My wife and I are moving to Little Rock, Arkansas and we’re having trouble finding a home to buy in the area where we want to live. I just found out that there's a house being foreclosed in a neighborhood that we like. We’re very interested, but also worried about buying a home at a foreclosure sale, because I heard that the homeowners might be able to get the house back even after the foreclosure has been wrapped up. Is this right? Could this really happen to us after we've purchased the property and moved in?
Yes, it is possible, although very uncommon, for Arkansas homeowners to get the home back after a foreclosure. They would do so by paying you the purchase price you paid at the foreclosure sale, plus interest. This is called redeeming the property.
Foreclosed homeowners in Arkansas get the right to redeem the property only in the case of what’s called a judicial foreclosure, and in that case only if the loan documents don't contain a waiver of this right. If the foreclosure is nonjudicial, the homeowners cannot get the home back after the foreclosure.
We’ll describe below what these different types of foreclosures are and how Arkansas’ redemption laws might affect your ability to settle into your new home without fearing that you’ll eventually lose it.
Most residential foreclosures in Arkansas are nonjudicial, which means the lender does not have to go through state court to foreclose. Judicial foreclosures, in which the lender files a lawsuit in court, are also possible.
How does the distinction between a nonjudicial and a judicial foreclosure matter to you as a prospective buyer at a foreclosure sale? As you’ll see below, if the foreclosure is nonjudicial, the former homeowner won’t have the right to redeem the property, which is good news for you.
How to find out if the foreclosure is nonjudicial or judicial. One way to find out which type of foreclosure process the lender is using is to go to www.zillow.com. You’ll first need to sign up for a free account and log in, otherwise you won’t be able to view all of the foreclosure information. Find the home by entering the address in the search box. This pulls up a map of the neighborhood. Then click on the home’s address, which is a link to its web page. Scroll approximately one-third of the way down and click on “More foreclosure information.” This will tell you whether the foreclosure is nonjudical or judicial. (If you want to call someone for information about the foreclosure, you can probably find the name and phone number of the foreclosure trustee or attorney on this screen as well.)
In Arkansas, the foreclosed homeowners can't redeem the property after a nonjudicial foreclosure (Ark. Code Ann. § 18-50-108(b)).
If the foreclosure is judicial, the homeowners may redeem the property within one year after the sale (Ark. Code Ann. § 18-49-106(a)(2)). However, if the mortgage or deed of trust that the former homeowners signed when taking out the loan specifically waives the right of redemption, they can't redeem the home at all (Ark. Code Ann. § 18-49-106(b)). (Learn more about the difference between a mortgage and a deed of trust.)
Virtually all loan documents in Arkansas contain a clause stating that the homeowners waive the right of redemption. What this means for you is that the former homeowners probably won’t get the opportunity to get the home back after the sale, even if the foreclosure went through the court system.
To find out what the mortgage or deed of trust says, you can:
In the unlikely event that the Arkansas homeowners from whom you purchased get the right the redeem, they would have to pay you the amount you paid at the foreclosure sale, plus interest, to do so (Ark. Code Ann. § 18-49-106(a)(2)).
You can see why redemption is so rare. An Arkansas homeowner who, perhaps no more than a year ago, was unable to keep up on the home’s mortgage payments would have to turn around and come up with not only the purchase price, but additional amounts to cover interest. If the foreclosed homeowners did take steps to redeem, you would probably first learn about it when the court notifies you that they have redeemed the home.
It's also possible, but rare, for the IRS to redeem 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.
Besides the possibility of redemption, there are other issues to take into account when considering buying a home at a foreclosure sale. For example, you won’t get any seller disclosures regarding the condition of the property before the sale, and you will have to purchase the property “as is,” without negotiating over repairs.
And, the fact that the owner was in financial distress means the property could be in bad condition. (Learn more in Nolo’s Buying Foreclosed Properties area.)
The statutes that discuss the right to redeem after a judicial foreclosure in Arkansas can be found in Title 18, Subtitle 4, Chapter 49 of the Arkansas Statutes.