A Q&A guide to real estate finance law in Alabama.
A mortgage is used to create a lien on real estate.
A mortgage filing privilege tax must be paid at the rate of $0.15 per $100 (or pro rata amount) of the debt secured by the mortgage (Ala. Code § 40-22-2). It is paid when the mortgage is recorded.
Other instruments, such as an Assignment of Rents and Leases and UCC-1 Financing Statement, can be filed as additional security with no further mortgage tax, provided there is a legend contained within the document that indicates it is filed as additional security for the mortgage that has been recorded simultaneously.
An allocation procedure is available for multistate transactions.
The most common method of foreclosure is a non-judicial power of sale. To use this method the mortgage must expressly grant the power.
Notice of the foreclosure must be made in a newspaper published in the county or counties in which the land to be sold is located. Notice must be given once a week for three successive weeks, of the time, place and terms of the sale, together with a description of the property to be sold.
The sale must be held between 11:00 a.m. and 4:00 p.m. on the day designated for the exercise of the power of sale, and at the front or main door of the courthouse of the county in which the land to be sold is located.
The mortgage should contain a clause that incorporates these requirements as well as a clause that allows the lender to bid at the sale and to purchase the property if it is the highest bidder.
If a power of sale clause is not included in the mortgage, then the lender must use a judicial foreclosure to foreclose the mortgage.
Following the foreclosure of the equity of redemption, a statutory right of redemption arises for the borrower and others, for a one-year period. This cannot be waived by the borrower before foreclosure.
A mortgage can usually be foreclosed within a month, assuming the mortgage contains the customary clauses.
There are strict rules and penalties regarding qualifying to do business in Alabama. A foreign corporation must obtain a certificate of authority from the Secretary of State of Alabama before doing business in Alabama (Alabama Business Corporation Act).
A contract entered into or to be performed in Alabama by a foreign corporation that has not obtained a certificate of authority to do business in Alabama is void and cannot be enforced in Alabama's courts. Such a contract cannot be made enforceable retroactively by subsequently obtaining a certificate of authority. Therefore a non-qualified foreign lender doing business in Alabama cannot resort to Alabama's courts to enforce any of its loan documents (for example, to collect the debt, foreclose a mortgage, enforce the terms of a UCC security agreement or sue on guaranties).
However, exemptions exist for:
Mortgages on real estate. Foreign corporations can take and hold mortgages on real estate and collect the debts secured by them without qualifying to do business in Alabama (Ala. Const. amend. 154). This constitutional amendment does not mention taking security interests in personal property located in Alabama.
Corporations organized under US law. Corporations organized under US law do not have to obtain a certificate of authority from the Secretary of State of Alabama before doing business in Alabama (Ala. Code § 10-2B-15.01(b)).
An unlimited interest rate, subject to laws and principles of unconscionability, is allowed for amounts over $2,000 for the following borrowers (Ala. Code § 8-8-5):
General or limited partnerships or associations.
There are no laws that restrict the ability to make a borrower or guarantor personally liable for debt secured by real property.