We've been having trouble finding an affordable home to buy in Alabama, but just heard that there's one being foreclosed on in the exact area where we're hoping to live. I'm excited, but also worried—I keep hearing about risks to buying foreclosure homes.
The issue that concerns me most is that the owners might have the right to catch up on their mortgage payments and get the house back even after the foreclosure. Could this really happen to us after we've bought the property and moved in?
Yes, the owners might be able to get the home back after the foreclosure, but not by catching up on their mortgage payments. They would have to "redeem" the home by paying you the purchase price you paid at the foreclosure sale, plus various other charges. Because the distressed former homeowner has to come up with so much cash to get the house back, redemption is rare.
The redemption period after a foreclosure sale in Alabama depends largely on when the foreclosed homeowners took out their mortgage and whether it's a homestead property.
Alabama law generally gives homeowners a one-year redemption period after a foreclosure sale. But state law gives homeowners a 180-day redemption period after the foreclosure sale for homestead properties—if proper notice about the right to redeem was given and the mortgage was taken out on or after January 1, 2016. (Ala. Code § 6-5-248(b)). By law, the foreclosing party must mail the homeowners a notice about the right to redeem the home at least 30 days before the foreclosure sale. (Ala. Code § 6-5-248(h)). If the notice isn't mailed to the homeowners before the foreclosure sale, they get 180 days to redeem the homestead property from the date the notice is provided. But the homeowners can't redeem more than one year after the sale.
It's also possible, but exceedingly rare, for some other party to redeem the property, such as other creditors who had liens on the home.
Another very rare possibility is the IRS redeeming the property after a judicial or nonjudicial foreclosure, 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.
After you purchase the property at the foreclosure sale, you can demand that the homeowners vacate the property. To do this, you must deliver a written demand for possession to the homeowners. If they don't move out of the home within ten days after you give them the notice, they lose the right of redemption. (Ala. Code § 6-5-251).
To redeem the property, the former homeowners (or other redeeming party) must send you a written demand requesting a statement of all amounts you've spent on the property since the foreclosure sale. You must then provide an itemized statement within ten days of the demand. If you don't provide the statement within ten days, you lose the right to compensation for any improvements you made to the home since the foreclosure sale. (Ala. Code § 6-5-252).
To redeem the property, the foreclosed homeowners (or other redeeming party) must pay you the purchase price you paid at the foreclosure sale, plus all allowable charges such as:
Once the redeeming party pays the appropriate amount within the redemption period, you must convey (sign over) the property to that party. If you fail to do so or refuse to transfer the home, the redeeming party may file a lawsuit against you to enforce the right of redemption. (Ala. Code § 6-5-255).
In addition to the possibility of someone redeeming the foreclosed property and taking it away from you, you should consider a few other pitfalls when considering buying a home at a foreclosure sale. For example, you won't get any seller disclosures prior to the sale and you buy the property as is. (Learn more in Nolo's Buying Foreclosed Properties area.)
To find the statutes governing redemption rights after foreclosure in Alabama, go to Title 6, Chapter 5, Article 14A of the Alabama Code. Keep in mind that statutes change, so checking them is always a good idea. How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're thinking about buying a property at a foreclosure sale.