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Alabama Post-Foreclosure Redemption

Posted by 15789465 on

In Alabama, there is a right of redemption for one year after a foreclosure. The right of redemption is the right to purchase the property from the current owner, even if that person does NOT want to sell the property. Because people are getting SO MUCH bad advice on this topic, I decided to help clarify things on one point: How much does it cost to redeem? Many different categories people have the right of redemption. That list is outside the scope of this post. You can lose your right of redemption if you don’t comply with the Ten Day Notice to Vacate. That topic is too complicated for this post. After a lender foreclosure, if the former owner wants to redeem, they must pay the following charges, all at 12% interest: 1. Amount bid on the courthouse steps; plus 2. Insurance premiums paid or owed in the meantime; plus 3. Ad valorem taxes paid or owed in the meantime; plus 4. Any other debt owed to the current owner of the property; plus 5. The value of permanent improvements.

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.

In Alabama, there is a right of redemption for one year after a foreclosure.  The right of redemption is the right to purchase the property from the current owner, even if that person does NOT want to sell the property. Because people are getting SO MUCH bad advice on this topic, I decided to help clarify things on one point: How much does it cost to redeem?

Many different categories people have the right of redemption.  That list is outside the scope of this post.

You can lose your right of redemption if you don’t comply with the Ten Day Notice to Vacate. That topic is too complicated for this post.

After a lender foreclosure, if the former owner wants to redeem, they must pay the following charges, all at 12% interest:

1. Amount bid on the courthouse steps; plus

2. Insurance premiums paid or owed in the meantime; plus

3. Ad valorem taxes paid or owed in the meantime; plus

4. Any other debt owed to the current owner of the property; plus

5. The value of permanent improvements.

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.


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14 comments

  • I want to purchase a foreclosure for $105,000 with a down payment of $21,000. it’s February and the right of redemption expires in Sept. I have no idea what the foreclosure price of the home was. Is there ANY way to protect myself from losing my money? This forum has had the best information I have found but still nothing on how to protect my investment. It seems that if the cost of redeeming the property was less than the amount I am paying for it than the lender (my lender is the bank who owns the home) would have to give me back my money because the original owner has taking back the property. Please help me understand this.

    Phillip Garrison on
  • Before I answer your question, let me point out one thing. You, as buyer, cannot purchase a redemption bond to protect yourself. At the present time, redemption bonds in Alabama are available ONLY to protect your lender if you borrow more then the foreclosure bid amount.

    In Alabama, the post-foreclosure redemption price is based on the sales price on the courthouse steps. Suppose the mortgage loan balance is $200,000. The bank forecloses and is the only bidder, bidding $100,000. That $100,000 is the beginning point for the amount necessary to redeem. If the bank sells the property to you for $125,000 and then the former owner wants to redeem on the very next day, he/she will have to pay you only $100,000 plus one day’s interest at 12% per year. You lose your $25,000.

    BUT, the redemption price goes up if:

    (1) You paid real estate taxes or insurance premiums after the foreclosure. The former owner must reimburse these sums, plus 12% interest;

    (2) There have been permanent improvements made to the property since the foreclosure. The former owner must pay the value of post-foreclosure permanent improvements. There are some strict deadlines for claiming the value of improvements, though, so you might want to read the statute or consult an attorney. The statute is at Alabama Code Section 6-5-254. You can find it by typing the following in a search engine: Alabama Code 6-5-254.

    (3) If you already own or have purchased junior liens that used to be on the property before the foreclosure. For example, it is often possible to buy a HELOC loan or a judgment lien for less than pennies on the dollar. If you also own these other debts, the former owner will have to pay the full balance of those other debts, not just what you paid to buy them;

    (4) You buy from the mortgage lender the promissory note that led to the foreclosure. In our example above, there was still a $100,000 balance left on the note even after the foreclosure. Many times, lenders will sell that note, and its “deficiency balance” for pennies on the dollar. If you also own the promissory note, then the former owner will ALSO have to pay the entire deficiency balance on the note, (another $100,000) plus 12% interest, in order to redeem, not just the foreclosure auction price of $100,000. If you bought the note and its deficiency for only $1,500, that is not relevant—the redemption amount is the $100,000 auction price for the property plus the $100,000 deficiency.

    deniselevans on
  • Denise,

    this is a great article, one question, if I pay a higher purchase price for the property than the foreclosure amount for the property, if I didn’t have a redemption bond, would i get reimbursed for my higher purchase price. Or would I completely loose that money?

    thanks,

    Andy

    andy pesterfield on
  • case was continued to nov 18

    i did a bad thing – i did work for this condo association in exchange for payment of condo dues, but i failed to get the agreement in writing. (of course lawyers are in business because of people who don’t get it in writing)

    when the condo association elected a new president/treasurer 2 years later he reviewed the books and concluded i hadn’t paid my dues for the past 2 years

    the condo association is taking the position that since I didn’t have a board approved agreement for doing work in exchange for dues, I did the work as a volunteer.

    unfortunately, of the 6 circuit judges in Madison County, the case is being heard by the honorable Jim P. Smith – the same judge who has called me “an anathema to the court system and the public” in his ruling in Rosen-Rager v Ross. I doubt if I will get a fair hearing.

    thanx
    I also now know how to invoke notification of follow-up comments via email

    howard ross on
  • Howard, I called one of your lawyers, Patrick Jones, yesterday. He said you were handling this issue pro se, and had a hearing scheduled today. What happened in your hearing? That will help me know better who to refer you to.

    deniselevans on

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