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Real Estate Finance: Alabama ARTHUR S. RICHEY AND ADAM J. SIGMAN, SIROTE & PERMUTT, P.C., WITH PRACTICAL LAW REAL ESTATE
A Q&A guide to real estate finance law for borrowers and lenders in Alabama. This Q&A addresses state laws relating to security instruments, usury laws, limitations on personal liability, recording requirements and taxes, priority issues, mechanics' liens, landlord liens, title insurance matters, and foreclosure procedures primarily impacting lending transactions in a commercial context. Federal, local, or municipal law may impose additional or different requirements. Answers to questions can be compared across a number of jurisdictions (see Real Estate Finance: State Q&A Tool (http:// us.practicallaw.com/5-517-4021)). INSTRUMENT AND EXEUTION 1. When real estate is part of the lender's collateral, is a mortgage commonly used in your jurisdiction or is a trustee appointed to hold a deed of trust (or a deed to secure debt) as security for the loan? If a deed of trust is more commonly used, who is typically designated as the trustee? In Alabama, mortgages typically secure liens on real property.
A creditor has limits on the amount of finance charges and interest rates it may charge if: The original principal amount of the loan is less than $2,000. The creditor is either: licensed exempt
by the Alabama State Banking Department; or
from licensing.
In a closed-end transaction a creditor may charge: Under the Alabama Consumer Credit Act, a maximum finance
charge of: $15
per $100 on the first $750 of the amount financed; and
$10
per $100 of the portion of the amount financed over $750 and less than $2,000 (Ala. Code § 5-19-3).
Under the Interest and Usury Chapter of the Alabama Code, an
interest rate that is 2% above the "prime rate" (Ala. Code § 8-814(b)). In an open-end transaction, the maximum rate is: 1.75% per month on the first $750 or less of the unpaid balance. 1.50% on the unpaid balance greater than $750.
(Ala. Code § 8-8-14(b).) 4. Are there any requirements for the execution of a mortgage or deed of trust? In particular, please consider if: Witnesses are required. Specified officers of a corporation (or members of a limited
liability company) must execute the security instrument. 2. Describe any laws that would limit a borrower's or guarantor's personal liability for debt secured by real property. There are no Alabama laws that would limit a borrower's or guarantor's personal liability for debt secured by real property. 3. Are there restrictions on interest rates charged for loans secured by real property? Under Alabama law, there is no interest rate limitation for all loans in the original principal amount of at least $2,000. All laws relating to unconscionability in consumer transactions apply in consumer loan transactions. (Ala. Code § 8-8-5.)
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The signatory's name and title must be specified on the
signature page. A corporate seal is required. Signed resolutions must be presented with the security
instrument for purposes of recording. There are any other important requirements in your state?
WITNESSES
A mortgage must either be attested by one witness or properly acknowledged by an authorized officer, such as a notary public (Ala. Code § 35-4-20 and § 35-4-23).
Real Estate Finance: Alabama
SPECIFIED OFFICERS
Under Alabama law, no specific officers are required to execute a mortgage. However, the officer should be authorized by a proper resolution by the corporation or other entity to execute any mortgage as an authorized signatory. SIGNATORY'S NAME AND TITLE
Though not required by statute, a signatory's name and title should be provided in the signature block and notary of the mortgage to avoid any ambiguity regarding the capacity in which the person is signing.
5. Provide the statutory form of acknowledgment for: An individual. A corporation. A limited liability company. A limited partnership. A trustee.
CORPORATE SEAL
Section 35-4-29 of the Alabama Code- provides short forms of acknowledgment. These acknowledgment forms can be used for recording instruments within Alabama, regardless of whether the instruments are executed and notarized in Alabama or in another state.
No corporate seal is required.
INDIVIDUAL
SIGNED RESOLUTIONS
STATE OF [STATE]
)
Signed resolutions do not have to be presented with the mortgage for purposes of recording.
COUNTY OF [COUNTY]
)
OTHER REQUIREMENTS
A mortgage of a homestead must be executed by both the husband and wife (Ala. Code § 6-10-3). Any instrument conveying, granting, encumbering, or assigning property is not recordable unless it contains the name and address of the individual who prepared the instrument (Ala. Code § 35-4-110). A mortgage is not required to state the maturity date or the maximum principal indebtedness. However, the indebtedness secured by a mortgage without a maturity date will be presumed to have been paid 20 years from the date of the mortgage, unless:
) I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s)he executed the same voluntarily on the day same bears date. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public
A third party has actual knowledge to the contrary.
My Commission Expires: [DATE]
The record of the mortgage indicates a credit by the mortgagee or
owner of the debt of one or more payments on the indebtedness within the 20-year period.
CORPORATION
(Ala. Code § 35-10-20.)
STATE OF [STATE]
)
Mortgages with open end or revolving indebtedness have two options for paying the recording tax:
COUNTY OF [COUNTY]
)
Pay a recording tax on the initial indebtedness. However, the
taxpayer must: annually
report the amount of indebtedness secured by the mortgage; and
pay
tax on any additional indebtedness incurred. (Ala. Code §§ 40-22-2(1)(b)(i) and 40-22-2(2).)
Pay the recording tax based on the maximum principal indebtedness
allowed, regardless of the cumulative amount actually advanced (Ala. Code § 40-22-2(1)(b)(ii)).
) I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [CORPORATION NAME], a [DISTRICT OF CORPORATION ORGANIZATION] corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s)he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
2
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Real Estate Finance: Alabama
LIMITED LIABILITY COMPANY
Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____
STATE OF [STATE]
)
COUNTY OF [COUNTY]
)
Notary Public
)
My Commission Expires: [DATE]
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [LLC NAME], a [DISTRICT OF LLC ORGANIZATION] limited liability company, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s) he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said limited liability company. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
LIMITED PARTNERSHIP
STATE OF [STATE]
)
COUNTY OF [COUNTY]
) )
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [CORPORATION NAME], a [DISTRICT OF LIMITED PARTNERSHIP ORGANIZATION] limited partnership, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s)he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said limited partnership. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
6. Describe the relevant statutes granting priority to mechanics' liens. Alabama law provides two types of mechanic's lien: Full price liens. Unpaid balance liens.
To enforce a full price lien, a party must notify the property owner or his agent in writing that certain materials will be furnished by the party to the owner's contractor or subcontractor at a specified price. Unless the property owner objects in writing before the materials are used, the party providing the materials has a lien for the full price specified in the notice. The party seeking the lien must also satisfy the other statutory requirements discussed below. (Ala. Code § 35-11-210.) To enforce an unpaid balance lien, a party (except the original contractor) must give written notice to the property owner before filing a verified statement. The written notice must: Notify the owner that the filing party is claiming a lien on a
building or improvement. Contain the following information: the
amount owed; what the amount owed is from; and who owes the amount. (Ala. Code § 35-11-218.) Once written notice is given for either a full price lien or an unpaid balance lien, other statutory requirements must be followed. A verified statement must be filed: Within a specified time after either the date: the
last item of work or labor was performed; or the work began before the mortgage was recorded, the last item was furnished.
if
By: the
TRUSTEE
STATE OF [STATE]
)
COUNTY OF [COUNTY]
) )
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [NAME OF ENTITY], is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s) he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said [ENTITY TYPE]. © 2015 Thomson Reuters. All rights reserved.
