Owners of foreclosed property have the option to redeem their property. By paying a specific sum to the lender, a homeowner has the opportunity to “redeem” their home and restore ownership.
Two different sorts of redemption exist:
- Right of redemption for equity
- Legally mandated right of redemption
Since it is typically difficult for a homeowner facing foreclosure to come up with the cash to pay the full balance of the mortgage or the price of the foreclosure auction, in practice, this right is rarely used.
The existence of a post-sale redemption right can be troublesome for investors who purchase foreclosed homes because the previous owner has a chance to reclaim the property after it has been acquired by a third party. If state law permits it, one solution to this problem is to purchase the right of redemption from the prior owner.
If you fail to make your mortgage payments, your property may be sold in a process known as “foreclosure” by the lender (or later loan owner). The money from the sale will be used to pay off the amount you borrowed, plus fees and costs. However, even if you lose your property, you could still be able to reclaim it.
After a foreclosure, a time known as the “redemption period” may exist in some states that allow foreclosed homeowners to repurchase their homes.
Because state statutes completely govern the window of opportunity for redemption and the right itself, the ability to repurchase the property is known as the “statutory right of redemption.”
Due to statutory rights of redemption, borrowers have a limited window of time following a foreclosure in which to retrieve their property.
States differ in how long their statutory redemption periods are, and some don’t even have them. When offered, the redemption period typically lasts between 30 days to a year.
The length of the redemption time is frequently affected by particular criteria in the majority of states that offer a post-sale redemption period.
- Paying the sum of the foreclosure sale, or in some circumstances, the full amount owed to the lender plus a few other permitted fees
- Thanks to statutory redemption legislation, borrowers have extra time to secure finances to keep their homes. State law may also let the foreclosed borrowers occupy the property during the redemption term.
- Depending on whether the foreclosure is judicial or nonjudicial, the redemption term could change.
- The redemption time might be shortened in some circumstances, such as if the homeowner vacates the property.
- The borrower’s right to redemption could be waived in the loan documents.
- Redemption rights could be activated if the lender seeks a deficiency judgment.
If the foreclosing lender purchases the property during the foreclosure sale rather than a third party, then more extended redemption rights can be available.
The protection afforded to loans used to buy the property may be greater than that of other mortgage loan types.
A foreclosed homeowner usually has to pay one of the following to redeem:
- The total amount outstanding on the mortgage loan, plus interest and other costs, or
- The amount that the buyer paid for the house at the foreclosure sale, plus interest and some costs, such as homeowners’ association (HOA) dues and property taxes.
The majority of people who experience a foreclosure struggle to recover the necessary funds to buy back their home.
Consider applying for assistance far before the foreclosure sale rather than waiting until after the sale to try to retain your home. For borrowers having trouble making their mortgage payments, the majority of lenders provide loss mitigation options, like modifications.
But before the foreclosure auction takes place, you must seek assistance. Applying for a foreclosure avoidance option as soon as feasible is a smart idea. If you submit a comprehensive application more than 37 days prior to the sale, the servicer is required by law to halt the foreclosure while reviewing your application.
Investors who seek to buy foreclosed houses may find it more challenging due to the right of redemption. Consider the case of a real estate investor who discovers a house at a competitive price at a public auction.
You might also buy a foreclosure house directly from a lender. Even if you’ve already bought the house, the previous owners may reclaim it if they can now pay off what they owe and the statutory right of redemption term hasn’t yet passed.
It is accurate to say that the lender from whom you bought the house will recover its costs. However, this still entails a loss of time and lost opportunities to profit from your purchase in the future.
The encouraging news for investors Reclaiming a home during the right of redemption era is uncommon for previous owners. Most often, these ex-owners lack the resources to make up missed payments and any additional fines their lenders may impose.
What Is Equitable Right of Redemption?
All states grant the equitable right of redemption. This option gives a borrower the chance to settle the outstanding balance of the mortgage, together with interest and foreclosure costs, on the home. This option can be used whenever you want before the foreclosure sale.
Before a foreclosure sale, debtors are entitled to the foreclosure right of redemption in every state.
A reasonable price will be offered at the foreclosure auction thanks to the right of redemption. A bigger winning bid at the foreclosure auction decreases the chance that the previous owners will buy the property back.
However, since the buyer must wait for the statutory redemption period to pass before officially owning the property, redemption statutes frequently lower the amount bidders are willing to pay during the foreclosure sale.
This differs from the right of redemption after foreclosure.
The following parties must receive a written notification of redemption from the foreclosed homeowner:
- The buyer of the property at the foreclosure auction, and
- The court or other organization that organized it.
The former owner must then give the buyer, the court, or another party the redemption sum.
State legislation often specifies who receives the redemption money as well as what information must be included in the redemption notice. If you want to learn more about the redemption policies that apply in your state following a foreclosure, speak with a local attorney.
What Is the Statutory Right of Redemption?
After a foreclosed property is sold at a foreclosure sale, a homeowner has the legal right to reclaim ownership of it for a predetermined amount of time. The borrower has a set period of time to pay the foreclosure selling price in order to exercise this entitlement. In contrast to its equitable counterpart, the statutory right is not recognized in every state.
Selling your right of redemption is possible. Contact an attorney if you have questions about selling your right of redemption.
Do I Need to Consult an Attorney to Exercise a Right to Redemption?
Owners have the option to keep their properties even after missing payments and going into default on their mortgages thanks to the right of redemption. The problem is that you might not have the money available to exercise this legal entitlement if you’ve already fallen behind on your mortgage payments.
The process of foreclosure can be difficult and confusing. You should speak with a foreclosure attorney if you are in the process of going through a foreclosure and have questions regarding the redemption rights that apply in your state.