Jason S. Isbell, J. and Jeremy S. Walker, J.
“When eating an elephant,” the saying goes, “take one bite at a time.” Historically, Alabama law has granted to numerous interested parties the right to redeem certain pieces of sold real estate within one year from the date of the sale.1 Parties with such rights under Alabama law range from the devisee of a debtor to the transferee of a judgment creditor. In recent years, professional trade associations such as the Alabama Bankers Association (“ABA”) and the Alabama Association of Realtors (“AAR”) unsuccessfully lobbied the Alabama Legislature to reduce this redemption period. Eating the entire elephant was unworkable.
Driven by industry data, and at the urging of the ABA and the AAR, the 2015 session of the Alabama legislature “took one bite” by overwhelmingly supporting a measure that halved the redemption period for properties meeting a specific, narrow definition. This measure, now Act 2015-79, also added a notification requirement to the redemption law for the mortgagee who forecloses on property fitting this definition. To prepare practitioners for these changes, which became effective on January 1, this article provides historical background into how the final legislative product was crafted, discusses the data used to drive the legislative debate, includes a practical discussion of the new law’s requirements and gives several policy justifications for how reducing the redemption period will potentially benefit all parties in the real estate transaction.
The State of Alabama was barely 21 years old when, in 1842, the state legislature enshrined in statute a debtor’s ability to redeem real estate that was “sold under execution, or by virtue of any decree in chancery, or under any deed of trust, or power of sale in a mortgage.”2 It would be another 127 years before the Alabama Legislature, in 1969, shortened the redemption period from two years to one year,3 and yet another 46 years until, in 2015, the one-year time period was, for certain properties, shortened to six months. Though the ABA, AAR and other trade associations remained motivated to reduce the length of the redemption period, opponents of a shortened redemption period blocked all attempts to change the law until the 2015 session. In fact, in the six regular sessions of the Alabama Legislature immediately prior to the 2015 regular session, five bills were introduced that would have reduced the length of the redemption period, and none of the bills ever made it out of its house of origin.
Although the earlier attempts failed to pass, they kept the conversation going. The annual ritual of discussing legislation to reduce the redemption period kept the idea fresh in the minds of legislators and, in the end, helped them better understand the arguments on both sides of the issue. The ABA and AAR sought to reduce the redemption period because shorter redemption periods could lead to increased real estate sales and more real estate loans. Opponents relied on two arguments to maintain the status quo: On the one hand, opponents argued that the extended time frame was a useful bargaining chip, especially in commercial foreclosure or buyout discussions. The short-on-cash real estate developer, for example, had a doubly better chance of finding a project-saving investor over a 12-month period than he or she did over a six-month period. On the other hand, opponents also believed that the longer redemption period preserved the slim chance that an original homeowner whose property had been foreclosed would come across a major financial windfall and redeem his or her property before the one-year expiration. On this point, data showed quite clearly that Alabama’s redemption law was out of step with the rest of the country and was not working.
The most comprehension repository for real estate data in Alabama is the Alabama Center for Real Estate (ACRE), which collects and maintains data on the state’s real estate industry and provides unbiased analysis on real estate trends. The AAR commissioned ACRE’s research division to analyze the effect of Alabama’s current foreclosure redemption laws and provide statistical research and data. The ACRE analysis yielded two conclusions: (1) Alabama’s one-year statutory right of redemption is a minority view in the country and (2) the number of foreclosed properties redeemed in Alabama is shockingly low.
First, ACRE research showed that Alabama is one of only 11 states6 to have a meaningful post-sale one-year redemption period.7 Additionally, there are...