PRIORITY
original contractor within six months; journeyman and day laborer within thirty days; and every other person entitled to a lien within four months. any
(Ala. Code §§ 35-11-211, 35-11-213 and 35-11-215.) If the verified statement of lien is timely filed, the mechanic's lien: Relates back to the initial commencement of the work. Has priority over any mortgage recorded after commencement
of work, even if the verified statement of lien is filed after the mortgage is recorded. (Hutto Const., Inc. v. Buffalo Holdings, LLC, 488 F. Supp. 2d 1180, 1186 (M.D. Ala. 2007).) 3
Real Estate Finance: Alabama
Liens to land, buildings, or improvements have priority over all other liens, mortgages, or encumbrances created after the commencement of the work on the building or improvement. For liens created before the commencement of the work, the lien has priority only against the building or improvement where the product of the work: Is separable from the land, building, or improvement subject of the
previous lien. Can be removed without impairing the value or security of any
previous lien. (Ala. Code § 35-11-211.) An action must be filed to enforce the mechanic's lien within six months after filing the verified statement of lien or the verified statement of lien is no longer valid (Ala. Code § 35-11-221). 7. Are there liens which can supersede the priority of a lender's recorded lien? Liens that take priority over a lender's recorded lien under Alabama law include: Liens for real property taxes (Ala. Code § 40-29-22). Liens for municipal taxes (Ala. Code § 11-51-44). Liens for assessments arising from public improvement (Ala. Code
§ 11-48-29). Materialmen's liens (see Question 6).
8. How do lenders maintain the priority of their real property liens over superseding liens, such as real property tax liens and mechanics' liens? In particular, please consider: Permanent loans. Construction loans with future advances. Credit facilities with future advances under revolving lines of
credit. PERMANENT LOANS
See Credit Facilities. CONSTRUCTION LOANS
Typically, a lender obtains date down endorsements from the title company. The title company requires lien waivers from contractors and others to protect its lien priority. The mortgage should also include language stating that it secures future advances. For more information, see Question 6. CREDIT FACILITIES
To ensure that a mortgage maintains priority over tax liens, the mortgagee should: Require an escrow of tax deposits. Pay the taxes each year itself.
If the mortgagee makes advances for the payment of taxes or other advances to protect its first priority lien, the advances will be secured by the first priority lien. To avoid interruption in priority in cases of intervening liens, the mortgage should include language expressly 4
stating that it secures future advances. The first mortgage secures the amounts advanced as a first lien on the property so long as the mortgagee makes future advances to the borrower or mortgagor without actual notice that a mortgage on the same property has been recorded after the first mortgage but prior to the advance. 9. What are a landlord's legal rights to a tenant's personal property located in the leased premises? Are these rights governed by statute, common law, or contract? Alabama law provides a landlord with a lien on a tenant's personal property to secure the payment of rent (Ala. Code § 35-9-60). Lenders typically obtain a landlord lien waiver or subordination agreement, or both, to ensure that the lender's lien has priority over the landlord's statutory lien on a tenant's personal property. For more information, see Standard Document, Landlord Lien Waiver and Collateral Access Agreement (http://us.practicallaw.com/0-5193201).
MORTGAGE RECORDING TAXES 10. Is there a mortgage recording tax (or similar tax)? If so: What is the rate and how is the tax calculated? Can a loan or refinance be structured to reduce the tax? Is the tax payable on making a loan secured by real property or
perfecting a lien on real property? Is there any type of real property or transaction that is exempt
from a mortgage recording tax (or similar tax)? Are there any other state or local taxes or fees imposed on the
grant, perfection, or enforcement of a security interest in real property? Are there any exceptions? RATE AND CALCULATION
In Alabama, the mortgage recording tax is $0.15 per $100 of the loan amount secured by the mortgage (Ala. Code § 40-22-2). STRUCTURE
The mortgage recording tax can be limited by providing a legend on the mortgage stating that the maximum original principal amount of the loan secured by the mortgage is limited to a specified amount. Mortgage recording tax is then only charged on the stated amount. An existing mortgage can also be assigned to a new lender in a refinance so that mortgage recording tax will be due only on the additional credit new money portion of the refinance, provided the that maturity date is not extended. PAYMENT
The mortgage recording tax is payable to the recording office when presenting the mortgage for recording in the public records. If payment is not made when the document is presented for recording, the recording office will not record the mortgage. (Ala. Code § 40-22-2.) EXEMPTION
Some entities are statutorily exempt from the mortgage recording tax, including specific non-profits (Ala. Code § 40-9-1 to 40-9-38). © 2015 Thomson Reuters. All rights reserved.
Real Estate Finance: Alabama
OTHER TAXES OR FEES
The only other fees associated with recording a mortgage are: Nominal fees associated with indexing the mortgage. A mortgage recording fee, charged per page.
ALTA 9.1-06 or ALTA 9.2-06 or ALTA 9.3-06 or ALTA 9.6-06 or
ALTA 9.7-06 or ALTA 9.8-06 or ALTA 9.9-06 or ALTA 9.10-06 (Comprehensive). ALTA 10-06 (Assignment of Mortgage) ALTA 10.1-06 (Assignment of Mortgage & Date Down).
These fees vary by county.
ALTA 11-06 (Mortgage Modification).
Transfers of real property are also subject to a deed tax. The deed tax is $0.50 for every $500 (rounded up) of the value of the real property conveyed. If a mortgage is recorded simultaneously with the deed, a credit is provided by statute, so that the deed tax due is calculated only on the value of the real property not securing the mortgage. (Ala. Code § 40-22-1(c).) Mortgages involving open end or revolving indebtedness maintain two options for paying the deed tax (see Question 4: Other Requirements).
ALTA 11.1-06 (Mortgage Modification with Subordination).
For more information, see State Q&A, Real Estate Ownership: Alabama (http://us.practicallaw.com/1-527-1905).
ALTA 14.3-06 or equivalent (Future Advance Reverse Mortgage).
TITLE INSURANCE
ALTA 15.1-06 (Nonimputation - Additional Insured).
11. Are title insurance premiums or service charges for lenders' title insurance policies regulated? Are the costs of title insurance negotiable within a specified range of rates? Are there any discounts available for reissued policies? In Alabama, title insurance charges are based on rates filed by title insurers with the State of Alabama. Title insurance rates are not negotiable. Reissue credits are offered on owner's policies only when a prior title insurance policy is physically furnished. The prior policy must include the policy jacket and all schedules. A reissue credit applies up to the face amount of the previous policy. Title insurance rates can be found on the Alabama Department of Insurance's website. 12. Provide a list and brief description of the title insurance endorsements available to lenders. The following is a list of title endorsements available for an owner's title insurance policy: American Land Title Association (ALTA) 1-06 or equivalent (Street
Assessments). ALTA 2-06 (Truth in Lending). ALTA 3-06 or ALTA 3.1-06 or ALTA 3.2-06 (Zoning). ALTA 4.1-06 (Condominium). ALTA 5.1-06 (Planned Unit Development).
