Regaining Ownership After Foreclosure: Statutory Redemption

One's home is said to be their castle, but the truth of the matter is that few of us own our dwelling outright. In fact, if you have a mortgage, your lender has a significant interest in your home. As a result, if you fail to make your mortgage payments, you may face foreclosure and eviction. 

Foreclosure is devastating. It can affect your credit score and impact your ability to buy another property in the future. However, depending on your state's laws you may be able to regain ownership of your foreclosed home through statutory redemption after the foreclosure sale.

Statutory redemption allows mortgagors to reclaim their property through repayment. There is usually a designated amount of time that a mortgagor has to complete the repayment. Mortgagors must be able to pay what the property sold for at the foreclosure sale, along with a statutory interest rate to the foreclosure sale purchaser. 

If the property sells for less than the mortgage loan amount, the lender will likely seek a deficiency judgment against the mortgagor. This is a court order that forces the mortgagor to pay off the remaining home loan balance. This includes any unpaid property taxes and late fees.

This article focuses on the process of statutory redemption. If your home is currently in the foreclosure process and facing a foreclosure sale, it is essential to know your state's foreclosure laws. See FindLaw's Foreclosure Process and Avoiding Foreclosure sections for more information.

How the Statutory Redemption Process Works

Right of redemption procedures vary by state. Typically, the process begins when the foreclosed homeowner makes a written demand to the purchaser. This is a request for a statement of the total amount required to reclaim the foreclosed property. The party that bought the property at the foreclosure auction will have a limited amount of time to send an itemized statement of charges. For example, in Alabama the foreclosed homeowner has up to a year after the foreclosure sale to redeem the foreclosed property. Depending on your state's laws, you may be able to redeem the property without having to pay the redemption price or the cost of any improvements to the real estate.

You give up your claim if you cannot pay the redemption price during the allotted time frame. The purchaser then becomes the new owner. This means they acquire the title, along with all rights and interests in the property. If you fail to evacuate the home at this point, you will likely face eviction or trespassing charges.

Junior lien holders also have a right to redeem under statutory redemption laws, but they cannot do so until after the redemption period for the mortgagor runs out.

State Statutory Redemption Laws

In most states, mortgagors may keep possession of the property during the redemption period. The redemption period ranges from 30 days to as high as two years. Many states reduce the redemption period if the borrower abandons the property. Borrowers may also waive their redemption rights in many states.

The redemption period may also depend on the type of foreclosure proceedings. For example, in California a homeowner can redeem the foreclosed property within three months to one year if the foreclosure was judicial. If it was a nonjudicial foreclosure instead, the homeowner only has ninety days after the foreclosure sale to pay the total amount of the real estate in question.

Pre-Foreclosure Options

Once a homeowner starts missing payments, the lender will send a notice of default. This is the very beginning of the pre-foreclosure process. If the homeowner does not make up the missing payments as requested by the notice of default, the lender will send a notice of sale to the homeowner. Pursuant to federal law, a borrower generally has 120 days to make up the missing payments. Most state laws require the lender to send a notice of default and a notice of sale to the borrower before they can start the foreclosure process.

Outside of the right to redemption, homebuyers have some options to help avoid foreclosure. These include refinance options, loan modification, and forbearance. It is important that homeowners take advantage of these options during the pre-foreclosure process.

If you have a federally-backed mortgage loan, you may be eligible for loan forbearance. This is when a lender gives a borrower a temporary break on mortgage payments to allow them to get back on their feet.

Another option is loan modification. Sometimes a lender is willing to reduce monthly payments or extend the loan term. A housing counselor from the Department of Housing and Urban Development (HUD) can help you negotiate a potential loan modification with your lender.

Learn More About Redemption

Your state's laws significantly impact your rights when dealing with foreclosure, redemption, or other real estate issues. You'll want to ensure that you make informed, intelligent decisions, which means you'll benefit from the assistance of an experienced and knowledgeable professional. A local foreclosure attorney or real estate attorney can help clarify your rights and guide you through the legal process.