Understanding Deeds in Alabama Foreclosure Sales: What Buyers Need to Know
By Meredith Amon, Licensed in Alabama and Florida
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If you’re thinking about purchasing a foreclosed property through a bank in Orange Beach or anywhere along Alabama’s Gulf Coast, it’s important to go beyond price and location and focus on one of the most critical elements of the transaction: the type of deed you'll receive at closing.
In Alabama, bank-owned properties (often referred to as REO—Real Estate Owned) come with their own unique set of legal considerations. One of the most important? The type of deed used to convey ownership—and how it affects your rights, your risk, and your plans, especially if you want to build or renovate quickly.
Types of Deeds Used in Alabama Foreclosure Sales
When a property is purchased through a bank after foreclosure, it is most commonly transferred using a Special Warranty Deed. Less frequently, a Quitclaim Deed may be used, depending on how the property was foreclosed on and the bank's internal policies.
Here’s a breakdown of what each deed means—and how it plays into the risks of Alabama’s right of redemption laws.
Special Warranty Deed (Most Common in Foreclosures)
What It Is
A Special Warranty Deed guarantees that the grantor (in this case, the bank) has not caused any title defects during the time they owned the property—but makes no promises about the title prior to foreclosure.
Pros
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Standard in REO sales
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Generally accepted by most title insurance companies
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May allow limited financing and resale after purchase
Cons
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Does not cover pre-foreclosure title issues
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Does not eliminate Alabama’s right of redemption, which may still apply to the transaction
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Buyer is responsible for conducting due diligence regarding liens, encumbrances, or redemption risks
Quitclaim Deed (Occasional Use)
What It Is
A Quitclaim Deed conveys only the interest the grantor may have, with no warranties or guarantees—not even that the grantor owns the property free and clear.
Pros
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Simple and fast
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May be used when the bank’s title interest is unclear or unresolved
Cons
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No assurance of clear title
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May not be insurable, which can block financing or resale
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Adds complexity if you plan to build, borrow, or develop the property
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High-risk if the redemption period is still active
Alabama’s Right of Redemption: How It Affects Foreclosure Sales
In Alabama, even after a foreclosure sale has occurred, the former owner may still have legal grounds to reclaim the property under the statutory right of redemption.
Timeframes:
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One year for non-homestead properties (which includes most vacant land or investment homes)
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180 days (six months) for homestead properties, if foreclosed by a regulated lender
Redemption Requirements:
To reclaim the property, the former owner must:
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Repay the full foreclosure sale price
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Cover interest (up to 12%), property taxes, insurance, and improvement costs
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Do so within the applicable timeframe
This means that even after you’ve closed on the property, the prior owner can force you to give it up, as long as they reimburse all allowable expenses. That’s a serious risk—especially for buyers planning to build or remodel immediately.
Mitigating Risk with a Redemption Bond
Some buyers explore the option of obtaining a Redemption Bond, which is a surety product designed to protect against losses if a former owner redeems the property.
What It Does:
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Provides protection for the title company or lender, not the buyer directly
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Allows the issuance of title insurance
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May enable a buyer to secure construction financing or move forward with improvements
Who Sells It:
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Surety bond companies (often through national underwriters)
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Sometimes arranged via your closing attorney or title insurer
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Local insurance brokers experienced in real estate transactions
Cost:
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Typically ranges from 1% to 3% of the bond amount, depending on the property value, risk, and duration of the bond
Keep in mind: The bond does not prevent the redemption—it simply protects the insured party if redemption occurs. You may still have to vacate the property or halt your project.
Final Thoughts
When purchasing a foreclosure property from a bank in Alabama, it’s essential to understand that:
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You’ll likely receive a Special Warranty Deed, not a General Warranty Deed
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You may face a statutory redemption period, during which the former owner can reclaim the property
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You may not be able to build, finance, or insure improvements without a Redemption Bond
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There are often title complexities, especially if a Quitclaim Deed is used
Before you commit to a purchase, especially one involving vacant land or plans for new construction, consult with a qualified real estate attorney, title company, and surety provider to fully evaluate the risks and protections available to you.
To browse bank-owned and foreclosure listings along the Alabama Gulf Coast—and to learn more about deed types, title concerns, and redemption protections—visit www.searchthegulf.com. I’m here to help you navigate every layer of the process.
#searchthegulf #meredithamon #becausewelivehere
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