Alabama State Rep Calls Property Tax Liens “Totally Unfair,” Vows To Make Changes
January 18th, 2011
John Rogers, a state representative in Alabama from Birmingham, thinks that the interest rates on Alabama property tax liens are outrageous, and he is making it one of his goals for 2011 to change the process[1]. Currently, Alabama charges a 12 percent interest rate on delinquent property taxes. If the government fails to collect the taxes, then ultimately the liens are sold at auction. During the auction, lien buyers can “overbid” on the liens, paying an excess of what the lien is worth. The new owner of the tax lien can then charge that same 12 percent interest rate on the overbid amount up to 15 percent of the value of the home.
Alabama’s current property tax laws make it a friendly state for tax lien investors. However, Rogers believes that the option of charging high interest rates on the overbid amount as well as the original amount incentivizes buyers to drive up the cost of the liens. He cites a home sold in a 2005 tax auction for $2,279 of unpaid taxes and an overbid of $81,000. This meant that in order to redeem the loan, the owner would have to pay 12 percent interest not only on the tax lien amount, but also on the $81,000, making redemption impractical and in many cases impossible.
Proponents of the current plan point out that the government, which relies on timely payment of property taxes to keep schools running, public safety services functional and its budget in order, can use the excess money made at the auction to make up budget shortfalls. In addition, that 12 percent interest on the overbid is a strong incentive for property owners to resolve their tax issues before the lien makes it to auction. However, even the Alabama Association of Tax Administrators believes that it is time for a change. “The [bill] has become punitive,” said tax collector J. T. Smallwood. He believes that interest rates should be set lower, at 5 or 6 percent, but Rogers wants to set the interest at 1 percent. It is unclear whether he would apply the 1 percent to the overbid alone or to the entire delinquent amount of the lien.
Would you invest in Alabama tax liens if the rules were changed?
We love to hear from you! Please leave comments, questions and insights below.
[1] http://blog.al.com/spotnews/2011/01/state_legislator_seeks_to_refo.html
January 20th, 2011 at 9:46 AM
It looks to me like a goosd idea for Alabama to change the interest rate chargted on tax liens. I think the overbid amount should have a much lower interest rate applied or even no interest. Theoretically the overbid amount belongs to the homeowner and the government just holds it. The homeowner has a time period to collect the money (unclaimed funds) before it stays permanently with the tax office.
February 28th, 2011 at 7:56 PM
If they change the interest rate than that will make investors in Alabama move their money to another state, which will bring in less money for the counties. Instead of Mr. Rodgers changing interest rates, maybe he should work on getting the great people of Alabama to pay the property taxes.