Alabama Supreme Court Voids Numerous Tax Sales

Nelson Mullins Riley & Scarborough LLP

On Friday, June 26, 2020, the Alabama Supreme Court issued an Opinion in Stiff v. Equivest Financial, LLC, in which it held that a 2013 Bessemer tax sale occurring inside the courthouse — and not on the front steps of the courthouse as required by Ala. Code § 40-10-15 — was void. The opinion potentially invalidates tax sales in all Alabama Counties, with a potential exception for prior Shelby County tax sales that were conducted outside. Tax sale investors and purchasers may need to consult legal counsel to determine how to protect their investment in the event that the Court’s opinion applies to properties they have purchased at prior tax sales in other counties.[1]

The appeal arises from two brothers’ failure to pay 2012 property taxes on a property owned by their mother. At the 2013 tax sale, the county tax collector auctioned the property from the probate courtroom to Equivest Financial, LLC. Equivest did not take possession of the property and the brothers continued to rent the property out to other tenants. Eleven months after Equivest obtained a tax deed, it sued the brothers and others for ejectment and quiet title. The trial court rejected the brothers’ argument that the tax sale was void because it was not conducted in front of the courthouse and ruled that the brothers could judicially redeem the property by paying roughly $90,000 to Equivest. On Friday, the Supreme Court reversed, holding that the tax collector had failed to comply with Ala. Code § 40-10-15 because he failed to give any reason for not holding the tax sale outside as required by statute. Because of the non-compliance, the Court declared the tax sale void — not voidable — without requiring the brothers to show any prejudice resulting from the tax collector’s decision to hold the tax sale inside.

The Court rejected claims that its decision would invalidate tax sales across Alabama’s 67 counties by pointing to alternative remedies available to tax sale purchasers when a court voids a tax sales. The Court noted that taxes and interest must still be paid to the holder of a tax sale certificate or tax deed under Ala. Code § 40-10-76 in the wake of a court order voiding a tax deed, though other remedies remain available to tax sale purchasers as well. Proactive tax sale purchasers may also be able to avoid such a result by suing for ejectment early during the administrative redemption period with the assistance of counsel familiar with the intricacies of the Alabama tax sale procedures.

Nelson Mullins is currently working with tax sale purchasers to file an amicus brief to urge the Alabama Supreme Court to reconsider its ruling.

[1] The opinion was written by Justice Mitchell with the concurrence of the Alabama Chief Justice and two other Justices. A fifth member of the Court, Justice Sellers, concurred in the result, but not the full opinion. Under Alabama appellate procedure, there is a question about whether the opinion is binding precedent on the lower courts in Alabama. Regardless of whether the opinion is legally binding, it is likely that trial court judges across the state will adhere to the Supreme Court’s reasoning in invalidating numerous other tax sales.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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