Understanding Your Redemption Rights in Foreclosure: A Guide to Protecting Your Property
When you signed a mortgage to fund the purchase of your home, you signed a contract with a lender. The lender provided the money you needed to purchase the home, and you agreed to certain terms to repay that money to them.
If you stop making these mortgage payments in any way, the lender has a right to use the foreclosure process so they can sell your home and use the proceeds they receive to not only repay the loan, but also recoup any associated costs and fees they incurred in the process.
Every state sets the rules and regulations for how the foreclosure process works, and at times, it can vary significantly. That being said, the process typically requires the lender to send a default notice first, after which there’s a reinstatement period and, finally, a foreclosure sale. However, even after the foreclosure is completed most states offer a redemption period allowing the homeowner to pay to the mortgage lender in cash the entire amount received at foreclosure.
Not every state provides homeowners with redemption rights in foreclosure, but in those that do, it’s important to know what your rights are.
Understanding Redemption Rights
So, what are redemption rights in foreclosure? Simply speaking, the right of redemption allows a property owner to repurchase their property after a lender conducts the foreclosure process.
In most states that provide redemption rights, this can only be done during a specific period of the foreclosure process, which is known as the redemption period.
In Michigan, for instance, the redemption period starts on the day of the actual sheriff’s sale and, in most cases, lasts six months beyond that time. State law also says that in order to redeem the home, the borrower has to pay the amount of the winning bid at the sheriff sale, plus any interest and fees.
In general, the right of redemption is put in place to ensure that a fair price is paid at the foreclosure sale, while also giving borrowers a chance to take back ownership of the property if they’re able to.
The Redemption Period
Each state has different rules and regulations for redemption rights, including what the redemption period is. In most states, the redemption period typically covers a specific amount of time after the foreclosure sale is held — as in Michigan, the state allows generally a 6 month redemption and in some cases 12 months. However, this does not apply to property tax foreclosures conducted by the County as those tax foreclosures are only entitled to a 30 day redemption.
During the redemption period, a borrower can exercise their right of redemption by paying whatever the redemption amount is, as set by the state. Again, this is generally the amount that’s owed on the mortgage plus any incurred fees and costs.
Exercising Your Right of Redemption
If your property has been foreclosed on and has been sold at a sheriff sale, it’s still possible that you can take back ownership of the property. If you want to redeem your property after the foreclosure sale, you’ll need to provide written notice of your intention to redeem the property to the court, the buyer of the home — i.e., the high bidder at the auction — or some other party.
Your state laws will specify who this notice must be sent to, and what must be included in it. They will also specify to whom the money must be paid to. In some states, it’s the court or the buyer, while in other states, it’s another party who is handling the case. In the state of Michigan, the purchaser at foreclosure is required to file within 21 days of the foreclosure a Purchaser’s Affidavit, detailing the purchase price, the daily interest rate charge, the last day to redeem the property and their contact information to be able to reach them incase they want to redeem.
Limitations and Factors Affecting Redemption
The length of the redemption period varies from one state to the next. The shortest period of time is 30 days, while the longest period is one year.
Not every state provides a post-sale redemption period, and specific factors can change how long the redemption period lasts in some states.
In Michigan, for example, while most properties have a redemption period of six months, that gets extended to 12 months if the outstanding amount of the mortgage at the date of the foreclosure is less than two-thirds of the original principal amount. Farming properties might also qualify for a 12-month redemption period.
If your property has been foreclosed on and you are interested in redeeming it, you should consult with an experienced foreclosure attorney in your state to learn what redemption rights you have, if any.
Protecting Your Property and Rights
While it’s nice to have redemption rights in foreclosure — and it’s certainly something that you can and should take advantage of if you want to — there are other ways that you can potentially save your home if you are having trouble repaying your mortgage.
You can consider applying for financial help with your lender, with your state or both — if available — well in advance of the foreclosure sale. Many lenders will offer loss mitigation options such as loan modifications to borrowers who are struggling to make mortgage payments.
The reason they do this is because it is in their best interest to have you, the actual borrower, remain in the home and pay off the mortgage in full. This gives them the biggest return on their investment, and doesn’t force them to spend time and money to foreclose on your property.
Lenders are typically not in the business of being property owners. Most would typically much rather work with you on a loss mitigation plan rather than foreclose on your home and put it up for sheriff sale.
If you’re struggling to pay your mortgage, it’s important to investigate your financial assistance options, and apply for help, as early as you can in the process to avoid foreclosure and protect your property.
Conclusion and Key Takeaways
Some states provide redemption rights in foreclosure, which allow borrowers to retain ownership of their home even after it was sold at sheriff sale. This is a valuable right to have, as it gives you the power to avoid losing your home if you’re struggling to make payments.
Since redemption rights and periods vary so greatly from state to state, it’s crucial to understand your state’s rules and regulations. This allows you to protect your property throughout the foreclosure process.
By knowing all the details of the redemption period — including the process and limitations — can help you make informed decisions and potentially save your home.
If you are having trouble making your mortgage payments, don’t hesitate to consult with a HUD-approved housing counselor or a foreclosure attorney to learn more about your options and rights.
In Michigan, Babi Legal Group has a combined 20 years of legal and real estate experience. We provide all of our clients with expert advice on all their needs related to foreclosures and bankruptcy.
To learn more, contact us today.