If I Buy a Home in Foreclosure, Can Its Owners Later Get It Back ("Redeem" It)?

In some states (approximately half), former homeowners get the right to reclaim ("redeem") their home after a foreclosure sale. But if the former homeowner doesn't redeem by the deadline, the purchaser gets title to the property.

To redeem, the foreclosed homeowners would have to pay the foreclosure sale price or, sometimes, the total amount owed to the bank that foreclosed, plus other allowable charges. However, most people who've gone through a foreclosure won't be able to come up with enough money to redeem the home after the sale.

So, a foreclosure redemption usually doesn't happen.

How Does Foreclosure Generally Work?

People who take out a home loan typically sign either a mortgage or deed of trust. This document gives the lender the right to foreclose if the borrowers fail to make the payments or breach the agreement in some other way.

The foreclosure process is governed, in large part, by state law and will be either judicial or nonjudicial. The foreclosure type that the bank uses depends on the options afforded by state law and the circumstances.

All states allow the bank to foreclose judicially, while some require this process exclusively.

What Does "Redemption" Mean in a Foreclosure?

In the context of a foreclosure, a "redemption" is either when homeowners:

• prevent a foreclosure sale by paying off the mortgage debt before the sale or
• reclaim the home after a foreclosure sale by a certain deadline. To redeem after a foreclosure sale, the foreclosed homeowner must pay either the foreclosure sale price plus interest and other allowable fees or the total mortgage debt owed plus certain other allowable charges (depending on the circumstances).

How Does the Redemption Process Work?

To complete the redemption process, the foreclosed homeowner usually has to give a written notice of redemption to whoever bought the home at the foreclosure sale and the court or other party that held the foreclosure sale. Then, the foreclosed homeowner must pay the redemption amount to the buyer, court, or another party.

State law describes what information has to be in a notice of redemption and which party gets the redemption money.

Can Homeowners Redeem a Foreclosed Property After the Foreclosure Sale?

A "redemption period" is a limited amount of time after a foreclosure sale during which the former owners may redeem their property. Not all states provide a redemption period after a foreclosure. Also, some states provide a redemption period only under limited circumstances.

What Are the Timeframes for Redemption?

Every state provides homeowners the right to redeem their home before losing it to foreclosure. This right is called the "equitable right of redemption." To exercise the right of redemption, the homeowner must pay off the mortgage loan before the foreclosure sale.

Again, only certain states provide a right of redemption after a foreclosure sale. In states that provide a post-sale redemption period, the redemption period might be a few days, a limited number of months, or a year (or, rarely, two).

State law also regularly provides different redemption periods for different scenarios. The redemption period could be:

• one length of time if the foreclosure is nonjudicial but a different length if the foreclosure is judicial
• longer if the foreclosing bank gets a deficiency judgment in the foreclosure
• based on how much of the outstanding debt the borrowers had paid off before the foreclosure
• shortened if the homeowners abandon the property before the foreclosure is over, or
• shorter if a third party buys the home at the foreclosure sale rather than the foreclosing bank.

Talk to a lawyer to learn the redemption period in your situation.

Why Is the Type of Foreclosure Important?

Often, when state law requires the bank to use a judicial foreclosure process, the homeowners get the right to redeem the home after the sale.

Also, in states that allow both types of foreclosures and have redemption period laws, the former owners typically get the right to redeem if the foreclosure was judicial—but not if the process was nonjudicial.

What Happens If the Homeowner Redeems the Property?

When a homeowner redeems their home following a foreclosure, they regain ownership, basically undoing the foreclosure process. It's as though the foreclosure didn't happen.

The new purchaser must surrender the property back to the homeowner upon the foreclosed homeowner's successful redemption. (Whether the foreclosed homeowner gets to live in the home during a redemption period depends on state law. In some cases, the purchaser from the foreclosure sale gets possession of the property during a redemption period.)

Who Gets to Live in the Foreclosed Home During a Redemption Period

Again, under some state laws, the foreclosed homeowners get to stay in the home during the redemption period. But in other states, whoever buys the property at the foreclosure sale gets the right to live there. Then, if the homeowners redeem, they get the property back.

What Are the Risks of Buying a Foreclosed Home?

Again, even when the foreclosed owners get the right to redeem the property, most don't have the financial ability to do so. So, you probably don't have to worry too much about losing the house to redemption if you buy a property at a foreclosure auction. Still, a redemption could happen. Or the foreclosed homeowners might be able to sell the redemption rights, and that party might redeem.

Also, besides the possibility of the former homeowners redeeming the property, a few other issues to consider when buying a home at a foreclosure sale include:

• you won't get any seller disclosures about the property's condition before the sale
• you won't get to inspect the home before the sale, and
• you must purchase the home "as is" without negotiating any repairs or upgrades. Because the former owners were in financial distress, the property could be in rough shape.

How Can Buyers Protect Themselves When Purchasing Foreclosures?

If you're thinking about buying a home at a foreclosure sale, you can take specific steps to protect yourself from potential pitfalls. First, conduct as much research on the property as you can. Get a title company to help you check for any liens or unpaid property taxes. (You can also check with the assessor's office in your area to learn about unpaid property taxes.) This way, you can ensure that the title will be clear following the foreclosure and that any potential claims on the property are resolved before you buy it.

You should also research the property's condition as best you can, even though you won't have access to the property or be able to do an inspection. Because many foreclosed properties have been vacant and repairs have been neglected (in the foreclosure industry, this is called "deferred maintenance"), they might have issues such as structural damage, plumbing or wiring issues, pest infestations, or other problems.

You can at least view the exterior of the property from the curb to get an idea of how the homeowners maintained the property. If the yard is neglected and overgrown, the paint is peeling, and there are broken windows, you'll get a pretty good idea about what the inside of the home might look like.

Ultimately, you can make a more informed decision by performing some due diligence on the home's title and the property's condition before buying a home at a foreclosure sale. Still, buying a home at a foreclosure sale is always risky.

Talk to a Lawyer About Redemption After Foreclosure

If you plan on buying a foreclosed home or have already purchased one, consider talking to a foreclosure lawyer to find out if the sale will be subject to a post-sale redemption period. A lawyer can also advise you about your rights and responsibilities during any redemption period.

Also, consider talking to a real estate attorney to learn the pros and cons of buying a foreclosed property.