liens, streamlining tax collection.
Broader Implications for Investors and Counties
Opportunities
The online auction system offers increased accessibility and efficiency, particularly for institutional investors with resources to assess large property portfolios.
Challenges
Extended timelines, increased compliance requirements, and the possibility of reduced profitability may discourage smaller investors. Counties may face an initial learning curve as they adapt to the new processes.
Market Trends
The reforms aim to reduce the number of properties held by the state and counties, returning them to productive use. However, if investor interest wanes due to reduced incentives, counties may struggle to maintain this momentum.
Navigating the Changes: Expert Advice
William Hereford emphasized the importance of staying informed and compliant as these changes unfold. Investors should:
- Engage Legal Expertise: Work with attorneys to navigate the complex procedural requirements of foreclosure and surplus fund claims.
- Adapt Strategies: Evaluate the profitability of participating in lien sales under the new framework, particularly given the increased holding periods and compliance costs.
Key Takeaways for Investors
1. Streamlined Property Management: Online auctions for surplus properties held by the state will improve efficiency.
2. Compliance is Crucial: New foreclosure and surplus fund processes require careful adherence to avoid legal complications.
3. Adapt to Profitability Challenges: Extended timelines and public auction options may reduce returns, requiring strategic adjustments.
Conclusion
Alabama’s 2024 legislative changes reflect a significant shift in the state’s tax sale landscape, balancing investor interests with enhanced protections for property owners. Staying informed and proactive will be key for investors to navigate this evolving market.
Stay ahead of the curve with Tax Sale Resources, your trusted partner in tax sale investing.