ALTA 12-06 (Aggregation). ALTA 12.1-06 (Aggregation - State Limits - Loan Policy). ALTA 13-06 (Leasehold). ALTA 13.1-06 (Leasehold - Loan Policy). ALTA 14.1-06 (Future Advance Knowledge). ALTA 14.2-06 (Future Advance - Letter of Credit). ALTA 15-06 (Nonimputation - Full Equity Transfer). ALTA 15.2-06 (Nonimputation - Partial Equity Transfer). ALTA 16-06 (Mezzanine Financing Endorsement). ALTA 17-06 (Access and Entry). ALTA 17.1-06 (Indirect Access and Entry). ALTA 17.2-06 (Utility Access). ALTA 18-06 (Single Tax Parcel). ALTA 18.1-06 (Multiple Tax Parcel). ALTA 19-06 (Contiguity - Multiple Parcel). ALTA 19.1-06 (Contiguity - Single Parcel). ALTA 20-06 (First Loss - Multiple Parcel Transactions). ALTA 22-06 (Location). ALTA 22.1-06 (Location and Map). ALTA 23-06 (Coinsurance - Single Policy). ALTA 24-06 (Doing Business). ALTA 25.06 (Same as Survey). ALTA 25.1-06 (Same as Portion of Survey). ALTA 26-06 (Subdivision). ALTA 27-06 (Usury). ALTA 28-06 (Easement - Damage or Enforced Removal). ALTA 28.1-06 (Encroachments - Boundaries and Easements). ALTA 28.2-06 (Encroachments - Boundaries & Easements -
Described Improvements). ALTA 32-06 (Mechanic's Lien - Construction Loan Pending
Disbursement).
ALTA 6-06 (Variable Rate Mortgage).
ALTA 33-06 (Construction Loan - Date Down).
ALTA 6.2-06 (Variable Rate Mortgage - Negative Amortization).
ALTA 35-06 (Minerals and Other Subsurface Substances - Buildings).
ALTA 7-06 or equivalent (Manufactured Housing Unit).
ALTA 35.1.-06 (Minerals and Other Subsurface Substances -
ALTA 7.1-06 or equivalent (Manufactured Housing - Conversion -
Loan Policy). AL TA 8.1-06 or equivalent (Environmental Protection Lien). ALTA 8.2-06 (Commercial Environmental Protection Lien). ALTA 9-06 (Restrictions, Encroachments, Minerals - Loan Policy). © 2015 Thomson Reuters. All rights reserved.
Improvements). ALTA 35.2-06 (Minerals and Other Subsurface Substances -
Described Improvements). ALTA 35.3-06 (Minerals and Other Subsurface Substances - Land
Under Development). 5
Real Estate Finance: Alabama
ALTA 36.06 (Energy Project - Leasehold or Easement). ALTA 36.1-06 (Energy Project - Leasehold/Easement - Loan Policy). ALTA 36.2-06 (Energy Project - Leasehold Owners).
A borrower may exercise his right of redemption within one year from the date of sale (Ala. Code § 6-5-248).
ALTA 36.3-06 (Energy Project - Leasehold - Loan Policy).
Although most mortgages include these limitations and waivers, the right of redemption cannot be:
ALTA 36.4-06 (Energy Project - Covenants, Conditions &
Limited by the lender.
Restrictions – Land Under Development). ALTA 36.5-06 (Energy Project - CC&R's - Land Under Development
- Loan Policy).
Waived by the borrower.
(Ala. Code § 6-5-248.)
ALTA 36.6-06 (Energy Project - Encroachments).
The borrower must pay the following charges to redeem the property:
ALTA 37-06 (Assignment of Rents or Leases).
Purchase price at foreclosure.
ALTA 38-06 (Mortgage Tax). ALTA 39-06 (Policy Authentication). Deletion of Arbitration. Date Down Endorsement.
Taxes paid or assessed. Any insurance premiums paid by the purchaser. Any permanent improvements on the property. Interest.
ALTA's forms are available on ALTA's website (subscription required).
Any other valid lien maintained by the purchaser.
Endorsements available in the State of Alabama can be found on the Alabama Department of Insurance's website.
(Ala. Code § 6-5-253.)
13. How is gap coverage (the time between closing the loan and actually recording the lien) typically handled by the title insurance companies? Typically, the title insurance company requires an affidavit and indemnity agreement from the borrower (or the seller, if the property is being sold to the borrower) regarding intervening liens.
FORECLOSURE 14. Describe the foreclosure process available and the typical timing for the process. Do borrowers have a right of redemption? If so, what is the redemption period? Can lenders limit a borrower's right of redemption? Alabama offers both judicial and non-judicial foreclosure. Nonjudicial foreclosure is the most commonly used method of foreclosure. It can be completed in approximately 60 to 90 days, if no title or other issues exist. For a non-judicial foreclosure, a notice of sale must be published weekly for three successive weeks in a newspaper published in the county or counties where the property is located. The notice of sale must include: The time of sale. The place of sale. The terms of sale. A description of the property being sold.
(Ala. Code § 35-10-13.) The sale must be conducted between the hours of 11 a.m. and 4 p.m. (legal hours of sale) at the front or main door to the courthouse in the county where the property is located (Ala. Code § 35-10-14).
6
A borrower loses his right of redemption if he or anyone holding possession by privity of title does not vacate the premises within ten days of receiving demand of possession from the purchaser (Ala. Code § 6-5-251). 15. Describe any significant costs of or impediments to foreclosing a lien on real property. Other than publication costs, under Alabama law there are no significant costs of or impediments to foreclosing a lien on real property.
FOREIGN ENTITIES 16. Are there any permissions, approvals, or licenses specifically required for foreign banks (or other foreign lenders) to make loans secured by real property? For commercial loans, national banks are not required to attain any permissions, approvals or licenses before making loans secured by real property located in Alabama. There are no permissions, approvals, or licenses specifically required for state-chartered banks to make loans secured by real property so long as the state-chartered bank is not deemed to be "transacting business" in Alabama. If a state-chartered bank is deemed to be "transacting business" in Alabama, it is required to register as a foreign entity with the Alabama Secretary of State (Ala. Code § 10A1-7.01). The failure of a foreign entity to register with the Alabama Secretary of State does not invalidate any contract or act of the foreign entity (Ala. Code § 10A-1-7.21(b)). A foreign entity "transacting business" in Alabama may not maintain any action, suit, or proceeding in any Alabama court until it registers as a foreign entity with the Alabama Secretary of State (Ala. Code § 10A-1-7.21(a)).
