Real Estate Foreclosure and Redemption Text Size:

As a borrower or mortgagor, once you have fallen behind on mortgage payments, in either a residential or commercial situation, the loan will go into default, and within a short time, the lender (mortgagee) will start foreclosure proceedings. You will immediately ask what options are available, and whether there are any alternatives to the loss of the property and the consequences of foreclosure. The right of redemption is one such option, and is provided to you as a borrower, and others associated with a mortgage debt, either under state statutes or as an inherent part of the mortgage itself.

By the equitable right of redemption, as it is traditionally known, or under the statutory framework for redemption provided by about half the states, you can redeem or pay off the defaulted mortgage at least up until the time of the foreclosure sale. State statutes do vary and affect the specifics of how the right of redemption is exercised in foreclosure. Some state statutes also provide for a related remedy called reinstatement, which allows you to bring payments on the mortgage up to date, and which requires the mortgage to remain in full force and effect.

Who Can Seek Relief by Redemption?

• The borrower
• Successors of the borrower, should the borrower die, or assignees of the borrower
• The borrower's judgment creditors
• Other parties with liens against a property
• The borrower's bankruptcy trustee
• A redemption statute will also contain provisions for the priorities among the parties with rights of redemption.

State Statutes and Redemption

While the equitable right of redemption ends at the time of the foreclosure sale, where there is a state statute in place, the redemption period may be for a period of 6-18 months after a foreclosure sale, with exceptions, such as in Illinois, where the redemption period of about 7 months ends prior to the foreclosure sale.

Property Title and Possession Following a Foreclosure Sale

In some jurisdictions, the winning buyer at the foreclosure sale will not obtain title to the property until the period of redemption ends, and you may retain possession of the property during that time. At the close of the redemption period, the buyer receives a redemption payment or the title to the property.

In other jurisdictions, the foreclosure buyer will possess the property under a defeasible title, which means that you can exercise your right to redemption by making the required payment.

Deciding on Redemption

Redemption could be advantageous if you want to keep the property, you have the chance to sell the property and pay off the mortgage (especially if property prices are rising), or you become able to refinance the debt and seek to keep the property, especially if the property is your home. Another consideration is the likelihood that the hit to your credit rating will be less severe with a notation of status of redemption instead of foreclosure. Foreclosure involves business decisions, it is expensive, and redemption (or reinstatement) of a mortgage may offer the most attractive business solution for the lender as well.

Redemption rights will vary from state to state, and your redemption rights as a borrower should not be cast aside lightly. The existence of redemption rights recognizes that avoidance of the ultimate sale of a property at a foreclosure sale is often in the best interest of both the borrower and the lender.