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Tax Sale Excess Funds Statute Amended Again

Posted by 15789465 on

On April 10, 2014, Governor Bentley signed into law another amendment to the excess funds statute, Alabama Code 40-10-28.

For newbies, the excess funds are the tax sale purchase price over and above the taxes due on the date of the auction. If the taxes were $1,000, but bidding increased the final purchase price to $50,000, then there will be $49,000 of excess funds. "Who gets the money?" is the question.

A prior amendment said that for tax sales after August 1, 2013, the only people entitled to the excess funds were people who redeemed from the tax sale. In other words, no more getting the pot of gold and keeping it. This was in response to lobbying efforts by Alabama bankers who were distressed at a recent court decision. It allowed an owner to default on his mortgage, fail to pay his property taxes, lose the property in a tax sale, and then claim the excess funds as a nice little cash bonus. The bank, on the other hand, had to redeem from the tax sale, including payment of the excess funds amount, before it could proceed with foreclosure. The new amendment just signed into law does two things:
  1. It makes the prior law retroactive, so now NOBODY can claim the excess funds unless they redeem the property. It does not matter WHEN the tax sale took place. All you people out there who track down former owners of tax sale property, and work with them to claim the excess funds and split the proceeds, your business model just disappeared.  You can no longer get that money.
  2. It provided a mechanism for demonstrating proof regarding redemption rights after the passage of the initial three-year period.
To read the new law, click HERE

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  • Actually, the way it works is – until the new law takes effect – if a property owner doesn’t pay his property taxes, the county “sells” a tax lien certificate to bidders to cover the delinquent taxes. The tax lien certificate purchaser will receive 12% interest and get his bid money back if/when the property owner redeems his property.

    If the property is not redeemed within 3 years, the tax lien certificate purchaser will receive a deed for the property and own the property free and clear by filing a quiet title claim.

    Because of this, many times bidders will pay over and above the actual amount the county “needs” to cover the delinquent taxes, thus a surplus, or excess proceeds will be generated and held by the county.

    This “overbid” can be claimed by the original property owner – or his heirs – which is a pretty common occurrence. He cannot redeem the property AND collect the overbid. It’s one or the other, but not both.

    The new law is, in my opinion, a money grab by the state/counties. With the new law, the government receives all of the tax monies they are due PLUS the overbid – which is sometimes 5 or 6 figures.

    The banks argument is a straw horse. They already have the right to foreclose on a property – assuming there is a mortgage to begin with – and recover the overbid to use toward the redemption of the property.

    The new law does not give them any new rights, it only removes the right of the original property owner – or his heirs – from recovering some of the value of their property if they cannot afford to redeem it. The state/county get a windfall and the tax lien purchaser gets a piece of property for literally pennies on the dollar.

    Stan on
  • Thanks for this post Denise. I was actually looking into starting that niche business of working with tax sale properties. Scrap that idea!!

    brooksmc on
  • So the person that bought, in the tax sale, gets the $50K back… but No Interest. So that investor is buying (in the tax sale) with the goal of keeping the property. Thanks Denise.

    Steve Payne on
  • No, if you redeem you have to pay the $50K plus interest, but then you get the $49K back.

    Denise L. Evans on
  • Clearly, I’m interpreting this wrong. I own my house. So if I don’t pay my taxes, and an investor buys the house (at a tax sale) for $50K… I can redeem, pay the $1K in taxes and get the $49K and keep the house. I know that can’t be right. I better the the law… in my spare time! LOL

    Steve Payne on

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