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Real Estate Finance: Alabama
Alabama law is unsettled as to whether making loans secured by Alabama commercial real estate constitutes "transacting business" within the state and any determination is very fact-specific. For residential loans, an individual may not engage in the business of mortgage loan origination without receiving a Mortgage Loan Originator License from the State of Alabama (Ala. Code § 5-26-4). Alabama imposes a financial institute excise tax on any financial institution that: Engages in banking. Conducts the business of a financial institution. Conducts a credit card business through the issuance of credit
cards to Alabama residents or businesses. Conducts a business employing moneyed capital coming into
competition with the business of national banks. (Ala. Code § 40-16-4.) A "financial institution" is defined as any person, firm, corporation, and any legal entity "doing business" in Alabama as a: National banking association. Bank. Banking association. Trust company. Industrial or other loan company or building and loan association. Any other institution "employing moneyed capital coming into
competition with the business of national banks." (Ala. Code § 40-16-1.) The term "doing business" is not defined for financial institute excise tax purposes. Alabama law is unsettled regarding whether making a loan secured by real property located in Alabama is sufficient to constitute "doing business" under Alabama law.
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Real Estate Leasing: Alabama ARTHUR S. RICHEY AND ADAM J. SIGMAN, SIROTE & PERMUTT, P.C., WITH PRACTICAL LAW REAL ESTATE
A Q&A guide to commercial real estate leasing law for landlords and tenants in Alabama. This Q&A addresses state laws and customs that impact commercial leasing, including the execution and enforceability of leases, disclosures, transfer taxes, rents and security deposits, permitted assignments, financings, and remedies. Federal, local or municipal law may impose additional or different requirements. Answers to questions can be compared across a number of jurisdictions (see Real Estate Leasing: State Q&A Tool (http://us.practicallaw.com/1-517-4023)). EXECUTION AND ENFORCEABILITY 1. Describe any formal requirements for the execution of a lease. In particular specify if: Witnesses are required. Acknowledgments are necessary. Counterpart signatures are enforceable. There are any homestead law requirements. There are any other important requirements in your state.
ACKNOWLEDGMENTS
If the lease is not attested by a witness, it must be properly acknowledged by an authorized officer, such as a notary public (Ala. Code § 35-4-20 and § 35-4-23). COUNTERPART SIGNATURES
If permitted by the lease, counterpart signatures are enforceable under Alabama law. HOMESTEAD LAWS
If a husband and wife desire to lease their homestead, both the husband and wife must sign the lease (Ala. Code § 6-10-3). OTHER REQUIREMENTS
If the lease is a residential lease, the lease must satisfy all requirements of the Alabama Uniform Residential Landlord and Tenant Act (Ala. Code §§ 35-9A-101 to 35-9A-603). 2. Must a memorandum of lease (or any other instrument) be recorded for a lease to be enforceable against third parties? If so, must an amendment to a recorded memorandum of lease be recorded if there is a further (material or non-material) amendment to the lease? A memorandum of lease is not required to be recorded to be enforceable against a third party if that third party had constructive knowledge of the lease.
WITNESSES
3. Provide the statutory form of acknowledgment for:
A lease must either be:
An individual.
Attested by one witness. Properly acknowledged by an authorized officer, such as a notary
public. (Ala. Code § 35-4-20 and § 35-4-23). Two witnesses are required when the contracting party either: Cannot write his name. Has his name written for him by another.
(Ala. Code § 35-4-20.)
© 2015 Thomson Reuters. All rights reserved.
A corporation. A limited liability company. A limited partnership. A trustee.
Section 35-4-29 of the Alabama Code provides short forms of acknowledgement. These acknowledgement forms can be used for recording instruments within Alabama, regardless of whether the instruments are executed and notarized in Alabama or in another state.
Real Estate Leasing: Alabama
LIMITED PARTNERSHIP
INDIVIDUAL
STATE OF [STATE]
)
STATE OF [STATE]
)
COUNTY OF [COUNTY]
)
COUNTY OF [COUNTY]
)
) I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name is signed to the foregoing instrument and who is known to me, acknowledged before me on tis day that, being informed of the contents of the instrument, (s)he executed the same voluntarily on the day same bears date. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public
) I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [signatory title] of [CORPORATION NAME], a [DISTRICT OF LIMITED PARTNERSHIP ORGANIZATION] limited partnership, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s)he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said limited partnership. Given under my hand this [DATE] day of [MONTH], [YEAR].
My Commission Expires: [DATE] [SEAL]
Notary Public
CORPORATION
STATE OF [STATE]
)
COUNTY OF [COUNTY]
) )
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name is signed to the foregoing instrument and who is known to me, acknowledged before me on tis day that, being informed of the contents of the instrument, (s)he executed the same voluntarily on the day same bears date. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
My Commission Expires: [DATE] TRUSTEE
STATE OF [STATE]
)
COUNTY OF [COUNTY]
) )
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [NAME OF ENTITY], is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s) he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said [ENTITY TYPE]. Given under my hand this [DATE] day of [MONTH], [YEAR].
LIMITED LIABILITY COMPANY
STATE OF [STATE]
)
COUNTY OF [COUNTY]
) )
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name is signed to the foregoing instrument and who is known to me, acknowledged before me on tis day that, being informed of the contents of the instrument, (s)he executed the same voluntarily on the day same bears date. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
2
[SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
DISCLOSURES, CERTIFICATIONS AND IMPLIED USES 4. Are there any statutory or legal disclosures required by the landlord or the tenant either at the beginning or end of the lease term? Are there any compliance certificates the tenant may request from the landlord? In commercial leases, there are no disclosures required from either landlord or tenant. The only certificates that either party may be required to provide to the other are those that are specified in the lease. © 2015 Thomson Reuters. All rights reserved.
Real Estate Leasing: Alabama
In residential leases, landlords must disclose to the tenant, in writing, before or at the start of the tenancy, the name and address of: The person authorized to manage the premises. Either: the
premises owner; or
a
person authorized to receive service of process on the owner's behalf.
OPERATING EXPENSES
There are no restrictions related to commercial leases on what operating expenses may be passed through to the tenant, so long as the expenses that are to be passed through are stated in the lease. Residential leases cannot pass certain expenses onto tenants, such as requiring that tenant pay for the landlord's attorney's fees or cost of collection (Ala. Code § 35-9A-163(a)).
(Ala. Code § 35-9A-202.) 5. Is a lease deemed to include an implied warranty of fitness for intended use? Under Alabama law, a lease does not include an implied warranty of fitness for intended use (Martin v. Springdale Stores, Inc., 354 So. 2d 1144, 1145 (Ala. Civ. App. 1978)).
TERM, RENEWAL AND EARLY TERMINATION 6. Are there any legal restrictions which: Limit the maximum term of a lease (including any renewals)? Require the landlord to allow the tenant to renew its lease? Allow the tenant to terminate its lease before the express
expiration date? LIMIT ON MAXIMUM TERM
9. For security deposits: Must the landlord maintain security deposits in a separate bank
account for each tenant? Must a security deposit be in an interest bearing account? Must the landlord pay all interest earned to the tenant or can
the landlord retain a percentage of the interest earned as an administrative fee? COMINGLING PERMITTED
A landlord is not required to maintain security deposits in a separate bank account for each tenant and may commingle security deposits with the landlord's other funds. INTEREST BEARING ACCOUNT
A security deposit does not have to be held in an interest bearing account.
