If you’ve recently lost your job or experienced major financial losses, you might be concerned about falling behind on your mortgage. While an occasional late payment usually won’t come with any serious consequences, you may face the difficult reality of losing your home to foreclosure after several months of missed payments.
During a foreclosure, your mortgage lender will notify you that they’re taking back your home due to non-payment, before putting it up for sale and eventually evicting you. No one wants to find themselves in this situation, but if you do, there’s potentially still time to recover using the right of redemption.
Depending on where you live, the right of redemption might apply up until the foreclosure proceedings, or even after the foreclosure sale, up to a certain period of time.
What is the right of redemption?
The right of redemption is a legal process that gives homeowners who have fallen behind on their mortgage payments the opportunity to keep their home by paying the money they owe, plus interest and fees.
Mortgage lenders use the home you buy as collateral or security for your loan. If you fail to make payments, your lender can foreclose and sell your home to recoup the money it lent you.
But they have to give you a chance to make good — your “right of redemption” — for a certain period, and this time frame is called the “redemption period. “ If, during a set redemption period, you can pay your mortgage balance, plus certain fees, in full to the lender, you can reclaim your home.
Statutory right of redemption
In some states, you can even exercise this right of redemption after the foreclosed home is sold to another party by paying that party the amount they paid, plus certain expenses. This is known as the statutory right of redemption because it stems from various state statutes related to homeownership.
Foreclosures are handled differently in each state. In some jurisdictions, foreclosures go through the courts (known as judicial foreclosures). In others, these matters are handled outside of the court system (referred to as non-judicial foreclosures). Certain states have both judicial and non-judicial foreclosures.
If you live in a state that offers a post-sale right of redemption, the amount of time you have to re-purchase your home will depend on your state’s laws. Some will provide a specific timeline (for example, 60 days) after the property is sold, but others have a less clear-cut deadline. In some judicial foreclosures, for instance, you may be able to redeem your house any time before the court confirms the sale (the timing of which can vary by case and state).
Redemption timelines can be longer or shorter depending on other factors, like whether or not the house was abandoned and the amount owed on the original mortgage loan.
How borrowers can exercise the right of redemption
When you fail to make payments on your mortgage, your lender can begin the foreclosure process. After missing three to six months’ worth of payments, the lender will send the borrower a notice of default to alert them of the missed payments and the amount owed. This notice usually gives the borrower a period of time to make up the missed payments, plus late fees, to avoid foreclosure. At this time, borrowers can also choose to fight the foreclosure if they believe the lender doesn’t have the right to start these proceedings.
After the period outlined in the notice of default, the lender can foreclose on the home and put it up for sale.
To exercise the right of redemption, the borrower can write to their lender or servicer, or to the party that purchased the home, and request a statement of charges related to the home. This statement should outline the foreclosure price of the home plus any related fees. If the borrower is able to pay this amount, in full, they’ll get to keep the home.
The amount of time that borrowers have to exercise this right varies by state. For example, in Alabama, borrowers have the right for up to one year after foreclosure, while Illinois gives borrowers just 30 days after the sale.
Limitations of right of redemption
In states where the statutory right of redemption exists, borrowers can, and do, buy their homes back after they’re foreclosed. In every state, a borrower can exercise the right of redemption ahead of the foreclosure proceedings.
The reality, however, is that the right of redemption is rarely exercised. That’s because if a homeowner is having trouble making mortgage payments, it’s unlikely they’ll be able to come up with the full amount they owe, which can be many times more than the monthly payment. Plus, it’s not just the unpaid mortgage: They may also be on the hook for things like interest, lender’s fees and other expenses (like homeowner’s association fees and property taxes) that they might owe.
While you might think you can simply get a new mortgage in order to come up with the funds, missed mortgage payments and foreclosure tank your credit score. This makes it almost impossible to obtain a new loan.
Investors who buy foreclosed homes have to be prepared for the previous owners to exercise their right of redemption and re-claim the home. It’s unlikely that this will happen since most people who have their homes repossessed likely can’t afford to repay their mortgage debt, plus any foreclosure fees charged by the lender. Still, if you’re an investor, you might want to reduce the price you’re willing to pay for a foreclosed home and make plans for how to handle a redemption in case it happens.
Other ways to avoid foreclosure
If you’re falling behind on mortgage payments (or your home is already in foreclosure) and you can’t repay what you owe, there may be options other than exercising your right of redemption.
- If you haven’t already, reach out to your lender or servicer. Many are willing to work with proactive borrowers to help adjust the repayment schedule or put the loan into forbearance. If they do agree to put your loan into forbearance, make sure you understand what’s expected after it ends.
- Try refinancing your mortgage. If you’ve built equity in your home, refinancing can help you lower your monthly payment or get cash (potentially even with bad credit). You can use that money to get the rest of your finances in order so you can handle your mortgage payments more easily. If you don’t have much home equity, there are refinance options for underwater homeowners, as well.
- If you’re in dire straits, you might consider selling your home. This’ll allow you to pay off your mortgage and get whatever additional equity out of the home. You’ll also avoid foreclosure, which means you won’t damage your credit, and you’ll have a clean slate as you search for a new home.
- Lastly, look into housing counseling programs. A U.S. Department of Housing and Urban Development (HUD) counselor can help you interact with your servicer, get a loan modification or explore other relief options.
Bottom line on the right of redemption
If you’re facing foreclosure, the right of redemption gives you a legal pathway to regain ownership of your home. It’s a right most homeowners have that can, in some cases, be exercised even after your property has been seized and sold. Basically involving you making good on your back debt, it’s a guaranteed way of getting your house back.
Unfortunately, it’s not always practical. Exercising this right requires you to come up with the money that you owe on your mortgage (plus additional fees and interest), so it may not be feasible if you’re still experiencing the financial difficulties that led to your foreclosure in the first place.
Foreclosure is a serious event that can have long-lasting impacts on your creditworthiness and financial health. Not only does foreclosure cause you to lose your home, but it can also put a significant dent in your credit score and make lenders wary of working with you in the future. So the ideal is not getting into a foreclosure situation, or even close to it.
