People who own real property have to pay property taxes. The government uses the money that these taxes generate to pay for schools, public services, libraries, roads, parks, and the like. Typically, the tax amount is based on a property's assessed value. If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly mortgage payment to later pay the property taxes. The servicer pays the taxes on the homeowner's behalf through an escrow account. But if the taxes aren't collected and paid through this kind of account, the homeowner must pay them directly to the taxing authority.
When homeowners don't pay their property taxes, the overdue amount becomes a lien on the property. A lien effectively makes the property act as collateral for the debt. All states have laws that allow the local government to sell a home through a tax sale process to collect delinquent taxes. Accordingly, if you don't pay the real property taxes on your Alabama home, the county treasurer can hold a tax lien sale and sell a tax lien certificate to the highest bidder. And you could eventually lose ownership of the property.
But the winning bidder from the sale can't get ownership of your Alabama home right away; you'll get some time to get caught up on the overdue amounts before this happens. You'll most likely eventually lose the property permanently, though, if you don't pay off the tax debt during what's called a "redemption period" after the sale.
In a tax lien sale, the taxing authority sells the tax lien, and the purchaser gets the right to collect the debt along with penalties and interest. If the delinquent amounts aren't paid, the purchaser can typically foreclose or follow other procedures to convert the certificate to a deed.
In some jurisdictions, though, a sale isn't held. Instead, the taxing authority executes its lien by taking title to the home. State law then generally provides a procedure for the taxing authority to dispose of the property, usually by selling it. In other jurisdictions, the taxing authority uses a foreclosure process before holding a sale or the tax collector sells the property itself.
In Alabama, taxes are due on October 1 and become delinquent on January 1. (Ala. Code § 40-1-3). Again, if you don't pay your property taxes in Alabama, the delinquent amount becomes a lien on your home. Once there is a tax lien on your home, the taxing authority may hold a tax lien sale. Then, if you don't pay off the amount of the lien plus various other amounts in a specified amount of time, the winning bidder can get title to your home.
Before the sale, the tax collector must first get a court decree from the probate court authorizing a sale. (Ala. Code § 40-10-1). The tax collector has to provide two notices, one before and one after, this court proceeding.
Ten days before the probate court proceeding, the tax collector must serve you with a notice by:
If the tax collector can't get notice to you in any of these ways, it can publish the notice in a newspaper or post it at the county courthouse. (Ala. Code § 40-10-4).
This notice will tell you to show up at the hearing and demonstrate, if you can, why the court shouldn't allow the tax lien sale. (Ala. Code § 40-10-4).
If the court authorizes the sale, the tax collector must give notice of the sale, including the time of sale, 30 days before the sale by:
You have 30 days after the court authorizes the sale to appeal the decision to the county circuit court. If you lose the case, the costs of fighting the appeal get added to the tax lien. (Ala. Code § 40-10-25).
The high bidder at the tax lien sale doesn't immediately get title to the property. Instead, the buyer receives a tax lien certificate. But first, the court must confirm the sale.
Within ten days after the sale, the tax collector files a report with the probate court asking it to confirm the sale. You have five days to object to the report. If the court doesn't agree with your objections and finds that the tax collector followed the correct legal procedures in the sale, it will confirm the sale. The tax collector will then give the high bidder a "certificate of purchase." (Ala. Code § 40-10-13).
Generally, after owning a tax certificate for three years, the purchaser can get a tax deed (that is, the purchaser can get ownership of the home). Or, if the state is the purchaser, it may then sell the home after three years elapse from the sale date, and that purchaser will get a tax deed. (Ala. Code § 40-10-29, Ala. Code § 40-10-132).
The holder of the certificate of sale is entitled to possession of the home.
If the State of Alabama is the high bidder at the sale, it's entitled to possession of the home as soon as the judge signs the certificate of sale. The state must first demand possession of the property from you. If you don't move out within six months after the sale date, the state can start an eviction action. (Ala. Code § 40-10-73).
If someone else is the high bidder at the sale, that party is entitled to possession of the property after receiving the certificate from the tax collector. To get possession, the purchaser must first make a demand that you give up the home. If you don't move out within six months of the demand, that party can start an eviction action against you. (Ala. Code § 40-10-74).
Many states give delinquent taxpayers the chance to pay off the amounts owed and keep the home. This process is called "redeeming" the property.
In many states, the homeowner can redeem the home after a tax sale by paying the buyer from the tax sale the amount paid (or by paying the taxes owed), plus interest, within a limited amount of time. Exactly how long the redemption period lasts varies from state to state, but usually, the homeowner gets at least a year from the sale to redeem the property.
In other states, though, the redemption period happens before the sale.
Under Alabama law, generally, if the state buys the lien, you may redeem:
An owner who retains possession might be able to redeem beyond the redemption time limit, though you'll most likely have to ask a court to approve it. (Ala. Code § 40-10-82). Talk to an attorney if you need more information about the law surrounding giving up possession of your property following a tax lien sale and the effect it might have on your redemption rights.
Property tax liens almost always have priority over other liens, including mortgage liens and deed of trust liens. (For purposes of this discussion, the terms "mortgage" and "deed of trust" are used interchangeably.) Because a property tax lien has priority, if you lose your home through a tax sale process, mortgages get wiped out. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this from happening. The servicer will then demand reimbursement from you (the borrower).
The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don't reimburse the servicer for the tax amount that it paid, you'll be in default under the terms of the mortgage, and the servicer can foreclose on the home in the same manner as if you had fallen behind in monthly payments.
After demanding repayment of the amount it paid for the taxes, penalties, plus interest (and assuming you repay this tax debt), your servicer will probably set up an escrow account for the loan. Each month, you'll have to pay approximately one-twelfth of the estimated annual cost of property taxes—and perhaps other expenses, like insurance—along with your usual monthly payment of principal and interest. This money goes into the escrow account. The loan servicer then pays the cost of the taxes and other escrow items on your behalf through the escrow account.
The downside to having an escrow account is that you'll have to make a bigger payment to the servicer each month. On the positive side, having an escrow account saves you from having to come up with a large amount of money when tax bills, and perhaps other bills, are due.
If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay. If you're already facing a property tax lien sale in Alabama and have questions or need help redeeming your property after a tax lien sale, consider talking to a foreclosure lawyer, tax lawyer, or real estate lawyer.