Under Alabama law, the term of a lease cannot be longer than 99 years. In addition, if the lease (or a memorandum of lease) is not recorded within one year of the signing, any portion of the term of the lease greater than 20 years is invalid. (Ala. Code § 35-4-6.)
ADMINISTRATIVE FEES
TENANT RENEWAL
TRANSFER TAXES AND OTHER TAXES
A landlord is not required to allow a tenant to renew a lease unless the lease specifies otherwise. EARLY TERMINATION
In commercial leases, there are no requirements that allow the tenant to terminate the lease before the expiration date unless the lease expressly specifies otherwise. 7. Is the landlord required to provide the tenant with a notice before the effective date of a renewal when the lease term automatically renews? The landlord is not required to provide the tenant with a notice before the effective date of a renewal if the lease term automatically renews.
RENT AND SECURITY DEPOSITS 8. Are there any legal restrictions on: How much rent the landlord may charge? Whether certain operating expenses (or other additional rent)
may be passed through to the tenant? MAXIMUM RENT
If any interest is earned, the landlord is not required to pay the interest to the tenant unless the lease expressly specifies otherwise.
10. Are any state or local transfer taxes triggered when a lease is signed or in the later assignment of a lease? If so, please specify the: Rate for the tax and how is it calculated. Returns required. Timing for filing the returns and paying the taxes.
RATE AND CALCULATION
Transfer taxes are due when the lease (or a memorandum of lease) is recorded in the public records. Transfer taxes are $1 multiplied by the tax consideration. The tax consideration is: Tax consideration = Term of lease (in months) x Monthly rent x Percentage from a lease percentage chart kept by the probate court of the county where the property is located (which is based on the term of the lease) / 1000 Attorneys should contact the probate court of the country where the property is located to obtain the proper lease percentage chart for that county. The tax consideration is rounded up to the nearest $500. (Ala. Code § 40-22-1.)
In commercial leases, there are no restrictions on the rent a landlord may charge. © 2015 Thomson Reuters. All rights reserved.
3
Real Estate Leasing: Alabama
RETURNS
TRANSFER OF OWNERSHIP INTERESTS
No special returns are required to be filed on transfer taxes.
A tenant's corporate ownership interests may be freely transferred without the landlord's consent if the lease does not define an assignment to include a transfer of an ownership interest in the tenant.
TIMING
The transfer taxes must be paid when the lease (or memorandum of lease) is presented for recording. The lease (or memorandum of lease) will not be recorded if the transfer taxes are not paid. (Ala. Code § 40-22-1.) 11. Are state or local transfer taxes triggered when the tenant undergoes a (direct or indirect) transfer of its ownership interests? In particular, please specify the: Percentage of ownership interest that triggers the taxes. Rate for the taxes and how they are calculated. Returns required. Timing for filing the returns and paying the taxes.
No state or local transfer taxes are triggered when a tenant undergoes a direct or indirect transfer of its ownership interest unless the instrument transferring the ownership instrument is recorded as a conveyance of property (Ala. Code § 40-22-1). 12. Describe any state or local taxes (rental or other) that the landlord must collect from the tenant. There are no rental or other taxes that the landlord must collect from the tenant.
ASSIGNMENT, FINANCING AND TRANSFERS 13. Describe any laws allowing the tenant to assign its lease, or sublease its premises, without the landlord's consent. Is a reasonableness standard implied when the lease is silent on whether the landlord's consent to an assignment or sublease may be reasonably or unreasonably withheld? A tenant generally has the right to sublease the property or assign the lease without the landlord's consent if the lease is silent about subleases and assignments. However, the ability to assign the lease or sublease the premises is typically expressly restricted to a certain extent in the lease. If the lease requires the landlord's consent before subleasing or assigning the lease, the landlord cannot "unreasonably and capriciously" withhold consent (Homa-Goff Interiors, Inc. v. Cowden, 350 So. 2d 1035, 1038 (Ala. 1977)). 14. If the lease does not expressly define the term "assignment" and there is no other express restriction in the lease to the contrary can the: Tenant's corporate ownership interests be freely transferred
without the landlord's consent? Tenant freely place a lien on its leasehold interest, or pledge its
corporate ownership interests, in connection with a financing without the landlord's consent?
4
SECURITY LIEN OR PLEDGE OF OWNERSHIP INTERESTS
Unless the lease expressly specifies otherwise, the tenant can place a lien on its leasehold interest or pledge its corporate ownership interest without landlord's consent. 15. When a lease requires a landlord's consent for an assignment and defines the term "assignment" to include a transfer of the tenant's corporate ownership interests, would an indirect transfer of the tenant's interests trigger the landlord's consent requirement? Depending on the language of the lease, an indirect transfer of the tenant's corporate ownership interests would likely trigger the landlord's consent requirement. 16. Is the tenant/assignor deemed released from future liability under the lease when the lease is silent on whether the original tenant will be released in the event of an assignment? If the lease is silent on whether the original tenant is released in the event of an assignment, the original tenant/assignor is not released from future liability. 17. Describe any restrictions on the landlord's ability to transfer the real property subject to the lease. Does this transfer affect the tenant's rights or obligations? In Alabama, there are no statutory restrictions on the landlord's ability to transfer real property subject to the lease. If the landlord transfers its interest in the real property, the tenant's rights and obligations remain the same unless the lease provides otherwise.
REMEDIES 18. If a tenant breaches the lease: Are there any implied remedies available to the landlord, such
as the acceleration of rent? Is there a limitation on the landlord's ability to exercise self-help? Is there a common form of an eviction proceeding and, if so,
what is the typical length of time for the proceeding? Are there specific mechanisms for expedited remedies, such as
waiver of jury trial or arbitration? Is the landlord required to mitigate its damages without an
express obligation to do so? IMPLIED REMEDIES Commercial Leases
A landlord may only accelerate rent if the lease expressly permits the acceleration of rent.
© 2015 Thomson Reuters. All rights reserved.
Real Estate Leasing: Alabama
Residential Leases
An Alabama landlord may deliver a written notice to terminate the lease to the tenant, specifying the acts and omissions causing the breach if: The tenant materially does not comply with the lease. The tenant makes an intentional misrepresentation of a material
fact in the lease or lease application. There is a material noncompliance with the tenant's statutory
obligations to maintain the premises. The tenant does not pay rent when due.
(Ala. Code § 35-9A-421.) If the breach arises from unpaid rent, the lease terminates if the tenant does not remedy the breach within seven days of receiving the notice. For all other breaches, the lease terminates on the date specified in the notice if the tenant does not remedy the breach within seven days of receiving the notice. Certain breaches are non-curable, including: Intentional misrepresentation. Certain acts on the premises (for example, possession of illegal
drugs, discharge of a firearm, and criminal assault). (Ala. Code § 35-9A-421.) On termination of the lease, a landlord has a claim for: Possession and rent. Actual damages and attorneys' fees.
