We've been having trouble finding an affordable home to buy in Alabama, but just heard that there's one being foreclosed on in the exact area where we're hoping to live. I'm excited, but also worried -- I keep hearing about risks to buying foreclosure homes. The issue that concerns me most is that the owners might have the right to catch up on their mortgage payments and get the house back even after the foreclosure. Could this really happen to us after we've bought the property and moved in?
Yes, the owners may be able to get the home back after the foreclosure, but not by catching up on their mortgage payments. They would have to repurchase the home by paying you the purchase price you paid at the foreclosure sale, plus various other charges. This is called redeeming the property. Because the distressed former homeowner has to come up with so much cash to get the house back, redemption is rare.
The Right to Redeem After Foreclosure in Alabama
In Alabama, the homeowners (and certain other parties) may redeem the property within one year after the foreclosure sale (Ala. Code § 6-5-248(b)).
It’s also possible, but exceedingly rare, for some other party to redeem the property, such as other creditors who had liens on the home.
Another very rare possibility is the IRS redeeming the property after a judicial or nonjudicial foreclosure, if there was a federal tax lien on the home. The IRS gets 120 days (or the allowable period under state law, whichever is longer) to redeem. If the IRS considers redeeming the house, it would send you a notice beforehand.
The Homeowners Can Lose the Right to Redeem
After you purchase the property at the foreclosure sale, you can demand that the homeowners vacate the property. To do this, you must deliver a written demand for possession to the homeowners. If they do not move out of the home within ten days after you give them the notice, they lose the right of redemption (Ala. Code § 6-5-251).
How the Homeowners (or Other Party) Redeems in Alabama
To redeem the property, the former homeowners (or other redeeming party) must send you a written demand requesting a statement of all amounts you’ve spent on the property since the foreclosure sale. You must then provide an itemized statement within ten days of the demand. If you do not provide the statement within ten days, you lose the right to compensation for any improvements you made to the home since the foreclosure sale (Ala. Code § 6-5-252).
How Much the Foreclosed Homeowners (or Other Party) Must Pay to Redeem
In order to redeem the property, the foreclosed homeowners (or other redeeming party) must pay you the purchase price you paid at the foreclosure sale, plus all allowable charges such as:
- the value of any permanent improvements you made to the property since the sale (though the redeeming party may challenge your valuation of the improvements)
- taxes you paid (or that are assessed)
- all insurance premiums you paid, and
- any valid lien you paid (Ala. Code § 6-5-253).
What Will Happen if You Don’t Give Up the Property
Once the redeeming party pays the appropriate amount within the one-year redemption period, you must convey (sign over) the property to that party. If you fail to do so or refuse to transfer the home, the redeeming party may file a lawsuit against you to enforce the right of redemption (Ala. Code § 6-5-255).
Other Things to Think About When Buying a Foreclosed Home
In addition to the possibility of someone redeeming the foreclosed property and taking it away from you, there are other pitfalls to take into account when considering buying a home at a foreclosure sale. For example, you won’t get any seller disclosures prior to the sale and you buy the property as is. (Learn more in Nolo’s Buying Foreclosed Properties area.)
Finding Alabama’s Redemption Laws
To find the statutes governing redemption rights after foreclosure in Alabama, go to Title 6, Chapter 5, Article 14A of the Alabama Code.