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Birmingham Bar Association Summer 2016

Real Estate Law 3. What must be paid in order to Redeem? A. The Minimum Anyone entitled and wishing to redeem the property must pay, at least, the purchase price paid at the foreclosure sale, plus “lawful charges”, plus interest on both. Ala. Code § 6-5-253(a). This amount must be paid to the current holder of the property, whether it is the purchaser who took the property at the foreclosure sale or a subsequent transferee. Although section 6-5-253(a) states that the redeeming party must pay the purchase price “paid at the sale”, the Alabama Supreme Court has clarified that this language means the price paid at the “foreclosure sale” rather than the price paid by a subsequent transferee who holds the property at the time of redemption. Pitts v. Gangi, 896 So. 2d 433, 434-36 (Ala. 2004). Where a mortgagee takes the property at the foreclosure sale, the “purchase price” paid at the foreclosure sale is the amount of the mortgagee’s credit bid (i.e., the amount of the credit bid stated as consideration in the foreclosure deed), regardless of any price paid to the mortgagee in exchange for the property subsequent to foreclosure. Id.; see also Dicie v. Morris, 235 So. 2d 796, 797-98 (Ala. 1970). A client considering the purchase of foreclosed property within the redemption period should therefore be advised that the price he pays is not the “purchase price” which will be required to be paid to him by a redeeming party under Alabama law. In addition to the purchase price paid at the foreclosure sale, the redeeming party must also pay “lawful charges”, which are (i) “permanent improvements” made to the property since the foreclosure sale, (ii) taxes paid or assessed, (iii) insurance premiums paid or owed, and (iv) any valid lien or encumbrance paid or owned by the purchaser or his transferee. Ala. Code § 6-5-253(a)(1)-(4). “Permanent improvements” are generally anything that enhances the value of the property, including, but not limited to, ordinary repairs to restore the property and “valuable and useful additions and improvements to the property suited to its reasonable necessities, character and use.” Rodgers v. Dixon, 193 So. 741, 743 (Ala. 1940). The redeeming party is required to pay the value of the permanent improvements, rather than the cost. See Wallace v. Beasley, 439 So. 2d 133, 134-35 (Ala. 1983). Section 6-5-254 of the Alabama Code sets forth a procedure to resolve anticipated disputes between the holder of the property and the redeeming party concerning the amount claimed for permanent improvements. Interest on the purchase price paid at the foreclosure plus the “lawful charges” must also be paid. The interest is calculated at the rate applicable to money judgments, as set forth in section 8-8-10 of the Alabama Code (currently at 7.5%). Ala. Code § 6-5-253(a). B. The Additional Amounts The additional amounts that must be paid in order to redeem (in addition to the purchase price paid at the foreclosure sale, plus lawful charges, plus interest) depend on (i) the identity of the redeeming party and (ii) the identity of the party from whom they are redeeming. If the redeeming party is anyone other than a judgment creditor, junior mortgagee, or any transferee thereof, it must pay the entire remaining balance owed on the debt secured by the foreclosed mortgage — but only if it is redeeming from a party that owns that debt. Ala. Code § 6-5-253(a) (4). The Alabama Court of Appeals consistently holds that where a foreclosing mortgagee does not assign or transfer the mortgage deficiency debt to the party that purchases the property, either at the foreclosure sale or in a subsequent transaction, the redeeming party is not required to pay the deficiency debt in order to redeem the property (if the redeeming party is anyone other than a judgment creditor, junior mortgagee, or any transferee thereof). Benefield v. Graham, 992 So. 2d 717, 721 (Ala. Civ. App. 2008); Nnaife v. Pitt, 883 So. 2d 682, 685-86 (Ala. Civ. App. 2003). Pursuant to section 6-5-248(d) of the Alabama Code and as briefly explained below, upon redemption by anyone other than a judgment creditor, junior mortgagee, or any transferee thereof, the foreclosed mortgage may be revived for the deficiency, but courts hold that the party from whom they are redeeming has “no standing to complain about this issue.” Benefield v. Graham, 992 So. 2d at 723. Conversely, if the redeeming party is a judgment creditor, junior mortgagee, or any transferee thereof, it must pay (i) the entire remaining balance owed on the foreclosed mortgage, and (ii) any senior liens or encumbrances, regardless of whether the party from whom it is redeeming owns those debts. Section 6-5- 253(a)(4) of the Alabama Code provides that all recorded judgments, mortgages and liens higher in priority (than the lien of the redeeming party or its transferor) at the time of the foreclosure sale are revived, and the redeeming party must pay them. In Southeast Enterprises, Inc. v. Byrd, 720 So. 2d 873 (Ala. 1998), when the mortgagee foreclosed, the debt secured by the property exceeded $1 million. The purchaser bought the property at the foreclosure sale for $480,000, leaving a balance of over $500,000 owed on the debt. A transferee of at least one second mortgage Continued on page 30 26 Birmingham Bar Association


Birmingham Bar Association Summer 2016
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