(Ala. Code § 35-9A-426.) If the tenant remains on the premises after termination of the lease, the landlord may pursue an eviction proceeding (see Eviction Proceeding). A landlord is only allowed to accelerate the rent if the lease permits the acceleration of rent. SELF-HELP Commercial Leases
A landlord may only pursue self-help to retake possession of the premises after a default if the lease permits reentry on default.
If the tenant does not deliver possession, landlord may pursue an unlawful detainer action in the district court of the county where the premises is located (Ala. Code § 6-6-330). The landlord's complaint must be served on the tenant at least six days before the hearing date. If the district judge rules in favor of the landlord, the court files a writ of execution which requires the sheriff to restore the premises to the landlord. The tenant may file an appeal of the judge's ruling within seven days, and a trial on the appeal is scheduled within 60 days of date of the appeal. The landlord's right to possession: Will not be delayed by a tenant's appeal. Can only be prevented if the tenant pays all rent payable before
the landlord regains possession via a writ of possession. (Ala. Code §§ 6-6-310 to 6-6-353.) Residential Leases
An eviction proceeding for residential leases is similar to the process for commercial leases (see Commercial Leases), except: A landlord may pursue an eviction proceeding in either a district
court or circuit court, depending on the respective jurisdictions of the courts as established by the county of the premise. If a judge rules in favor of the landlord, there is an automatic seven-
day stay on the issuance of a writ of possession. (Ala. Code § 35-9A-461.) EXPEDITED REMEDIES Commercial Leases
Alabama law does not provide any automatic expedited remedies for commercial leases. Therefore, the lease may provide that a landlord and tenant may do either of the following, or both: Waive their right to a jury trial. Agree to resolve disputes through arbitration. Arbitration is disfavored in Alabama.
Residential Leases
See Commercial Leases. MITIGATION OF DAMAGES
Residential Leases
Commercial Leases
A landlord may only use self-help if the tenant abandons or surrenders the premises (Ala. Code § 35-9A-427).
Alabama law does not impose a duty on a landlord to mitigate damages without an express obligation to do so.
EVICTION PROCEEDING
Residential Leases
Commercial Leases
An aggrieved party must mitigate damages. However, the duty of a landlord does not take priority over the landlord's right to first rent other vacant units. (Ala. Code § 35-9A-105.)
The typical form of an eviction proceeding involving commercial leases is an action for an unlawful detainer. The landlord must give notice of termination at least ten days before terminating the lease. After delivering the notice of termination, the landlord must demand that the tenant surrender possession of the premises within ten days of receiving notice of demand. (Ala. Code 35-9-3.) © 2015 Thomson Reuters. All rights reserved.
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Real Estate Leasing: Alabama
AUTOMATIC TERMINATION OF A LEASE IN A FORECLOSURE ACTION 19. When a landlord's lender forecloses on its lien recorded against the landlord's property, would the lease interest that is subordinated to the lender's lien automatically terminate? If so, how do the parties avoid automatic termination of subordinated lease interests? The tenant's interest is not subordinate to the landlord's lender's lien if the lease both: Existed before the landlord's lender's lien. Does not contain language that automatically subordinates the
lease to any future landlord's lender's lien. The lease with priority over the landlord's lender's lien would not be terminated in a foreclosure of the landlord's interest in the property. If the lender's lien existed before the lease or has priority as specified in the lease, then the lease would be automatically terminated in the event of a foreclosure (Prestwood v. Weissinger, 945 So.2d 458, 462 (Ala. Civ. App. 2005)). However, the lease cannot be terminated if the landlord, tenant and lender have executed an agreement otherwise (for example, a subordination, non-disturbance and attornment agreement (http:// us.practicallaw.com/3-502-9775)).
ABOUT PRACTICAL LAW Practical Law provides legal know-how that gives lawyers a better starting point. Our expert team of attorney editors creates and maintains thousands of up-to-date, practical resources across all major practice areas. We go beyond primary law and traditional legal research to give you the resources needed to practice more efficiently, improve client service and add more value. If you are not currently a subscriber, we invite you to take a trial of our online services at practicallaw.com. For more information or to schedule training, call 888.529.6397 or e-mail
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6
View the online version at http://us.practicallaw.com/1-527-1905
Real Estate Ownership: Alabama ARTHUR S. RICHEY AND ADAM J. SIGMAN, SIROTE & PERMUTT, P.C., WITH PRACTICAL LAW REAL ESTATE
A Q&A guide to commercial real estate laws for owners and purchasers in Alabama. This Q&A addresses state laws and customs that impact the ownership and the purchase and sale of commercial real estate, including real property taxes, transfer taxes, instruments for transferring fee title, execution and recording requirements, necessary disclosures, title insurance matters, and risk of loss. Federal, local or municipal law may impose additional or different requirements. Answers to questions can be compared across a number of jurisdictions (see Real Estate Ownership: State Q&A Tool (http:// us.practicallaw.com/3-517-4022)). TYPES OF ESTATES AND TAXABLE REAL PROPERTY 1. When an estate in real property is conveyed, granted or demised, is it deemed to be transferred as an absolute fee simple estate? Unless the conveyance specifies otherwise, when real property is conveyed, granted or demised, it is deemed to be transferred as an absolute fee simple estate (Ala. Code § 35-4-2). 2. Is there specific language which must appear in a deed to convey an absolute fee simple estate? Alabama's real property code does not provide "required" language for deeds or conveyances. However, deeds and other instruments of conveyance typically use the words "grant", "bargain", "sell" or some combination thereof. Oftentimes, the term "convey" is also used, for example, "grant, bargain, sell and convey". These words must be construed, unless it otherwise clearly appears from the conveyance, to convey a fee simple estate. (Ala. Code § 354-271.)
© 2015 Thomson Reuters. All rights reserved.
3. What other freehold estates are permitted? Briefly describe each. Alabama law also permits life estates. However, they are rarely used. Alabama law also permits easements and servitude.
REAL PROPERTY TAXES 4. In relation to real property taxes, please describe: The kind of property that is taxable as real property. Any kind of real property that is exempt from real property taxes. The current rate and nature of the taxes (for example, assessed
value or school tax). The payment and collection procedures.
PROPERTY TREATED AS REAL PROPERTY
Taxes on real property include the real property as well as the improvements on the real property. Real property in Alabama is appraised annually. There are three classes of real property: Class I. Public utilities are assessed at 30% of fair market value. Class II. All property not classified as Class I or Class III are
assessed at 20% of fair market value Class III. Owner occupied single family dwelling farm, pasture,
timberland, historical properties are assessed at 10% of fair market value. (Ala. Code § 40-8-1(a); Alabama Department of Revenue (ADR): Property Tax, Classes of Property.) EXEMPTIONS
Real property owned by various charitable, educational and public authorities are exempt from real property taxes. There are also exemptions for homestead, disability, senior citizens and others. (Ala. Code §§ 40-9-1 to 40-9-39.) RATE AND NATURE OF TAXES
Taxes include both a county and municipal component. Though paid simultaneously, in some counties the county portion of the tax is paid in arrears while the municipal portion is paid in advance.
