Second chances are rare. But for homeowners who are either facing foreclosure or have already had their homes seized or sold, they may get a second chance to hold on to their homes. That second chance is the right of redemption.
The right of redemption may save your home even after foreclosure. It may even let you get your home back after the lender has sold it to another buyer.
Take the first step to learn what the procedures and timelines are around the right of redemption so you’re prepared if you ever need to claim your final chance at keeping your home.
What Is the Right of Redemption in Real Estate?
The right of redemption is an owner’s right to reclaim their home during or after foreclosure. But before we dive any deeper into the right of redemption, let’s go back to the beginning – when you first got your mortgage.
When you take out a mortgage, you sign a promissory note. The note details the repayment schedule for your loan, including how you’ll repay (usually in regular monthly installments) and how much you’ll pay. If you fail to make payments or regularly fail to make payments on time, your loan will be in default and you may end up dealing with everything from late fees to penalties to foreclosure.
We’re guessing no one buys a home to lose it. But sometimes our best-laid plans are interrupted in ways we couldn’t foresee. You might lose your job, lose an extra source of income or get sick. Any number of circumstances can cause someone to fall behind on their mortgage payments.
If a borrower fails to make a mortgage payment for any reason, no matter how justifiable the reason may be, the loan will go into default. And at that point, the lender can exercise their right to take ownership of the property through foreclosure.
The redemption period
Lenders might send you a warning notice if you miss a month’s payment, or they might wait until you’re 90 days late on payments. In any case, they can begin foreclosure proceedings once you’re 121 days late on your payments.
The redemption period is a specific amount of time during foreclosure or after a foreclosure sale (in some states) when owners can pay off their foreclosure amount to keep their homes.
Example of the right of redemption
To exercise the right of redemption, you pay what you owe on the home, including interest, fees and penalties. In some states, you can exercise the right of redemption after the house has been sold to another buyer.
If your state allows it, exercising the right of redemption after a foreclosure sale may be to your financial advantage. If your home is being sold at auction, the auction price will likely be less than what you owe on the mortgage. But just keep in mind that this is a risky strategy. Remember, there is no guarantee that your bid will be the winning bid on your home.
Some states even allow owners to pay the price the home was sold for at foreclosure (plus fees) to redeem their homes and not what the owner originally owed the lender.
How Does the Right of Redemption Work?
However, the requirements for redemption, the redemption period and the laws governing the right of redemption vary from state to state. All states allow you to exercise the right of redemption before a foreclosure sale.
But only certain states allow homeowners the right of redemption after a foreclosure sale.
The states that allow redemption after a foreclosure sale are:
- Alaska (in rare cases)
- Connecticut (within a limited time frame)
- Delaware (within a limited time frame)
- Florida (within a limited time frame)
- Iowa (in some cases)
- Kentucky (in some cases)
- Maryland (within a limited time frame)
- New Jersey (within a limited time frame)
- New Mexico
- North Carolina (within a limited time frame)
- North Dakota
- Ohio (within a limited time frame)
- Oklahoma (within a limited time frame)
- South Dakota
- Tennessee (in some cases)
- Vermont (in some cases)
Laws governing the right of redemption vary from state to state, so research the regulations that apply where you live – and review your mortgage agreement. The right of redemption is determined by state law and your mortgage agreement. Read through your agreement to see if any terms might place restrictions on the right of redemption.
The length of the redemption period also varies. Some states have a 10-day redemption period, and others give you a year. The length of the redemption period might also be determined by the type of foreclosure you’re dealing with.
If your lender purchases your home at auction, you may receive extended redemption rights.
How the Right of Redemption Can Be Exercised in a Foreclosure
Only a homeowner can exercise the right of redemption. And to exercise that right, a homeowner typically follows a standard set of steps.
Pro tip: Get an attorney who can make sure you’re meeting your state’s requirements.
Ask for a payoff quote
Step one: call, write or meet with your lender to get a payoff quote. (Your lender will let you know their preference.)
The payoff statement will indicate how much you need to pay by a specific date to redeem your home. FYI: If that date changes, your payoff amount may change with it.
There are two things you should expect. Expect to pay back the foreclosure amount, including any additional fees, and any fees your lender may add to cover the costs associated with the foreclosure.
The second thing you should expect is to receive a significantly large payoff quote.
And no matter how you plan on raising the money to save your home (think: borrowing money, or selling valuables), inform your lender that you plan on exercising your right to redemption.
Deliver your intent to redeem notice
Step two: make your intentions known in a letter.
If you want to redeem your home after a foreclosure sale, you must deliver written notice of your intent to redeem to the court that held the foreclosure sale and the buyer of your home.
Pay the redemption amount
Step three: pay the redemption amount and get your home back.
You pay the redemption amount, which is typically the cost paid at the foreclosure sale plus fees, to the court or the buyer of your property.
Avoiding right of redemption with loan modification
The best way to avoid having to exercise the right of redemption is to avoid going into foreclosure. One option to fend off a foreclosure is a loan modification.
With a loan modification, the lender changes the terms of your loan, which may include extending the length of the loan or altering the loan’s interest rate.
Learn how loan modification works before you approach your lender with a request.
You Have Options After Foreclosure
For many homeowners, foreclosure doesn’t have to be the final leg of their homeownership journey. The right of redemption can be the lifeline that lets you stay in the home you’ve grown to love.