Right of Redemption
What is the right of redemption?
The right of redemption is the legal right of a borrower to reclaim their foreclosed property. Redeeming a home refers to two situations:
- Before the sale, paying off the total debt. This includes the principal balance and any additional costs and interests in order to stop the foreclosure.
- After the sale, paying off the purchase price and any additional costs and interest in order to reclaim the property.
All states give the borrower the right to redeem the home before the foreclosure sale. However, only certain states allow a redemption period after the foreclosure sale.
Redemption before the sale
The right of redemption is the idea that borrowers should have one last chance to retain their home. A borrower must pay off all mortgage debt, plus any additional costs, such as foreclosure fees and expenses. The borrower can redeem their property anytime between the acceleration clause being invoked and the foreclosure sale. However, many borrowers do not redeem, as they most likely do not have access to enough funds to do so.
What is a statutory right of redemption?
Statutory rights of redemption give the borrower time after the sale to reclaim the property by paying the foreclosure price and any other additional charges. In some cases, the borrower may need to pay the full amount owed to the lender. Redemption laws give the borrower time to get the funds needed to redeem the home. The redemption period also gives the borrower more time to find a new home before they can be evicted.
However, redemption periods may dampen bidding during the foreclosure sale process. This is because the purchaser must wait for the period to expire before they officially own the property. Because of this, the purchasing price is likely to be lower.