What is the right of redemption in real estate?

_{This article is for educational purposes only. JPMorgan Chase Bank, N.A., does not offer certain products or services. Any information described in this article may vary by lender.}

Quick insights

• The right of redemption offers a last chance for a borrower to reclaim their home after foreclosure has begun, and in some circumstances even after the home has been sold.
• Exercising this right typically requires the borrower to pay for the full sale price of the home, plus all late fees and those incurred during the foreclosure process.
• States determine right of redemption laws, leading to differences in the legal processes and requirements depending on location.

Most homeowners bought their homes with every intention to make mortgage payments on time. However, when financial hardship occurs, it can be easy for the situation to escalate to foreclosure.

If your lender takes possession of your home during the foreclosure process, it may go to sale so that the unpaid debt can be quickly recouped. However, in certain states, homeowners have the right to redemption, which allows them to save their homes after foreclosure has begun. In some cases, this right extends even after the home has been sold.

In this article, we’ll describe the right to redeem in foreclosure, how these laws often vary between states and options to be mindful of in times of financial hardship.

Understanding the right of redemption in real estate

When buying a home with a traditional mortgage, the home is used as collateral to secure the loan. A secured home loan gives the lender the right to repossess and sell the property, a process known as foreclosure. While the time frame may vary depending on the situation, it’s typical for lenders to initiate foreclosure procedures 3-6 months after the first missed mortgage payment.ec-hud-avoid-forclosure

The right of redemption in real estate offers a last chance for the borrower to reclaim their home after foreclosure. To exercise this right, the borrower is typically required to repay the full outstanding mortgage balance and any additional costs that have been incurred through the loan’s delinquency and foreclosure. Because those facing foreclosure are typically experiencing financial hardship, this is often a high bar to meet and an uncommon occurrence in real estate.

The right to reinstatement

After defaulting on a loan, but generally before foreclosure, a borrower may be able to reinstate their mortgage at a lower cost than what is required during redemption. In some circumstances, a borrower may be able to return to their existing mortgage by paying what’s owed, including missed payments, late fees and default charges. This is typically negotiated directly with the lender and detailed in a reinstatement letter.

The right to redemption varies state by state

Real estate right of redemption laws are governed by the state and can vary widely depending on the jurisdiction. One of the major factors which may vary in different jurisdictions is the time frame during which borrowers can reclaim their property from foreclosure. This is known as the “redemption period.”

The redemption period can begin and end at different points in the foreclosure process, creating meaningful differences in the legal process. For example, in California, state law designates that the redemption period lasts a year and occurs before a foreclosure sale. However, in Michigan, the redemption period lasts for six months following a “sheriff sale” on the property. Discrepancies like this are common, along with differences in fees and the borrower’s right to occupy the home.

Because these laws can vary significantly, it's important to reference state guidelines and potentially consult a licensed attorney in your jurisdiction for geographically specific information.

Proactive steps to take during financial strain

Even in states where the rights to reinstatement and redemption are robust, proactive steps could avoid delinquency on a mortgage loan or foreclosure. Naturally, the emotional strain that comes with financial problems can make it more difficult to make decisions. Before things progress toward foreclosure, these opportunities might be available:

• Prioritizing mortgage repayment: The consequences of losing your home to foreclosure can be severe. When you’re feeling overall financial strain, prioritizing your mortgage over other expenses can help you maintain a stable living situation while working toward solutions.
• Communicating with your lender: Foreclosure is costly and time-consuming for lenders, and many will prefer to negotiate with the borrower before escalation. If addressed early, the lender may be able to modify the loan or offer temporary forbearance to reduce or pause payments.
• Selling the property: A foreclosure can have a very negative impact on your financials, including your credit score and ability to buy a house in the future. Selling a home you can no longer comfortably afford may help keep you on a steady financial footing.

Bottom line

No homeowner wants to think about the possibility of losing their home. Especially in times of financial hardship, it is important to understand your options and legal rights, including the right of redemption in foreclosure. As you continue to investigate, be mindful to focus on the laws and regulations of your home state and consider consulting with an experienced real estate attorney in your area.