I currently live in a rental house in Louisville, Kentucky. The house is being foreclosed since the owners didn’t make the mortgage payments. I’d like to buy the home at the foreclosure sale, but I’m worried that the owners (my landlords) might be mad and be able to take the house away from me after the foreclosure. Can the owners legally do this?
The owners may be able to get the home back after you buy it at a foreclosure sale, though it is not very likely to happen.
In Kentucky, under certain circumstances, foreclosed homeowners can repurchase or “redeem” the home by paying the purchase price you paid at the foreclosure sale, plus interest, within a certain period of time. (This is explained in more detail below.) Most homeowners don’t redeem.
The IRS may also be able to redeem the home if there was a federal tax lien on the property, but this doesn’t happen very often either.
The Homeowners’ Right to Redeem After Foreclosure in Kentucky
In Kentucky, the homeowners get six months to redeem the home if the house sells for less than two-thirds of its appraised value at the foreclosure sale (Ky. Rev. Stat. § 426.530(1)).
As part of the foreclosure process, the court will order an appraisal. Prior to the sale, the master commissioner (the party conducting the sale) typically informs the public of the value of the real estate. If the winning bid at the sale exceeds two-thirds of the appraised value, there is no redemption period and the owners can't get the home back.
Therefore, one way to ensure that the homeowners can’t take the home away from you after the foreclosure sale by redeeming it is to bid more than two-thirds of the value at the sale.
How Much the Foreclosed Homeowners Must Pay to Redeem
In order to redeem the property, the foreclosed homeowners would have to pay the court clerk the purchase price that the winning bidder at the foreclosure sale paid, plus 10% per annum interest (Ky. Rev. Stat. § 426.530(1)). If the homeowners redeem, you’d get a refund of the money you paid for the home.
Redemption hardly ever takes place. First of all, the purchaser at the sale can extinguish the redemption right simply by making a high enough bid. Secondly, even if there is a redemption period, the homeowners who couldn’t make their mortgage payments would have to find a way to come up with enough money to cover the purchase price, plus interest.
Redemption By IRS For Unpaid Tax Liens
It's also possible, but not common, for the IRS to redeem the home after a foreclosure if there was a federal tax lien on the property. (If homeowners don’t pay their income taxes, the IRS can get a lien on the home. When this lien is foreclosed, the IRS gets a right of redemption.) The IRS gets a redemption period of:
- 120 days or
- the allowable period under state law, whichever is longer.
If the IRS considers redeeming the house, it would send you a notice before it does so.
Other Issues to Consider When Buying a Foreclosed Home
Generally, when you buy a home at a foreclosure sale you won’t get any seller disclosures prior to the sale and you have to purchase the home “as is” without learning much from the seller about its basic condition and features. (Learn more in Nolo’s Buying Foreclosed Properties area.)
However, your situation is a bit different. You still won't get disclosures, but since you already live in the home as a renter, you’ll have a good idea of what you’re purchasing -- though you’ll still have to take the property in its current condition without being able to negotiate any repairs if you buy it through a foreclosure sale.
Finding Kentucky’s Redemption Law
To read the statute that discusses the right to redeem the home after a foreclosure in Kentucky, go to Chapter 426 of the Kentucky Revised Statutes.