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The Right of Redemption Gives Homeowners the Right to Reclaim Their Property After Foreclosure

Updated on January 28, 2017
MarleneB profile image

Marlene is a California real estate broker who has been selling property since 1989. California Real Estate License number 01056418.

The gavel signifies the sale!
The gavel signifies the sale! | Source

Disclaimer:

I am a real estate broker. I am not an attorney. The following content is for information purposes only. There are many rules, laws, and circumstances that affect the exact procedure for foreclosure. The best way to protect yourself is to consult with a professional who is knowledgeable about foreclosure laws.

The Right of Redemption

Redemption is a period of time in which a borrower can pay back the money owed to a lender after becoming delinquent in payments. There are two types of redemption periods. One is called an Equitable Right of Redemption and the other is called a Statutory Right of Redemption. Both types of redemption will be explained later.

Each state has its own set of laws regarding redemption rights and periods, so consult with a foreclosure professional in your state for specific information. The information that follows is meant to be general information to allow you to start an intelligent discussion with someone about the foreclosure process and a borrower's possible right of redemption.

The Trust Deed or Mortgage

When a borrower gets a loan on a property, a lien is placed on the property. Depending on the state where the property is located, the document used to note the lien either will be called a trust deed or a mortgage.

All states allow foreclosures, the difference is in the process and timing of the procedure.

Trust Deed Helpful Terminology

Sometimes the Trust Deed is called the Deed of Trust. Either way, it involves the following parties:

  • The trustor (the borrower)
  • The beneficiary (the lender) and,
  • The trustee (the third person entity that holds legal title to the property until the loan is paid in full)

Mortgage Helpful Terminology

The mortgage is the document used to note a loan. States that use the court system to initiate foreclosures generally use mortgages to identify the lien on the property. Mortgages involve the following parties:

  • The mortgagor (the borrower)
  • The mortgagee (the lender)

Power of Sale Clause

Read your loan documents to see if there is a Power of Sale Clause. If there is, then if you are delinquent on your loan, the lender does not have to go through the court system to sell your home in a foreclosure.

The Power of Sale

There is a clause in many loan documents known as “The Power of Sale” which gives the lender the power to sell property in order to receive deficient loan payments and fees.

When the monthly payments on a loan are not paid in the agreed upon manner, the lender has the power to start a procedure known as a foreclosure. A foreclosure allows the lender to sell the property in order to satisfy the default on the loan.

States that use trust deeds are called non-judicial foreclosure states. This means the lender does not need to involve the court judicial system to begin the sale of the property. The sale is called a trustee sale because the trustee acts as a representative of the lender in making the sale happen. Normally, the sale will be done by auction.

Notice of Default

The lender must give borrowers at least 21 days’ notice before conducting a foreclosure sale.

Notice of Default

Prior to the foreclosure sale, the borrower will have received a notice of default outlining the details of the default and letting the borrower know that if the default amount is not paid, then the house will be sold at a foreclosure sale. This notice is recorded with the county in which the property is located. Upon receipt of the notice, the borrower now has ninety (90) days to pay all amounts that are in default. We call this the redemption period. Only first lien holders are entitled to redemption. So, if the borrower also has a second note on the property, the second note holder will potentially not recover any funds.

Equitable Right of Redemption

The equitable right of redemption is a law that gives a borrower the right to redeem his mortgage for a period of time before the foreclosure sale. This involves paying back the amount that is delinquent, plus interest and other costs incurred because of the delinquency. If the borrower is able to pay back these amounts before the foreclosure sale, the borrower is said to have redeemed himself and the foreclosure sale is called off.

Statutory Right of Redemption

The statutory right of redemption is a law that gives a former homeowner the right to redeem his mortgage for a period of time after the foreclosure sale.

One year to redeem

If the accepted bid at the foreclosure sale was not enough to cover the deficiencies, then the former homeowner has up to one year to redeem the property. In this case, the former homeowner would need to pay the price the buyer paid at the foreclosure sale, plus interest and other allowable fees.

Three months to redeem

BUT, if the lender received a full-priced bid, then the former homeowner only has three months after the sale to redeem the property.

Non-Judicial Sale

When there is a Power of Sale clause in the loan, lenders will use the non-judicial foreclosure process. Since lenders do not have to go through the court system, this method is quicker and less costly. In a non-judicial sale, the former homeowner has no right to redeem (reclaim) the property after a foreclosure sale.

Note that there is also no deficiency judgment allowed for non-judicial foreclosures. What this means is that lenders cannot sue the former homeowner to obtain money that is lost by the sale.

Judicial Sale

When there is no Power of Sale clause in the loan, lenders use the judicial foreclosure process. They must file a lawsuit to get a court order to sell (foreclose) on the property. In a judicial sale, the former homeowner may have the right to redeem the property after a foreclosure sale.

Note that in a judicial sale, the lender can sue the former homeowner to obtain money that is lost by the sale.