Real Estate Ownership: Alabama
The tax owed for real property is calculated by multiplying the following:
OFFICERS
The assessed value of the property.
Under Alabama law, no specific officers are required to execute a deed. However, there is a broader issue of whether the party that the corporation or other entity is tendering has the requisite authority to sign and bind the entity. Therefore, the officer should be authorized by a proper resolution by the corporation or other entity to execute any deed as an authorized signatory.
The tax rate set by various authorities where the real property is
located (for example, the state, county, municipality and school board district). PAYMENT AND COLLECTION
In Alabama, the tax year runs from October 1 to the following September 30. Taxes are due and payable on October 1 but not considered late until January 1 of the following year. (ADR: Frequently Asked Questions.) Penalties for failure to pay include interest and fees. In addition, the property subject to the tax can be sold for taxes at a tax sale. Typically, tax sales are held in April of each year for the preceding years unpaid taxes. (Ala. Code § 40-10-1.)
INSTRUMENTS AND EXECUTION REQUIREMENTS 5. What deeds (or other instruments) are used to convey fee title and which is most commonly used? Briefly describe each. The two most commonly used deeds in Alabama are: The statutory warranty deed (see Statutory Warranty Deed).
LANGUAGE FOR SIGNATURE BLOCK
Though not required by statute, the signatory's name and title should appear in the signature and notary blocks on the deed to prevent ambiguity as to the capacity in which the person is signing. AUTHORIZATION TO DO BUSINESS
A business is not required to register with the State of Alabama unless it is considered to be transacting business in Alabama. No certificate of registration is required to record a deed. (Ala. Code § 10A-1-7.01.) CORPORATE SEAL
No corporate seal is required.
The general warranty deed (see General Warranty Deed).
MARGINS OR HEADINGS
Alabama law also allows quitclaim deeds (see Quitclaim Deed).
Alabama law does not require any specific margin or heading sizes. However, there must be a block showing the name and address of the person who prepared the document at either at the beginning or end of the document (Ala. Code § 35-4-113).
STATUTORY WARRANTY DEED
In a statutory warranty deed, unless the deed expressly provides otherwise, the grantor only: Warrants title during the grantor's period of ownership. Assumes liability for any actions performed by the grantor which
create a cloud on title. GENERAL WARRANTY DEED
In a general warranty deed, unless the deed expressly provides otherwise, the grantor warrants title for the grantor as well as the grantor's predecessors in title. QUITCLAIM DEED
Alabama also allows conveyance by quitclaim deed where the deed only conveys the interest that the grantor has in the property at the time of the conveyance, whatever that may be, with no warranty. 6. Are there any specific state or local recording requirements necessary to record a deed? In particular, please specify if: Specific officers must sign for a corporation or other entity. Specific language is required to evidence the authority of a
signatory for a corporation or other entity. A certificate of authority to do business in your state is required
if the grantee on the deed is a foreign company. The corporation's seal is required on the signature page. There are specific margins or headings required for the deed. A cover page is required for recording. If there are any other requirements
2
COVER PAGE
No cover page is required. A real estate validation form is required (see Other Requirements). OTHER REQUIREMENTS
Under Alabama law, a deed, bill of sale or other instrument conveying an interest in property must include a copy of the Real Estate Sales Validation Form (RT-1), which must include either: Proof of the actual purchase price, if the property is being sold. The actual value of the property.
(Ala. Code § 40-22-1.) Some counties will require the validation form to be recorded with the instrument presented for recording (typically as the last page) while other counties only need to review the form. While not required under Alabama law, it is common for a deed to state: Whether or not the property is (or is not) the homestead of the
grantor. Whether or not a mortgage is being simultaneously recorded.
If a notary acknowledgement is not included in the conveyance of the property, a witness may attend to the conveyance. If the party conveying cannot write, the conveyance of property must be attested by two witnesses (who are able to write and must write their own names as witnesses). (Ala. Code § 35-4-20.) © 2015 Thomson Reuters. All rights reserved.
Real Estate Ownership: Alabama
7. Provide the statutory form of acknowledgment for:
LIMITED LIABILITY COMPANY
An individual.
STATE OF [STATE]
)
A corporation.
COUNTY OF [COUNTY]
)
A limited liability company.
)
A limited partnership. A trustee.
Section 35-4-29 of the Alabama Code- provides short forms of acknowledgement. These acknowledgment forms can be used for recording instruments within Alabama, regardless of whether the instruments are executed and notarized in Alabama or in another state. INDIVIDUAL
STATE OF [STATE]
)
COUNTY OF [COUNTY]
) )
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name is signed to the foregoing instrument and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s)he executed the same voluntarily on the day same bears date.
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [LLC NAME], a [DISTRICT OF LLC ORGANIZATION] limited liability company, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s) he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said limited liability company. Given under my hand this [DAY] of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
LIMITED PARTNERSHIP
STATE OF [STATE]
)
COUNTY OF [COUNTY]
)
Given under my hand this [DATE] day of [MONTH], [YEAR].
)
STATE OF [STATE]
)
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [signatory title] of [CORPORATION NAME], a [DISTRICT OF LIMITED PARTNERSHIP ORGANIZATION] limited partnership, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s)he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said limited partnership.
COUNTY OF [COUNTY]
)
Given under my hand this [DATE] day of [MONTH], [YEAR].
[SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
CORPORATION
) I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [CORPORATION NAME], a [DISTRICT OF CORPORATION ORGANIZATION] corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s)he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
© 2015 Thomson Reuters. All rights reserved.
[SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
TRUSTEE
STATE OF [STATE]
)
COUNTY OF [COUNTY]
) )
I, the undersigned, a Notary Public in and for said County, in said State, hereby certify that [SIGNATORY NAME] whose name as the [SIGNATORY TITLE] of [NAME OF ENTITY], is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, (s) he, as such [SIGNATORY TITLE] and with full authority, executed the same voluntarily for and as the act of said [ENTITY TYPE]. 3
Real Estate Ownership: Alabama
Given under my hand this [DATE] day of [MONTH], [YEAR]. [SEAL]
[NOTARY SIGNATURE]_____ Notary Public My Commission Expires: [DATE]
DISCLOSURES, NECESSARY FILINGS AND TRANSFER TAXES 8. Must the ultimate (whether direct or indirect) beneficial owner of an entity that owns real property be publicly disclosed? Briefly describe what is required and in what circumstances. Under Alabama law, there is no requirement to disclose the beneficial owner of an entity that owns real property. The only name required is the entity owning the real property. The Alabama Secretary of State website maintains a business entity database, which lists certain information for each business entity registered with the Secretary of State.
