My husband and I want to buy a home in Des Moines, Iowa, but we can’t find one on the market in the area where we want to live. I learned online that there's a house being foreclosed on the exact street where we want to buy. We’re thinking about making a bid at the foreclosure sale, but we’re anxious about buying a home this way. We drove by the home and the current homeowners are definitely still living there. I was recently told that they might be able to repurchase the after the foreclosure sale if they don’t want to leave. Is this true?
Yes, it is possible, although very uncommon, for Iowa homeowners to "redeem" the home by repurchasing it after a foreclosure sale. They would do so by paying the purchase price you paid at the foreclosure sale, plus various additional amounts.
Foreclosed homeowners in Iowa get the chance to redeem the property only under certain circumstances. We’ll describe below how foreclosures in Iowa work and how the state’s redemption laws might affect your ability to settle into your new home without worrying that you may eventually lose it.
Iowa Foreclosures May Be Carried Out in Two Different Ways
Residential foreclosures in Iowa are typically judicial, which means the lender files a lawsuit in court to foreclose.
The other type of foreclosure in Iowa is called an “alternative nonjudicial voluntary foreclosure.” In this process, the homeowner voluntarily transfers title to the home to the lender rather than going through a judicial foreclosure. (If this type of foreclosure occurs, you won’t get a chance to purchase the home at a foreclosure sale, since no sale takes place as part of the process.)
The Homeowners’ Right to Redeem After a Judicial Foreclosure in Iowa
If the foreclosure is judicial, the homeowners may redeem the property either:
- within one year after the foreclosure sale (Iowa Code § 628.3), or
- within six months after the sale, if agreed upon in the mortgage and if the lender waives the right to recover a deficiency in the foreclosure (Iowa Code § 628.26). (A "deficiency" is the difference between the sale price and the total debt. Most standard loan documents in Iowa include a provision reducing the redemption period to six months and lenders will sometimes waive the right to a deficiency in order to get the reduced redemption period.)
If the homeowner abandosn the home, the redemption period is reduced to 60 days (Iowa Code § 628.27).
The Lender May Choose to Judicially Foreclose Without Redemption
Under certain circumstances, the lender can elect to judicially foreclose without providing the borrowers/homeowners with a right of redemption. If the lender elects what is called a "foreclosure without redemption,” there will be no redemption period after the foreclosure sale.
How to Find Out Whether a Redemption Period Exists After the Foreclosure Sale
To find out whether there is a redemption period after the sale, check the notice of sale that was published in the local newspaper. Sometimes you can find a copy of the notice of sale online.
If there is a redemption period after the foreclosure, a Certificate of Purchase will be issued to the purchaser (that's you) following the sale. When the redemption period is up (and if no one redeems), the purchaser may then return the original Certificate of Purchase to the sheriff (the party that conducted the sale) and receive a deed to the home.
If there is not a redemption period, the purchaser at the sale gets a deed to the property immediately following the sale.
How Much the Foreclosed Homeowners Must Pay to Redeem and Get the House Back
In the unlikely event that the Iowa homeowners from whom you purchase get the right the redeem, they would have to pay to the clerk’s office the full price you paid at the sale, plus all other lawful charges such as costs and interest from the date of the sale (Iowa Code § 628.13).
You can see, therefore, why redemptions by foreclosed homeowners infrequently occur. An Iowa homeowner who, maybe only six months or a year ago, was unable to keep up on the home’s mortgage payments would have to figure out a way to raise funds to cover not only the purchase price, but additional amounts, as well.
It’s also possible, but rare, for some other party to redeem the property, such as other creditors who had liens on the home or the IRS, 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.
Other Things to Think About When Buying a Foreclosed Home
There are a few other issues that might give you pause if you’re thinking about purchasing a home at a foreclosure sale. For instance, you won’t get any seller disclosures about the home prior to the sale, and you’ll have to buy the house “as is,” without negotiating over repairs. Since the homeowners were having financial difficulties, this could mean the home will need lots of work. (Learn more in Nolo’s Buying Foreclosed Properties area.)
How to Find Iowa’s Redemption Laws
To find the statutes that discuss the right to redeem the home after a foreclosure in Iowa, go to Title XV (“Judicial Branch and Judicial Procedures”), Chapter 628 and Chapter 654 of the Iowa Code.