States With Deed of Trust or Mortgage

Some states allow both a Deed of Trust and a Mortgage. Other states only allow one or the other. The U.S. Housing and Urban Development (HUD) requires lenders to finalize a foreclosure within certain time frames from initiation of the foreclosure to the completion of the foreclosure sale.

The following table shows what each state allows and the time frame HUD requires lenders to complete a foreclosure.


States That Allow Trust Deeds and or Mortgages

State
Deed of Trust Allowed
Mortgage Allowed
Time Frames in Months*
Alabama
Yes
Yes
4
Alaska
Yes
 
7
Arizona
Yes
Yes
4
Arkansas
Yes
Yes
5
California
Yes
 
7
Colorado
Yes
 
7
Connecticut
 
Yes
9
Delaware
 
Yes
8
District of Columbia
Yes
 
7
Florida
 
Yes
9
Georgia
Yes
 
4
Hawaii
Yes
 
9
Idaho
Yes
 
9
Illinois
Yes
Yes
13
Indiana
 
Yes
12
Iowa
 
Yes
17
Kansas
 
Yes
12
Kentucky
Yes
Yes
7
Louisiana
 
Yes
6
Maine
Yes
 
22
Maryland
Yes
Yes
6
Massachusetts
Yes
 
8
Michigan
Yes
Yes
9
Minnesota
Yes
 
12
Mississippi
Yes
 
4
Missouri
Yes
 
3
Montana
Yes
Yes
9
Nebraska
Yes
 
6
Nevada
Yes
 
7
New Hampshire
Yes
 
4
New Jersey
 
Yes
14
New Mexico
Yes
 
7
New York
 
Yes
13
North Carolina
Yes
 
5
North Dakota
 
Yes
10
Ohio
 
Yes
12
Oklahoma
 
Yes
7
Oregon
Yes
 
7
Pennsylvania
 
Yes
10
Rhode Island
Yes
 
3
South Carolina
 
Yes
7
South Dakota
Yes
Yes
10
Tennessee
Yes
 
4
Texas
Yes
 
3
Utah
Yes
 
5
Vermont
 
Yes
17
Virginia
Yes
 
5
Washington
Yes
 
6
West Virginia
Yes
 
5
Wisconsin
 
Yes
12
Wyoming
Yes
 
6

Source for time frames: U. S. Housing and Urban Development (HUD). *Time frames are from the initiation of the foreclosure process to the completion of the foreclosure sale.

A Homeowners Can Transfer Redemption Rights

Homeowners can negotiate a price to transfer their redemption rights to investors.
Homeowners can negotiate a price to transfer their redemption rights to investors. | Source

Transferring Redemption Rights

A homeowner who does not have the funds to redeem his property may consider transferring his redemption rights to investors. How this works is that the investor pays the homeowner an agreed upon amount, say $2,000 to $3,000 to obtain the right to redeem the property. This gives the investor the same legal rights as the homeowner. With the legal right to redeem the property, the investor can now pay off all the funds owed against the property and satisfy the lender. As the holder of the redemption right, the investor now has control of the property and can market it for sale during the redemption period. Selling the home during the redemption period eliminates the need for the investor to obtain financing for an outright purchase.

The benefit to the homeowner is that it is an opportunity to avoid foreclosure, thereby keeping this type of derogatory mark from being entered on the credit history report.

Do Not Rely on the Internet

Note the information, but do not rely on information gleaned from the internet. Go to the county records office in the county of the house you intend to purchase. The county courthouse is where you will obtain the reliable information that you need to make a wise purchasing decision.

Buyer Beware

Buyers, be aware that even though a state may be known as a non-judicial state, there are some instances where the sale may be a judicial sale, so be cautious when buying a home at a foreclosure sale. Find out ahead of time, whether the sale will take place as a judicial sale or non-judicial sale. The most reliable place to find out whether a sale is a judicial or non-judicial sale is at the county recorder's office in the county where the house is located.

Remember!

In a non-judicial foreclosure sale, the former homeowner has no right of redemption. The sale is final. In a judicial foreclosure sale, the former homeowner has redemption rights and could exercise those rights in the future.

Foreclosure Laws and Civil Code

Foreclosure laws can be found in your state's Civil Code Section. To begin your research, start by entering the following terms in a search query, "[your state]" "civil code" and "foreclosure".

For example, my search for California directed me to the following link at California state's official website. You can read about the laws that govern California foreclosures in California Civil Code, Section 2924.

Again, do not rely solely on the information that you find on the internet. Use internet information as a guideline to gain a little knowledge, giving you a basic understanding of the foreclosure process when talking to a consultant about this matter.

Real Estate Made Easy!

Marlene Bertrand is a real estate broker with the National Association of REALTOR® Short Sales and Foreclosure Resources designation (SFR). California Bureau of Real Estate License #01056418.

© 2015 Marlene Bertrand

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