The process of foreclosure can be really scary for a lot of people who have mortgages. Once it starts, many homeowners feel like they can't find a way out and they have to move out of their home. Sometimes, even if the homeowner didn't mean to miss payments on their loan or something unexpected happened, they still have to give up their largest and most valuable asset.
But the truth is, foreclosure doesn't always mean the end of owning a home. There's something called the "right of redemption" that can help. This means homeowners can get back their ownership of the home by paying off the money they owe, like debts and other expenses. Let's take a closer look at how the right of redemption works and how a homeowner can use it to get their home back before, during, or after the foreclosure process.
The right of redemption is an option available to borrowers who default on a mortgage contract. Right of redemption allows homeowners to reclaim possession of the property during or after foreclosure by paying what is due on the property along with interest and penalties.
States vary on criteria for a homeowner to enact their right of redemption. However, for all states, the homeowner must be fully in the foreclosure process. The redemption does not apply if the lender is starting to threaten a foreclosure.
If the right of redemption succeeds, the homeowner will retain or reacquire the ownership of the home. They will not be required to move out or face the judicial consequences of foreclosure.
When a homeowner signs a traditional mortgage contract, for transactions such as a purchase or refinance, they agree to specific terms. The homeowner agrees to a set monthly payment, terms of longevity, and that their home will be used as collateral in cases of default. Collateral is a form of security to ensure repayment of the loan.
The mortgage contract may include a notice of the right to foreclosure. The clause details the lender's ability to repossess the home if certain conditions are met.
In order for the foreclosure to be legal, lenders must follow specific protocol.
For example, the lender needs to:
Where does the right of redemption come in?
A homeowner can exercise the right of redemption during the redemption period. The redemption period includes both before and after a foreclosure auction has finished and the foreclosed home has been sold.
Borrowers in all 50 US states have rights of redemption and are allowed to exercise them before the completion of foreclosure proceedings. You can redeem your property either by:
Note that most homeowners who exercise their right of redemption do so after the foreclosure has concluded. Homeowners who can pay off all of their outstanding debts in addition to other fees most likely have not lapsed into default and have their properties foreclosed due to other reasons.
To exercise your right of redemption, you must first give written notice of redemption to one of two parties: either the party who purchased the home at the foreclosure sale, the court, or other party (i.e., the lender) who held the foreclosure auction.
By law, the individual receiving the notice must adhere to the redemption request. In other words, the lender cannot refuse the homeowner'sright of redemption and prevent them from taking ownership of the home.
After providing written notice, the homeowner needs to pay the redemptive price to the court, the house buyer, or any other party. According to the state, the homeowner may be required to give the redemption notice to one party and the money for the redemption to another party.
Regardless, the basic process is the same: come up with the funds needed to purchase your home, pay off any outstanding debts or charges, and then pay the party who needs the money.
For example, say that your home went into foreclosure because of unexpected medical expenses or because you lost your job:
You should also note that your lender will most likely be willing to play ball if you wish to exercise your right of redemption. Lenders, as a rule, want to help homeowners not default on their loan payments because the entire foreclosure process is usually expensive for them.
If you need help exercising your right of redemption, you may be able to call your lender and get an exact breakdown of the necessary steps, including how much you owe.
As noted, the state in which you live could impact your right to redemption and the redeeming process. For example, the length of the redemption period is different in every state, and not all states provide a set amount of time. However, most states have redemption periods ranging from between 30 days up to one year in length.
If you’re able to redeem your property after a foreclosure sale (more on that below), the redemption period’s length can be affected by factors like:
You can learn more about the individual redemption laws for foreclosed properties on a state-by-state basis on this page.
Sometimes. Also called the statutory right of redemption, redeeming your property after a foreclosure sale is useful if you cannot gather the funds necessary to redeem your home before the auction takes place or if the lender accelerates the foreclosure process.
Only some states allow for a post-sale redemption period, however.
Alabama allows you to make a redemption after a foreclosure sale. On the other hand, Alaska doesn’t allow this after a nonjudicial foreclosure unless your deed of trust specifically includes a clause that provides a right of redemption after the sale. Delaware allows a post-sale redemption until the court confirms the sale from the foreclosure auction.
Note that a post-sale redemption relies on the party who owns the property being willing to accept your redemption request. Because of this, you should try to redeem your property before or during a foreclosure sale rather than after if possible.
That depends on how much you owe on the property and what other fees or charges you may have incurred from lapsing into foreclosure in the first place. Overall, a foreclosed homeowner has to pay either:
This could add up to hundreds of thousands of dollars. But if your home only had a few tens of thousands of dollars left, you could redeem it for the down payment cost of a new home.
Note that you cannot always use a traditional loan to redeem your home unless you are approved for a separate loan by a bank, credit union, or other financial institution.
As with most situations arising because of foreclosure, it’s usually best to try to avoid foreclosure if you can.
Ultimately, almost all homeowners should be aware of their right to redemption if they experience foreclosure of their property but wish to recover their home without eviction from the premises. The right to redemption could be useful if your home enters foreclosure due to unforeseen financial circumstances, not because you are unable to pay your mortgage on time.
But you should also be aware that your right to redemption is not your only avenue to retain your home in the event of foreclosure. Balance Homes offers a unique and innovative way to continue owning your home to avoid the negative impacts of a foreclosure, even if you have a low credit score.
Balance Homes pays off your mortgage as a co-investor, and you sell a piece of your equity in exchange for cash. You then make occupancy payments to Balance and can increase your share of ownership of your property at any time by purchasing additional equity. This affordable, flexible way to own allows you to stay in your home, have greater control of your finances, and even helps you to refinance your contract with Balance Homes into a traditional mortgage.
Want to know more or determine if co-investing is right for you? Contact us today or check out our website for more information.
Sources:
Key Aspects of State Foreclosure Law: 50-State Chart | Nolo.com
