a. Case authority in the early 20th century involved fights over whether “repairs” counted as “permanent improvements.” The courts said permanent improvements include anything done to improve the property, anything erected on the property, anything added to the property, AND any repairs to the property.
b. In a recent Alabama Supreme Court case, the property foreclosed was a warehouse. The purchaser completed revamped the property and turned it into a manufacturing facility. The value of those permanent improvements was a very large $$ amount. When the former owner tried to redeem, he said they didn’t count as permanent improvements because they didn’t “improve” the property, they completely changed the nature of the property. Alabama Supreme Court said, “too bad,” they are improvement and they are permanent, they qualify.
c. There have been some court battles over “value” vs. “cost.” The courts are clear, it is the VALUE, not the cost. If you spend $1,000 and increase the value $50,000, you get the $50,000. If you spend $100,000 and increase the value only $25,000, you get only $25,000.
d. The value of improvements is determined as follows:
i. The redeeming party sends a letter to the current owner stating his/her intention to redeem and asking for a statement of all lawful charges.
ii. The current owner has 10 days to respond with a statement of “all lawful charges” including the value of permanent improvements.
iii. If the current owner fails to respond within 10 days, they lose their right to demand the value of the permanent improvements.
iv. If the current owner responds in 10 days and places a value on the improvements, the former owner has 10 days to accept that number or contest it. If he/she contests it, the former owner has 10 days to appoint a referee and notify the current owner. If the former owner misses his deadline, he loses the right to contest the value of the permanent improvements.
v. The current owner then has ten days from receipt of the notice about the referee to appoint his OWN referee. If he misses this deadline, he loses the right to claim the value of the improvements.
vi. The two referees meet and try to come up with a value. The referees can be anybody. They don’t have to be appraisers or real estate agents.
vii. If the two referees cannot agree, they (the referees) appoint an umpire. Whatever value has two votes to support it wins, and that is the value.
viii. If someone disagrees at that point, they can hire lawyers and go to court.
6. If the property is redeemed, the current owner gets to keep all rents earned up until the former owner “tenders” or offers to redeem.
7. If the property is redeemed, the current owner must give the former owner a credit for the value all minerals taken from the property and the value of all timber cut.
8. You can’t demolish structures during a right of redemption period. No matter how ugly you might think they are, that doesn’t count as a “permanent improvement.”
9. If the property is redeemed by the former owner, all liens that used to be on the property when he/she owned it, reattach after redemption (except, of course, the mortgage that caused the foreclosure.)
10. If the property is redeemed by a junior lien holder, all liens that used to be on the property before foreclosure AND that were superior to that junior lien holder reattach, except the mortgage that caused the foreclosure. In other words, Regions has a 1st mortgage, WAMU has a 2nd mortgage, IRS has a tax lien that is 3rd, Community Hospital has a judgment lien that is 4th and Bob’s Plumbers has a judgment lien that is 5th. If someone buys the Community Hospital judgment lien and then redeems, the WAMU mortgage and the IRS will lien come back on the property, but Bob’s Plumbers will not.I hope this helps you. This is a complicated area of the law, and this blog is not intended as legal advice. There are SO many other little things that might change the above rules, you should always ask a lawyer for advice before making any decisions or taking any action.
Share this post