Right of Redemption

The right of redemption is the legal right of any mortgagor or borrower who owns real estate to reclaim his or her property. The right of redemption gives property owners who pay off the back taxes or liens on their property the ability to prevent foreclosure or the auctioning off of their property, sometimes even after the auction or sale has occurred. The amount paid generally must include the costs incurred in the foreclosure process, plus the entire amount of the mortgage if the payoff comes after foreclosure or auction.

The term right of redemption can also be used in another sense. Debtors have the right to pay their creditors an amount equal to the fair market value of the assets securing the lien. By doing so, they can reclaim their personal property.

A right of redemption may be exercised during a time frame called the redemption period, which may be before or sometimes after a foreclosure auction has concluded. Every state allows borrowers to exercise their rights of redemption prior to the closure of foreclosure proceedings. The right of redemption can be exercised after a foreclosure sale in about half of all states. This is called statutory right of redemption and the repayment rules may differ from paying off all the outstanding debt that existed before the sale.

Despite the possibility to take action before a foreclosure sale, in common practice, borrowers tend to only exercise a right of redemption after a foreclosure if they have the means to try at all. This is because borrowers who already have enough funds to cover the costs of paying off the entire outstanding debt plus other fees are unlikely to lapse into default.

It is possible for the borrower to turn a profit in certain circumstances when they exercise a right of redemption after a foreclosure sale. A property might sell below its market value in a foreclosure auction. If the borrower’s state allows the right of redemption to be exercised after such a sale, they could potentially take back ownership. The borrower would pay back the foreclosure sale price plus additional fees, which might be lower than the debt owed on the mortgage. They could then resell the home at or above market value and keep the difference as profit. Depending on the laws of each state, a statutory right of redemption could still call for the full repayment of debt rather than the foreclosure sale price.