Tax lien investing has never been a “set-it-and-forget-it” strategy. In Alabama, it’s now even more nuanced. As partner Cindy Webb explains on a recent podcast appearance, state-level changes since 2018—and county-by-county adoption of a new sale method—have reshaped the landscape. If you’re relying on old playbooks or generic YouTube advice, you could be making decisions on the wrong rules.
Partner Cindy Webb recently joined an episode of Beyond Wealth: A Podcast by Todd Helzer to review key points you can use to evaluate opportunities and risks—whether you’re buying your first tax lien or reassessing your existing approach. The key points are summarized here, but for more details, listen to the full podcast episode.
Old System vs. New System: Same State, Different Playbooks
Alabama recently enacted a law that lets each county choose between the old system and a new system 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; the remainder does not. Still, excess bidding helps secure the lien when multiple bidders are vying for the same parcel.
Under the old scheme, 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. Luxuries (think $10,000 chandeliers) typically do not qualify.
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 with 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 made upon the property, the investor must respond with the amount or value of those improvements within the statutory time frame 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.
Bottom line under the old system: there is a potential for rental income and an effective path to title, but also litigation risk, process complexity, and a real need to get the possession and preservation steps right.
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%. The lowest rate wins. This system is friendlier to owners who redeem since they pay less interest, and it forces investors to decide whether they’re truly pursuing the property or simply looking for a yield.
- No immediate right to possession. Investors under the new system do not step into possession during the initial period. Practically, 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. You’re taking on the familiar risks lenders face: the owner controls the property’s condition, and you’re 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, A Lot
Tax lien laws are state-specific, and in Alabama, they can even be county-specific. Strategies that work in Georgia or Mississippi won’t necessarily translate—and even within Alabama, a tactic that makes sense in County A may be ineffective or improper in County B. When acquiring an assigned lien from another investor, ensure you are aware of the system that governed at the time of the original sale, as this framework controls redemption rights and subsequent steps.
Practical Tips Before You Bid or Buy an Assignment
- Confirm the county’s system (old vs. new) for the year of sale.
- Order a title search before you put real money at risk. You take the lien subject to other liens (e.g., mortgages, judgments, IRS), and a later foreclosure could impair your outcome.
- Budget for process, not just price. Under the old system, plan for potential ejectment and preservation-improvement disputes. In contrast, the new system requires a three-year wait before proceeding with foreclosure and quiet title.
- Document everything, quickly. If, under the old system, a redemptioner sends preservation-improvement inquiries, deadlines matter. Miss them, and you may lose reimbursement rights.
- Engage counsel early. The right move can be a negotiated redemption, a deed-in-lieu, or a quiet-title strategy, but each fact pattern is different.
The Takeaway
Tax lien investing in Alabama remains a viable strategy, but it’s no longer a one-size-fits-all approach. Now it’s two: the old system, with in-person bidding, potential possession, and preservation-improvement complexity; and the new system, with online auctions, interest-rate bidding, no early possession, and a more streamlined path to foreclosure and quiet title after three years.
Success now depends on knowing which system applies and matching your approach to that framework. As Cindy Webb emphasizes, there’s no substitute for case-specific legal advice before you bid, buy an assignment, or take your next step.