My husband and I are considering purchasing a home in Salt Lake City, Utah, in the next few months. I’ve been looking at houses online that are being foreclosed, and we’re quite interested in some of them. However, we’ve never bid on a house at a foreclosure sale before. We’re a little reluctant to buy a home this way because I found information that says the homeowners might be able to get the house back after the foreclosure is over, through the right of "redemption." What is the likelihood of the former owners redeeming the house after we’ve bought it?
If you purchase a Utah house at a foreclosure sale, it's not very likely that you’ll lose it again to the former, foreclosed owners. Most foreclosures in Utah are conducted through "nonjudicial" procedures, which is great for you because these include no right of redemption (in which the homeowners could repurchase the home after the sale) following the foreclosure.
Judicial foreclosures, which are uncommon in Utah, are another story, though. This is explained in more detail below.
It is possible, though unlikely, that the IRS might redeem the house after you buy it, but only if there was a federal tax lien on the property at the time of the foreclosure. (How this works is also described in further detail below.)
Another matter for potential buyers like you to think about is the possibility that the homeowners might arrange an alternative to foreclosure (like a mortgage modification or repayment plan) with the lender before the sale occurs. If this should happen, there won’t be a sale and you won’t be able to bid on the house. For this reason, it’s good that you’re looking at a few different homes. That way, at least one of them will probably go all the way to sale.
Most residential foreclosures in Utah are nonjudicial, which means the lender does not have to go through state court to foreclose. Judicial foreclosures, where the lender files a lawsuit in court to foreclose, can also take place in Utah.
How does the difference between a nonjudicial and a judicial foreclosure matter to you as a potential buyer at a foreclosure sale? It's pretty straightforward: If the lender forecloses nonjudicially, the former homeowners won’t get the right to redeem the house after the sale (Utah Code Ann. § 57-1-28(3)).
How to find out whether the Utah foreclosure is nonjudicial or judicial. One way to find out whether the foreclosure is nonjudicial or judicial is to go to www.zillow.com. Once you’re there, sign up for a free account (otherwise you won’t be able to view all of the foreclosure information). Enter the address of the home you’re thinking of bidding on in the search box. This will bring up a map of the neighborhood. Next, click on the home’s address, which is a link to its Web page. Then, scroll down to where you see “More foreclosure information” and click on the link to find out whether the foreclosure is nonjudicial or judicial. (If you wish to call someone for information about the foreclosure, you can usually find the name and phone number of the foreclosure trustee or attorney here as well.)
If the foreclosure is judicial, the homeowners may redeem the home within 180 days (six months) after the sale (Utah Code Ann. § 78B-6-906, Utah R. Civ. Proc. 69C(d)). It’s also possible, but rare, for creditors who had junior liens on the home to redeem the home following the foreclosure sale (Utah R. Civ. Proc. 69C(b)).
In order to redeem, the former owners would have to reimburse you for:
The IRS typically places a lien on a home when the owners don’t pay their federal income taxes. In cases where there was a federal tax lien on the property, the IRS gets 120 days to redeem the house after a foreclosure sale. (This is called a “redemption period.”)
If the IRS decides to redeem the home, it would have to reimburse you for what you paid to buy the home at the foreclosure sale, plus 6% interest and certain expenses you’ve paid since the sale.
Whether the IRS will redeem depends on whether it believes it could subsequently sell the house for more than you paid at the foreclosure sale. Since in most cases the IRS wouldn't be able to sell the home for a higher price, this means that IRS redemptions don’t occur too often.
To find the statutes that discuss the right to redeem the home after a foreclosure in Utah, go to Title 57, Chapter 1 and Title 78B, Chapter 6 of the Utah Code. Also, see Rule 69C of the Utah Rules of Civil Procedure.