An alternate method to collect overdue property taxes is now available to county tax collectors and assessors in Alabama, Baldwin County Revenue Commissioner Teddy Faust said.
“We got a bill passed this past spring that will allow us to hold a tax lien sale as opposed to selling the property for tax,” Faust said. “It just charges interest on the amount of the tax. It’s a big win for the property owner. It was difficult to get this legislation passed, but it’s a big win for our citizens.”
In the past, the county would have an auction on properties for which taxes were unpaid and sell them for the taxes, plus 12 percent interest on up to 15 percent of the appraised value of the property. Faust said Baldwin County has had fewer than 500 properties auctioned in each of the past three years but some years had up to 4,000.
“Say a new owner of a condominium down at the beach fails to pay his or her taxes for one reason or another — this happens often — and we have the unit appraised for $500,000,” Faust said. “So, it goes on the list to sell at the tax sale. I start the auction and eventually call the owner’s name of the unit, the amount of taxes owed and end up with a bid of $75,000 [excess] above taxes, which in this case were $1,900 and the total bid is $76,900.”
In this case, Faust said, the owner would pay 12 percent on $76,900 in order to redeem even though they only owe $1,900.
“Say a year rocks along before they learn the property was in a tax sale,” Faust said. “They now owe $9,228 in interest, yet they only owed $1,900 in tax.”
Under the new law, House Bill 354, they’ll only be paying interest on the amount of tax owed.
“The bill allows us to hold a tax lien sale,” Faust said. “There will be no excess and the investors will bid the interest rate down beginning at 12 percent and going as low as zero. The property owner will pay the true interest on his/her taxes in order to redeem. In the same scenario, the owner would pay a maximum of 12 percent on $1,900 or $228 if redeemed in one year, which is $9,000 less.”
The tax lien is another bidding process where the investor can offer to pay a percentage of the tax and receive a tax lien as an investment.
“In order to get the tax lien they have to bid down the interest,” Faust said. “Property owners redeem through our office and we pay the lien holder after the property is redeemed and we collect all tax plus interest.”
For investors, it’s better than current returns on a savings account at a bank.
“Say you were to come to a tax sale and you’ve got $5,000 sitting in the bank and you can get a little better return on that $5,000,” Faust said. “You can go to the tax sale and buy $5,000 worth of taxes, and to bid say 6 percent, and that’s a lot better return on your money.”