RETURNS
Alabama law does not require a special tax return for transfers of real property. However, if the transferor is either not a resident of Arkansas or foreign entity, the purchaser must withhold 3% or 4% of the purchase price to pay certain taxes to the Alabama Department of Revenue (ADR) unless the transferor meets one of several exemptions. The most common exemptions include that: The seller is an Alabama resident. The purchase price is less than $300,000. The seller is not an Alabama resident but is deemed a resident
because the seller: filed is
and will continue to be an established business in Alabama and at the time of closing has real property remaining in Alabama of equal or greater value than the withholding tax liability;
will is
9. When a corporation is the fee title owner of real property, must it record any documents to evidence a merger, conversion or name change? While not required under Alabama law, the filing of a certificate of merger or the conversion documents in the real estate records of the appropriate office of the judge of probate is a common practice. In additional, title companies typically require these filings before issuing an insurance policy. A certified copy of the certificate of merger or the documents required for a conversion may be filed in the real estate records in the office of the judge of probate in any county where any party to the merger or the converting organization owned real property, to be recorded without payment and without collection by the judge of probate of any deed or other transfer tax or fee. However, the judge of probate is entitled to collect the filing fees. (Ala. Code § 10A-1-8.02(i)(2); Ala. Code § 10A-5A-10.03(j); Ala. Code § 10A-5A-10.07(f)). 10. In connection with state and local transfer, stamp or similar taxes and direct transfers of real property: Describe any taxes which apply when fee title ownership is
directly transferred. What transfer tax returns (or other documents) must be filed for
direct transfers of real property? What is the timing for filing the returns and paying the transfer
taxes on direct transfers? Are transfer taxes customarily paid by the purchaser or the
seller in a direct transfer of real property? APPLICABLE TAXES FOR DIRECT TRANSFERS
Transfers of real property are subject to a deed tax. The deed tax is $0.50 for every $500 (rounded up) of value of the property conveyed. If a mortgage is recorded simultaneously with the deed, a credit is provide by statute, where generally, the deed tax due is calculated only on the value of the real property not securing the mortgage. (Ala. Code § 40-22-1(c).) 4
Alabama tax returns for the preceding two years;
report the sale on its Alabama income tax return; and
registered to do business in Alabama.
(Ala. Code § 40-18-86(a); Alabama Department of Revenue.) The appropriate forms can be found on the Alabama Department of Revenue website. FILING AND PAYMENT DEADLINES
Transfer taxes must be paid when the deed is presented for recording. The deed will not be recorded if payment is not provided at that time. (Ala. Code § 40-22-1.) CUSTOM
11. In connection with state and local transfer, stamp or similar The parties to the transaction typically contract to determine who will taxes and indirect transfers of ownership interests in real property: pay the transfer taxes. More often than not, the purchaser pays these Does an indirect transfer of real property ownership interests taxes. trigger transfer taxes? For example, would the transfer of corporate or membership interests of an owner of real property trigger transfer taxes? What transfer tax returns (or other documents) must be filed for
indirect transfers of real property ownership interests? What is the timing for filing the returns and paying the transfer
taxes on indirect transfers? Are transfer taxes customarily paid by the purchaser or the seller
in an indirect transfer of real property ownership interests? Section 40-22-1 of the Alabama Code can be interpreted to require transfer taxes for the indirect transfer of an ownership interest (for example, a sale of LLC membership interest). However, this requirement typically only arises on the presentation of a conveyance for recording.
RECORDING INTERESTS AND TITLE INSURANCE 12. Where are ownership interests recorded and how are they indexed? In Alabama, ownership interests are recorded in the Office of the Judge of Probate in the county where the property is located. The ownership interests are indexed in the grantor/grantee index. © 2015 Thomson Reuters. All rights reserved.
Real Estate Ownership: Alabama
13. Do title insurance companies or attorneys typically conduct title searches? Title insurance companies typically conduct title searches in Alabama.
ALTA 35.1.-06 (Minerals and Other Subsurface Substances –
Improvements). ALTA 35.2-06 (Minerals and Other Subsurface Substances –
Described Improvements). ALTA 35.3-06 (Minerals and Other Subsurface Substances – Land
14. What form of title assurance is available to a purchaser? For example, is an abstract of title, a title insurance policy or a title opinion more common? The most commonly used form of title assurance in Alabama is a title insurance policy. Title opinions or abstracts are rarely used, usually in small rural areas and for minerals or mining rights. 15. Are title insurance premiums or service charges for owners' title insurance policies regulated? Is the cost of title insurance negotiable within a specified range of rates? Are there any discounts available for reissued policies? In Alabama, title insurance charges are based on rates filed by the title insurers with the State of Alabama. Title insurance rates are not negotiable. Reissue credits are offered on owner's policies only when a prior title insurance policy is physically furnished. The prior policy must include the policy jacket and all schedules. A reissue credit applies up to the face amount of the previous policy. Title insurance rates can be found on the Alabama Department of Insurance's website. 16. List the title endorsements available for an owner's title insurance policy for non-residential property. The following is a list of title endorsements available for an owner's title insurance policy: American Land Title Association (ALTA) 3-06, ALTA 3.1-06 or ALTA
3.2-06 (Zoning). ALTA 8.2-06 (Commercial Environmental Protection Lien). ALTA 9.1-06, ALTA 9.2-06, ALTA 9.8-06 or ALTA 9.9-06
(Comprehensive). ALTA 13-06 (Leasehold). ALTA 17-06 (Access and Entry).
Under Development). ALTA 36.06 (Energy Project –Leasehold or Easement). ALTA 36.2-06 (Energy Project – Leasehold Owners). ALTA 36.4-06 (Energy Project – Covenants, Conditions &
Restrictions – Land Under Development). ALTA 39-06 (Policy Authentication).
ALTA's forms are available on ALTA's website (subscription required). Available endorsements can be found on the Alabama Department of Insurance's website.
RISK OF LOSS 17. Is the risk of loss during the contract period typically on the seller or on the purchaser if the contract is silent? If the contract is silent, the risk of loss during the contract period is typically on the seller.
REAL PROPERTY INVESTMENT VEHICLES 18. What are the most common forms of investment vehicle for real property and what are the most common entities used? There is no predominant structure for acquiring real estate. Limited liability companies (http://us.practicallaw.com/6-382-3582) are widely used. 19. Are real estate investment trusts (REITs) or similar entities currently permitted? If so, are they common? Alabama law does not prohibit real estate investment trusts (REITs).
REGULATION AND TAXATION 20. Is there significant regulation and taxation of real property locally? Is there significant variation in the regulation and taxation? The most significant variable in variation in taxation on real property between districts are municipal and school taxes.
ALTA 17.1-06 (Indirect Access and Entry). ALTA 17.2-06 (Utility Access).
ABOUT PRACTICAL LAW
ALTA 18-06 (Single Tax Parcel).
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ALTA 18.1-06 (Multiple Tax Parcel). ALTA 19-06 (Contiguity-Multiple Parcels). ALTA 19.1-06 (Contiguity-Single Parcel). ALTA 22-06 (Location). ALTA 22.1-06 (Location and Map). ALTA 25-06 (Same as Survey). ALTA 25.1-06 (Same as Portion of Survey) ALTA 26-06 (Subdivision). ALTA 35-06 (Minerals and Other Subsurface Substances – Buildings).
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