“This state has long recognized a property owner’s right to the excess funds generated from a tax sale of his or her property,” the court stated in its ruling Friday, adding that the state constitution emphasizes the role of the government in protecting life, liberty and property.
The case involved two businesses from Shelby and Calhoun counties that fell behind on real estate taxes for buildings they owned. The counties kept the excess profits from tax sale auctions.
The state’s top court clarified that the owners have a right to the equity in their property beyond the debts they owe for overdue taxes.
The decision may impact the future ability of Alabamians living in poverty to keep some equity from their homes when they fall behind, depending on further litigation at the county level.
Will Hereford, an attorney for the plaintiffs, said statewide, thousands of homeowners have fallen behind on property taxes and lost the equity in their homes. Most of them are elderly or poor, he said. This ruling may provide a basis for a class-action lawsuit to recover the lost equity.
“Everybody wants to pay their taxes if they can. For properties sold it’s going to impact the poorest, generally, of property owners,” he said.
The ruling applies to Alabama properties sold before August 2013, when the state legislature amended the law to require landowners to redeem proprieties sold at tax auctions to receive any of the extra profits from the sale.
In a similar suit pending in Jefferson County, Hereford represents a larger group of property owners that were not able to recover the value of their homes after tax sales through last year.
Attorneys representing the defendants, officials from Calhoun and Shelby Counties, did not immediately respond to requests for comment from AL.com
In 2010, Shiloh Creek, LLC, a real estate developer, fell behind on $1,882.73 in taxes. The following year, the county sold the property at a tax sale for $25,882.73, keeping the extra $24,000. In 2014, Shiloh Creek transferred interest in the in property to Jack Investment Partners, LLC.
In 2008, James Douglas, a real estate investor and the principal agent for Strategic Municipal Funding, LLC, did not pay taxes on two properties in Calhoun Counties. One sold for a surplus of $16,939.96 and the other for $9,185.35.
In both cases, the owners attempted to claim the excess proceeds from the sales of their properties and were denied the funds by the counties.
A trial court ruled in 2018 that the property owners were not entitled to excess funds from the sale following 2014 and 2017 amendments by the state legislature to Alabama law that required landowners to redeem property within three years of the tax sale to be entitled to funds generated at a tax sale.
The Pacific Legal Foundation, a non-profit libertarian group, joined with Legal Services Alabama, a non-profit focused on advocating for social justice issues, to write an amicus brief in the case.
The Foundation called the counties’ practice of keeping the funds “home equity theft,” and said it is unconstitutional and predatory.
“The Alabama Supreme Court took a strong stand for property rights,” said attorney Laura D’Agostino in a statement Monday about the decision. “It held that the government could not exploit tax sales to make windfall profits at the expense of the homeowners in this case.”
According to the Foundation, there are at least 11 states nationwide that have similar laws to Alabama’s.
An 1898 Alabama Supreme Court ruling involving a dispute over the sale of a mule formed part of the basis for Friday’s decision, the court stated.
An Alabamian named James Cannon owned a mule that he mortgaged to Collins Brothers & Co. to secure a debt. A tax collector seized the mule and both parties claimed the surplus from the sale, after the payment of the debt.
“We think it clear that the plaintiffs were entitled to the money. They were the legal owners of the mule,” the state supreme court said in its ruling.
In its ruling Friday, the court also referred to the importance of English common law in Alabama law and the protections of private property in the Magna Carta.
“We conclude that the right of a property owner to recover excess funds that are generated from a tax sale is a vested right that existed at common law,” the court stated in its ruling. “Property rights are common rights.”
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