I’m very seriously thinking about buying an investment property in Rhode Island by bidding at a foreclosure sale. I’ve done some research online about how the process works and what to expect, but there’s one big thing that concerns me. I read that the owners might be able to get the house back even after the foreclosure is over. First of all, how does this work? Second, how likely is it that the former owners might actually get the house back?
It is possible, though unlikely, that the former owners will be able to get the home back after a foreclosure in Rhode Island. They would do so by paying the full amount due on the mortgage, plus interest and expenses. This is called redeeming the property.
Foreclosed homeowners in Rhode Island get the right to redeem the property only if the foreclosure is done by "judicial" process or by peaceable and open entry (which is a very rare foreclosure process.)
If the foreclosure is nonjudicial, the homeowners cannot get the home back after the foreclosure.
We’ll describe below a little more about these different types of foreclosures and whether Rhode Island’s redemption laws should make you nervous about losing it to the former owners.
Foreclosures in Rhode Island are typically 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. (Foreclosure by peaceable and open entry almost never occurs.)
Does the difference between a nonjudicial and a judicial foreclosure matter to you as a potential purchaser at a foreclosure sale? As noted earlier, if the foreclosure is nonjudicial, the former homeowner won’t have the right to redeem the house after the foreclosure, which is good news for you.
How to find out whether the foreclosure is nonjudicial or judicial. One way that you can discover which foreclosure process the lender is using is to go to www.zillow.com. First, sign up for a free account and log in. (You must do this otherwise you won’t be able to review all of the foreclosure information.) Locate the house by entering the address in the search box. This leads to a map of the neighborhood. Then click on the property address, which is a link to the relevant Web page. Scroll approximately one-third of the way down and click on “More foreclosure information” to find out whether the foreclosure is nonjudicial or judicial along with other information, such as the name and phone number of the lender’s attorney.
Under Rhode Island law, the foreclosed homeowners can't redeem the home after a nonjudicial foreclosure.
If the foreclosure is judicial (or by peaceable and open entry), the former owners can redeem within three years (R.I. Gen Laws § 34-23-3). These foreclosure processes are seldom used, though, which means most homeowners in Rhode Island don’t get the opportunity to redeem after the sale.
In the unlikely event that the Rhode Island homeowners get the right the redeem, they would have to pay the full amount due on the mortgage, plus interest and expenses, to get the house back (R.I. Gen Laws § 34-23-2).
It's also possible, but not very common, for the IRS to redeem the home 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, you’ll get a notice beforehand.
To find the statutes that discuss the former homeowners’ right to redeem after a foreclosure in Rhode Island, go to Title 34, Chapter 34-11 and Title 34, Chapter 34-23 of the State of Rhode Island General Laws.