By MSN Attorney & Partner Cindy Webb
Tax lien investing has never been a “set-it-and-forget-it” strategy. In Alabama, it’s now even more nuanced. State-level changes since 2018—and county-by-county adoption of a new sale method—have reshaped the landscape.
Alabama recently enacted a law that allows each county to choose between the old and new systems for selling tax-delinquent properties. That choice matters because it affects how auctions operate, the interest you may earn, redemption timing, possession rights, and your path to title.
The Old System: Excess Bids and Immediate Possession—With Caveats
Under the old system, investors earn a statutory interest rate (now 8%, historically 12%), and auctions take place in person at the courthouse. Investors can also make excess bids — paying more than the delinquent taxes and fees — to win competitive properties. Only part of that excess accrues interest. Still, excess bidding helps secure the lien when multiple bidders are vying for the same parcel.
A purchaser has a right to possession but cannot simply change the locks. If an owner or tenant is in the property, you need to follow the lawful process of ejectment to gain possession. And while investors often make preservation improvements, such as repairing a leaking roof, with the expectation of reimbursement upon redemption, disputes over what counts as a preservation improvement are common — and ultimately subject to a judge’s determination if the parties disagree.
Redemption timelines also matter. Owners (and parties with an interest, like mortgagees) have a three-year administrative redemption window to repay taxes, interest, and qualifying preservation costs to the tax office. After the three-year administrative process, the redemptioner’s only remedy is judicial redemption if settlement with the tax purchaser cannot be effectuated. During the administrative process, if an investor wants to be reimbursed for preservation improvements, the investor must respond with the amount or value of those improvements within the statutory timeframe if requested by the redemptioner. Some counties, such as Jefferson County, even use affidavits to document whether an investor asserted preservation claims. Failure to respond may forfeit recovery of those improvements.
The New System: Bid the Interest Rate Down—and Wait
In the new system, online auctions replace courthouse steps. Additional characteristics include:
- No excess bids. Instead, bidders bid down the interest rate, from a max of 12% to 0%. This system is friendlier to owners who redeem since they pay less interest, and it forces investors to decide whether they’re pursuing the property or simply seeking a yield.
- No immediate right to possession. This eliminates most preservation-improvement disputes, as you cannot begin renovations, and also removes the old system’s ability to stabilize or rent the property while you wait.
- Requiring three years of patience. After three years, the lienholder may send notice and, if needed, foreclose the lien and pursue quiet title. If litigation becomes necessary, investors can generally seek attorneys’ fees, unless the owner redeems within the notice window before suit.
Investors examining the new system should view the lien more as a secured credit position than a quasi-ownership path during the first three years. The owner controls the property’s condition, and the investor is simply secured by the lien and waiting to see whether the property redeems or proceeds toward foreclosure and quiet title.
State (and County) Lines Matter
Tax lien laws are state-specific, and in Alabama, can be county-specific. When acquiring an assigned lien from another investor, be aware of the system governing the original sale, as this framework controls redemption rights and subsequent steps.
The Takeaway
Tax lien investing in Alabama remains a viable strategy, but it’s no longer a one-size-fits-all approach. Success now depends on knowing whether the old or new system applies and matching your approach to that framework. There’s no substitute for case-specific legal advice before you bid, buy an assignment, or take your next step.
