How the Right of Redemption Can Help You

If you’re facing a foreclosure action on your home, you may be able to use your right of redemption to keep your house. In most cases, you have the right to stop the sale by paying off your mortgage debt before the sale takes place. In some states, even after the sale, you have the right to buy the house back within a set amount of time.

Most people who are in danger of losing their homes can’t afford to pay off the full amount of their mortgages. Even so, some aspects of the redemption rules may still be helpful. This article will help you understand your redemption rights and your options if you’re facing foreclosure.

Pre-Foreclosure Right of Redemption

There are two different types of redemption rights: equitable redemption and statutory redemption. The word “equitable” means fair. Equitable redemption is based upon the basic fairness principle that if you pay what you owe before the sale, you should get to keep your house.

When Does Equitable Redemption Apply?

Unlike statutory redemption, equitable redemption applies to all homeowners in all states. This right applies to all foreclosure sale proceedings. It doesn’t matter whether the sale is a judicial sale, meaning that a court has ordered the sale, or a nonjudicial foreclosure, which is handled outside of court.

Your right to equitable redemption applies from the time your mortgage company sends you a notice of acceleration (or notice of intent to foreclose) until the house is sold. You can’t legally waive (give up) this right.

How Does Equitable Redemption Work?

To exercise your equitable right of redemption, you must pay off, or “redeem,” what you owe on the house. This is true even if the total debt is more than the home’s market value. This amount can include: 

• The remaining principal balance on the mortgage loan,

• Any outstanding late fees and penalties,

• Any accrued real estate taxes, and

• All allowable sale costs that the lender or trustee has already incurred. 

To find out the exact amount required to redeem, you can request a payoff statement from the bank. For the redemption to be successful, you must pay the total amount before the house is sold.

How Common Is Equitable Redemption?

Equitable redemption rights aren’t used very often. Most homeowners who fall behind on their house payments usually don’t have access to the large amounts of cash necessary to redeem their homes. 

Post-Foreclosure Right of Redemption

After your house is foreclosed upon, you may still have the right to repurchase your home. This is called the statutory right of redemption because it depends on your state’s laws, also known as state statutes. Currently, statutory redemption laws exist in about half of all U.S. states. Even if you live in a state where this right exists, your statutory redemption rights may be affected by other factors, such as the length of the applicable redemption period or whether the sale was a judicial or nonjudicial proceeding. So, it’s important to learn about how your state handles this issue uniquely before making any assumptions about your statutory right of redemption.

What’s the Difference Between a Judicial and a Nonjudicial Foreclosure?

While nearly all foreclosure sales ultimately achieve the same result, there are two different types of proceedings that can be used to initiate foreclosures, depending on your state’s laws. The post-sale right of redemption usually only applies to judicial sales.

For a judicial sale, the mortgage company must file a lawsuit before it can foreclose on a home. Then, a judge must approve the creditor’s right to foreclose and issue an order to sell the home. Judicial sales often take a year or longer to complete. A nonjudicial sale, on the other hand, is handled by a trustee with no court involvement. The nonjudicial foreclosure process can be completed in as little as three months. Both kinds of proceedings can have a devastating effect on your credit score.

When Does Statutory Redemption Apply?

Because statutory redemption is based entirely on state laws, the applicable rules and procedures vary widely depending on where you live. After the foreclosure auction takes place, you typically have a set amount of time in which you can redeem the house. This timeframe is called the redemption period. It generally ranges from 30 days to 1 year, depending on the state. 

In some states, other factors can increase or decrease the length of the redemption period. For example, borrowers usually have more time to come up with redemption funds in states that allow deficiency judgments. (When a house sells for less than the balance owed, some states allow the mortgage creditor to sue the borrower and get a deficiency judgment for the difference.)

How Does Statutory Redemption Work?

The amount of money required to redeem your house after a sale varies according to state law. Most states require the borrower (sometimes called the mortgagor) to pay the sale price, plus interest and costs. Other states require the borrower to pay the mortgage balance, plus interest and costs. 

In most sales, the mortgage balance and the sale price are the same. This is because the mortgage holder ordinarily enters a starting bid that is equal to the mortgage balance. Sometimes, though, the two numbers are very different. For example, when the mortgagor doesn’t owe very much on the mortgage, or when the real estate value is unusually high or low, the purchase price of a foreclosed property may be quite different from the debt balance. If you’re at risk of losing your home, it’s best to speak with a foreclosure attorney in your state to learn about your rights.

Avoiding Foreclosure

Unfortunately, even homeowners who successfully exercise their rights of redemption must still deal with the sale’s effect on their credit scores. If you’re falling behind on your mortgage payments and worry that your lender may begin the sale process, it’s best to act sooner rather than later. 

Contact your mortgage company as early as possible to find out what sort of options are available. In many cases, lenders prefer to work with borrowers to come up with a solution rather than take on the expense and effort of initiating a foreclosure action.

If you’ve fallen behind on your payments because of a temporary setback like an illness, your mortgage company may be able to offer a mortgage forbearance or a loan modification. If the problem is more permanent and you simply can’t afford to keep the house, it’s still worth talking to your mortgage company about alternatives that are less damaging to your credit score, such as a short sale or a deed in lieu of foreclosure. 

Let’s Summarize…

The right of redemption can help homeowners who are facing foreclosure sales keep their homes, but most homeowners don’t have access to enough cash to take advantage of this option. If you’re having trouble making your mortgage payments, it’s best to work with your lender to find other solutions unless you’re in a position to effectively exercise this right.