Investing in Alabama Tax Liens and Tax Deeds

In all 67 Alabama counties, property taxes are due October 1 and become delinquent on January 1 the following year. Once property taxes become delinquent for a property, a tax lien is placed on the property until the taxes are paid in full by the property owner. All Alabama tax lien sales take place in late April or early May. In Jefferson County alone, Alabama's largest county, over 4000 tax lien certificates worth over million are sold. In the State of Alabama, the guaranteed interest earned on a tax lien certificate is 12 percent per annum, starting the day of the tax lien sale.

Generally, the tax lien sales are held on the county courthouse steps and the premium bidding method is used. In a premium bidding method, each property is started at the minimum bid, which is usually the sum of property taxes, the accumulated interest on those taxes, and any sale administrative fees, such as advertising the tax lien on the property in the local newspaper. Starting at the minimum bid, investors take turns bidding up the tax lien certificates until there is only one investor remaining who is willing to pay the highest "premium" on the tax lien certificate. Most Alabama county tax auctions start on a Monday and they will continue on consecutive days until all land parcels have been publicly offered.

County Property Tax

The purchaser of a tax lien certificate has the right, but not the obligation, to pay subsequent property taxes on the property each October 1. If the investor allows the subsequent taxes on the property to become delinquent, the tax lien certificate (in the amount of that year's taxes) will be offered again in the April or May sale. If the purchaser holds on to the tax lien certificate, pays all subsequent property taxes for a full three years following the initial tax sale, and the property owner (or other interested party) does not redeem the property (pay all accumulated taxes), the tax lien certificate holder has a right to the tax deed on the property.

All tax lien certificates that did not receive any bids at a county tax sale are assigned to the State of Alabama. These tax lien certificates are often referred to as Over-the-Counter (OTC) or Assignment Purchasing liens. The same "redemption period" is used for these tax lien certificates, which means any tax lien certificates that have been in State inventory for over three years will be offered as tax deeds. Both tax liens and tax deeds in Alabama's state inventory are available for purchase by any private investor. For an OTC tax lien/tax deed list from every Alabama county, go to the Alabama Department of Revenue Property Tax page.

An investor must submit an application to the State for each property for which they have an interest. An investor may submit as many as 20 applications. Instructions and application forms are on the page referenced above. The lists are updated at least once a week. Like any investment, it is important that any investor does their research and due diligence on each property. If a land parcel stays in the State's inventory for more than five years, it is a possibility that an investor can obtain the tax deed to this property for less than the amount of taxes due.

Unlike some other lien states in the United States, tax lien certificates convert into tax deeds after the three-year redemption period without the tax lien certificate holder having to start the foreclosure process on the property. Instead, this tax deed received pursuant to the Alabama process is the result of an administrative foreclosure and does not guarantee a marketable title. So, a quiet title action may be required to gain an insurable title.

To give you an idea of some counties you may want to invest in, I will give you the five most populated Alabama counties below: Jefferson County - 656,700 Mobile County - 404,157 Madison - 304,307 Montgomery - 223, 571 Shelby - 178,182

There is definitely a lot of opportunity when it comes to tax lien and tax deed investing in Alabama.

Investing in Alabama Tax Liens and Tax Deeds

Houses With Unpaid Property Taxes - A Unique Investing Opportunity

If you've been investing in mortgage pre-foreclosure homes with little success, you may want to look into switching up your game plan and investing in houses with unpaid property taxes instead. Why? One simple reason: they rarely, if ever, are encumbered by a mortgage.

Houses with unpaid property taxes that make it all the way to tax sale have a few things in common.

County Property Tax

First of all, they've had ample opportunity to be "saved" by their mortgage companies. Normally, if a house has unpaid property taxes and is in danger of being sold at tax sale, the mortgage company will come in and pay the taxes to avoid losing their stake in the property. More often than that, mortgage payments include property tax- so those houses would never end up with unpaid property taxes.

Secondly, the taxes have been unpaid for quite some time. Although there is state code governing how long a property can go with unpaid taxes before being sold at tax sale, often they go much longer due to the discretion of the county (sheriff, clerk, tax commissioner, etc). Once taxes have gone unpaid for that amount of time, we can guess the owner isn't planning on paying them off, or that they don't have the money, or simply don't have a clue that the property will be auctioned off. (Sometimes, they aren't even aware that they own the property at all!)

Finally, the most important thing they have in common is that they are a lucrative investment opportunity. While investing at the actual tax sale isn't always a great way to get a deal on houses with unpaid property taxes, due to the competition from other bidders, you can often get these properties directly from their indigent or uninterested owners for token amounts. They key is to contact them just before the property is going to be lost forever, when they've got nothing to lose by selling to you.

Houses With Unpaid Property Taxes - A Unique Investing Opportunity

The Truth About Tax Lien Investing

What is tax lien investing anyway and why is it such a good investment? What is the difference between tax lien and tax deed investing and what are some of the misconceptions about this type of investment? Read on the find the answers to these questions...

Counties and municipalities depend on money from property taxes to meet their budget. When property owners don't pay their taxes, the county or municipality will sell the taxes to an investor. The investor is not buying the property but paying the taxes on the property and putting a lien on the property. Why would an investor want to do this? Two reasons; first they are getting a good interest rate on their money and secondly a tax lien comes before most other liens, so the investor is likely to get paid.

County Property Tax

In some states, when a property owner does not pay their taxes, instead of selling a lien on the property, the county or municipality will sell the property at a tax deed sale. In states that sell tax deeds you are actually buying the property. In some states the property is sold for back taxes and penalties, in other states the property is sold for a certain percentage of assessed value and in other states the property is sold at market value. A tax deed can be a good investment, especially in states that sell the property for the back taxes because the investor has a chance to buy real estate at under market value.

Some states sell redeemable tax deeds, in which the county does sell the deed to the property at the tax sale. But there is a redemption period in which the delinquent taxpayer can come back and redeem the property. In order to redeem the property the delinquent taxpayer must pay the investor either a penalty or interest on their investment. Some redeemable deed states have a penalty and some have an interest rate. In some states the penalty or interest can be quite high, making it very attractive to the investor.

Because people have been told that tax liens are a great investment and that they can make such good interest rates, they assume that interest is paid out by the county or municipality on a regular basis. The truth about tax lien investing is that you do not get paid a cent until the delinquent property owner decides to redeem the lien. If they do not pay during the redemption period (which is different for every state) then you can foreclose on the property in order to get paid on your lien.

Another misunderstanding about tax lien investing is that after the redemption period is over, the lien holder will automatically get the deed to the property. The truth about foreclosing on a tax lien is that in most states you need a lawyer in order to foreclose and get the deed to the property, and in other states (Florida for example) the property will be sold in a tax deed sale, and will be auctioned to the highest bidder, so your chances of coming away with the property for what you have invested in it are not good.

Some people have the misunderstanding that tax lien investing is a good way to buy properties for pennies on the dollar. This does not happen very often. Especially in states where the value of real estate is very high, the tax lien will almost always redeem sometime during the foreclosure process. Tax lien investing is a way to get a high return on your money. If you are interested in buying property for under market value, you are better of with tax deeds or redeemable tax deeds.

The Truth About Tax Lien Investing