I’m planning on moving to New York in the next few months. My wife and I want to buy a house, but are having trouble finding one we like. We just discovered that there’s a house being foreclosed in a neighborhood that we’re interested in. We drove by and the place looks pretty good, but buying a home this way would be a new experience for us. Is there anything we should be aware of? For example, if we buy the house at the foreclosure sale, do the homeowners have the ability to get it back? The house looks like it could be vacant, but I'm still worried that this might be a possibility.
No, the former homeowners won’t be able to get the house back if you purchase it at a foreclosure sale in New York. (Some other states provide foreclosed homeowners with what’s called a “statutory right of redemption.” This means that state law gives the homeowners a certain amount of time after the foreclosure to repurchase or “redeem” the property by reimbursing the party who bought it at the foreclosure sale for the full purchase price, plus various other costs. However, New York law does not allow this.)
It is possible that the IRS could redeem the home after the foreclosure sale if there was a federal tax lien on the property at the time of the foreclosure. (This doesn’t happen very often though. We’ll describe below how the IRS’s right to redeem the home works and why you don’t have to be too concerned about this happening.)
Also, the homeowners could potentially stop the sale from occurring by redeeming the home before the sale or by working out an agreement with the lender to avoid foreclosure, such as a loan modification. This wouldn’t affect you, obviously, because if this happens the home won’t go to sale and you won’t get the chance to purchase it.
When Homeowners in New York Can Redeem the Home in a Foreclosure
New York foreclosures are judicial, which means the lender files a lawsuit in state court in order to foreclose the home. In this type of foreclosure, the court will enter a judgment and order that the home be sold to pay off the mortgage debt.
The homeowners could redeem the home before the sale by paying off the full amount of the unpaid mortgage loan. However, once the sale takes place, the homeowners lose the chance to redeem.
Redemption before the sale rarely occurs, and it is easy to understand why. The homeowners (who are already behind in their mortgage payments) would have to come up with enough money to cover the full amount of the mortgage debt, not just the past-due amounts. Most foreclosed homeowners aren’t able to pull this off.
IRS Tax Lien Redemptions
In certain circumstances, the IRS could redeem the home after the foreclosure sale. The IRS may only redeem the house if:
- there was a federal tax lien on the home before the foreclosure, and
- it redeems within a period of 120 days after the sale.
If the IRS did move to redeem the home, you’d receive a notice beforehand. In most cases, the IRS doesn’t redeem even when it has the right to do so.
Other Things to Think About When Buying a Foreclosed Home
Ultimately, you don’t have to worry about the foreclosed homeowners redeeming the home and it is very unlikely that the IRS would redeem either. However, there are few other things you should consider when it comes to purchasing a new home through a foreclosure sale.
While the house might appear to be in great shape outside, the condition inside could be another story. Homeowners who can’t make their mortgage payments often can’t afford routine maintenance either. In addition, stressed out homeowners going through a foreclosure sometimes damage their homes on purpose.
If the house is vacant, it’s possible that it could have been sitting empty for quite a while. (New York foreclosures take a long time -- sometimes as long as a few years.) Banks generally don’t maintain homes during the foreclosure process, which means the condition of the home could have deteriorated significantly during this time. As a result, you could be facing some significant repair costs since you’ll have to buy the house “as is” at the foreclosure sale. (Learn more in Nolo’s Buying Foreclosed Properties area.)
Where to Find New York’s Redemption Laws
To find the statute that discusses the homeowners' right to redeem the home in New York, go to Article 13, § 1352 of the Real Property Actions & Proceedings law.