Right of Redemption After Foreclosure

If you stop making your mortgage payments, the bank may use a process called foreclosure to sell your home and use the proceeds to repay the amount you borrowed, plus fees and costs.

Though, after you lose your home at a foreclosure sale, you might be able to get the property back. Some states permit the former homeowners to repurchase the home during what’s called a “redemption period.” Read on to learn more.

The Statutory Right of Redemption After Foreclosure

While all states allow borrowers to redeem their home before a foreclosure sale, only certain states provide time after the sale for homeowners to redeem the property. This right is called a "statutory" right of redemption because the amount of time allowed to redeem and the right itself arises solely from state statutes.

How does a statutory right of redemption work? Statutory rights of redemption grant borrowers a certain period of time after a foreclosure during which they may reclaim the property by paying the foreclosure sale price or, in some cases, the full amount owed to the bank, plus certain other allowable charges (see below).

Benefits to borrowers. Statutory redemption laws give the borrowers more time to obtain the funds needed to reclaim the home. Also, sometimes state law gives the foreclosed borrowers the right to live in the home during the redemption period. (To learn more, see When Do You Have to Leave Your Home When It's in Foreclosure?)

A statutory redemption period aims to ensure a fair price at the foreclosure sale. The right of redemption attempts to ensure that bidders at the foreclosure sale will bid a fair price because a higher winning bid at the foreclosure sale reduces the likelihood of the former owners redeeming the property. In reality, though, redemption statutes might chill bidding at the foreclosure sale because the purchaser must wait for the statutory redemption time to expire before officially owning the property, thus reducing the price a purchaser is willing to pay for the property.

Statutory Redemption Laws Vary Between States

The length of the statutory redemption period varies from state to state, and not all states provide one. When available, the redemption period generally ranges from thirty days to a year.

In most states that provide a post-sale redemption period, certain factors often change the length of the redemption period. For example:

• The redemption period might vary depending on whether the foreclosure is judicial or nonjudicial.
• The redemption period might be reduced under certain conditions, like if the homeowner abandons the property.
• The loan documents might waive the borrower's right to redemption.
• If the lender pursues a deficiency judgment, this might trigger more redemption rights.
• More extensive redemption rights might be available if the foreclosing party, rather than a third-party, buys the property at the foreclosure sale.
• Loans used to purchase the property might receive greater protection than other types of mortgages.

To learn find out if your state’s laws provide borrowers with a post-sale right of redemption, see our Key Aspects of State Foreclosure Law: 50-State Chart.

Cost to Redeem

In order to redeem, a foreclosed homeowner usually has to pay either:

• the amount that the buyer paid for the home at the foreclosure sale, plus interest and certain expenses, like HOA fees and property taxes, or
• the total amount owed on the mortgage loan, plus interest and expenses.

Procedures for Redeeming the Home

Generally, to redeem the property after a foreclosure sale, the foreclosed homeowner must give a written notice of redemption to:

• the party who bought the home at the foreclosure sale and
• the court or other party that held the foreclosure sale.

Then, the former homeowner must pay the redemption amount to the buyer, court, or other party. State law normally says what information has to go in the notice of redemption and who gets the redemption money.

Consider Options for Saving Your Home Prior to the Sale

Most people who go through a foreclosure have trouble finding enough money to redeem their home afterward. Instead of waiting until after the sale to try to keep your home, consider applying for help beforehand. Most banks offer loss mitigation (foreclosure avoidance) options, like modifications, to borrowers who are struggling to make their mortgage payments.

But you must apply for help before the foreclosure sale. It's a good idea to apply for a foreclosure avoidance option as early in the process as possible. Under federal mortgage servicing laws, if you submit a complete application more than 37 days before a sale, the servicer generally has to put the foreclosure on hold while it evaluates your application.

Consider Talking to an Attorney

To learn whether state law provides a post-sale redemption period where you live and in your situation, consider talking to a local foreclosure attorney. If you need information about different ways to avoid a foreclosure, consider talking to a HUD-approved housing counselor.