I’ve been searching for a home to purchase in Princeton, New Jersey. I want to live in a specific neighborhood so my children don’t have to switch to another school. There aren’t many houses for sale in the area where I’m looking, but I just learned that there’s a house in foreclosure there. I would like to buy it at the foreclosure sale, but I’m a little skeptical about doing this. Based on what I’ve read, it sounds like there can be a lot of issues with foreclosed homes. My main concern is that the owners might be able to catch up on their past-due mortgage payments and take the house away from me even after the foreclosure sale. Could they really get the house back after I’ve bought it?
Yes, the owners may be able to get the home back after the foreclosure sale, but not by catching up on their mortgage payments. They would have to repurchase (or "redeem") the home, by paying the full amount of the foreclosure judgment, plus various other charges, within a certain period of time. This is called a redemption period.
In a nutshell, foreclosed homeowners in New Jersey get at least one, possibly two, opportunities to redeem the home after the sale. (This is explained in more detail below.) Also, you should be aware that the IRS, under certain circumstances, may be able to redeem the house after the foreclosure as well.
Homeowners’ Right to Redeem After the Foreclosure Sale in New Jersey
In New Jersey, foreclosed homeowners may redeem the home within:
- ten days after the foreclosure sale, and
- up until the court confirms the sale. (Foreclosures in New Jersey are judicial, which means the lender files a lawsuit in court in order to foreclose. After the sale, the court must confirm it to make it official.)
In addition, if the lender obtains a deficiency judgment (which is a personal judgment against the homeowner for the difference between the foreclosure sale price and the total debt) in a separate lawsuit after the foreclosure, the homeowner can redeem the home within six months after the judgment is entered (N.J. Stat. Ann. § 2A:50-4).
However, the homeowners will lose the right to redeem if they file an answer to the deficiency judgment lawsuit in which they dispute the amount of the deficiency (N.J. Stat. Ann. § 2A:50-5).
How Much the Foreclosed Homeowners Must Pay to Redeem
In order to redeem the property, the foreclosed homeowners must pay the full amount of the judgment, plus interest, costs, and all reasonable expenses that you paid after the sale for taxes, assessments, other prior liens, and necessary repairs (N.J. Stat. Ann. § 2A:50-4). (The homeowners are permitted to deduct any income you receive from the property after the sale, such as rent, from the amount they owe.)
Redemption doesn’t happen too often, since the homeowners who (not that long ago) couldn’t keep up with their mortgage payments would have to find a way to come up with a significant amount of money in order to redeem.
The IRS could also redeem the house (though this isn’t very likely to happen) if there was a federal tax lien on the home. The IRS gets a 120-day redemption period. If the IRS considers redeeming the house, it would send you a notice before doing so.
Other Issues to Consider When Buying a Foreclosed Home
There are other downsides (besides the possibility of the homeowners or the IRS redeeming the home after the sale) to think about if you want to buy a home at a foreclosure sale. For instance, you won’t get any seller disclosures as part of the sale process, which means you probably won’t know a whole lot about the house you’re buying before you take possession of it.
Also, you must buy the home “as is.” This can be a problem for you since homeowners who can’t make their mortgage payments frequently stop paying for upkeep, too. You might end up having to pay a lot to make repairs to the house. (Learn more in Nolo’s Buying Foreclosed Properties area.)
Finding New Jersey’s Redemption Law
If you want to locate the statutes that discuss the homeowners’ right to redeem the home after a foreclosure sale in New Jersey, go to Title 2A of the New Jersey Statutes.