If I buy a home at a foreclosure sale in Illinois, can its owners later "redeem" the house?
Buyers of foreclosure homes in Illinois need not worry that the former owners will pay off the debt and reclaim the property -- though there's a small chance the IRS could redeem it.
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I live in Rockford, Illinois, but am thinking about moving to Chicago. I found a great house online at zillow.com that is in preforeclosure status and it looks exactly like what I’m hoping to buy. I really want to bid on it at the foreclosure sale, but I heard that homeowners in Illinois have extensive redemption rights. As I understand it, that means they can get the home back after the foreclosure by “redeeming” it, which I think means reimbursing me for what I pay at the foreclosure sale. Is this correct? If so, how long do the homeowners get to redeem the home in Illinois?
No, the former homeowners cannot get the house back if you buy it at a foreclosure sale in Illinois.
While you are correct that Illinois law provides the homeowners with the right to redeem the home, the redemption period takes place before the sale, meaning that it won’t affect you if you buy the home. (Under Illinois law, the homeowners also get a special right to redeem the home after the foreclosure sale, but only if the lender purchases it at the sale. This won’t affect you either, obviously.)
However, it is possible, though uncommon, for the IRS to redeem the home after the foreclosure sale if there was a federal tax lien on the property. We’ll describe below how the IRS’s right to redeem the home works and how this could affect your ability to settle into your new home without worrying that you may lose it.
Federal Tax Liens and the IRS’ Right to Redeem
When a homeowner fails to pay federal income taxes, the IRS typically records a Notice of Federal Tax Lien at the local county recorder's office. If this lien is wiped out in a foreclosure, the IRS gets 120 days to redeem the house under federal law.
If the IRS does not redeem within the 120-day time period (called a “redemption period”), this right expires. The IRS may agree to release its right to redeem before the redemption period expires in some cases if:
- you submit an application and
- you compensate the IRS for the value of the redemption right (in some instances).
IRS redemptions do not happen very often. This is because the IRS would choose to redeem the home only if it believed that it could later sell it for more than you paid at the foreclosure sale.
How Much the IRS Must Pay to Redeem
If it decided to redeem the home, the IRS would have to pay you the amount you paid at the foreclosure sale, plus interest (at a rate of 6% from the sale date) plus various other amounts, such as:
- amounts you paid to senior lienholders, and
- amounts you paid for certain types of repairs or maintenance, such as changing the locks for security purposes.
You would first learn about a potential IRS redemption when you receive a notice informing you that the IRS is considering redeeming the home.
Other Issues When Buying a Foreclosed Home
As you might expect, there are a few other potential challenges that you should be aware of if you’re planning on buying a house at a foreclosure sale.
To begin with, you won’t receive any seller disclosures letting you know about the condition of the property before the foreclosure sale takes place. In addition, you’ll have to buy the home “as is,” without the ability to negotiate repairs. Since the foreclosed homeowners were clearly facing financial difficulties, this could mean that they didn’t properly maintain the home and it could need significant work. (Learn more in Nolo’s Buying Foreclosed Properties area.)
How to Locate Illinois Foreclosure Laws
To find foreclosure statutes for the state of Illinois, including the statutes that cover redemption rights, go to Chapter 735 (Code of Civil Procedure), Article XV, of the Illinois Compiled Statutes.