Understanding the right of redemption in real estate

If financial pressures lead to missing multiple mortgage payments, the lender may choose to initiate the foreclosure process. When a lender forecloses on a property, you could ultimately lose your home. But the right of redemption in real estate can help you hold onto your home.

For homeowners struggling with foreclosure, the right of redemption might offer a glimmer of hope. This guide explores the right of redemption in real estate.

What is the right of redemption?

The right to redeem allows you to reclaim your ownership of the property by paying what you owe. Exercising your right to redeem can even help you reclaim the property after the lender has put it up for sale at public auction or even sold it to another buyer, in some states.

When you initially purchased your home with a mortgage, you likely remember signing stacks of documents. One of those key documents is called a promissory note. Essentially, a promissory note outlines exactly what your repayment expectations are and that you promise to meet those obligations.

Another key document you signed at closing was a deed of trust or a security instrument, depending on the state in which the home sits. This document outlines the consequences of missing mortgage payments and details the lender’s foreclosure rights if you default on your loan.

Generally, lenders can start the foreclosure process after 90 to 120 days of missed mortgage payments. Typically, lenders can move forward with the legal process of foreclosure on day 121 of missed payments.

To stop the foreclosure proceedings, homeowners can exercise their right of redemption. Essentially, this involves paying off their debt owed to the lender, plus any additional fees or interest charges.

Technically, this could help homeowners reclaim their home before the property is sold at auction. But it’s often not a realistic option for homeowners in this situation. Owners who fall behind on their mortgage payments are usually facing financial struggles, which may prevent them from coming up with the necessary funds to save their home from foreclosure.

Understanding the statutory right of redemption

Foreclosure law varies by state. In some states, the statutory right of redemption represents the ability for homeowners to pay back their debts and reclaim their homes after these properties have been sold to another buyer. If the mortgage company was the highest bidder for the property, the lender will attempt to sell the property.

Some states require the lender to go through judicial foreclosure. This is a legal process where the lender files a lawsuit to foreclose on a property after a borrower defaults on a mortgage. Homeowners in these states might have until the court confirms the foreclosure sale to exercise their right of redemption. You will need to check on the specific laws in your state.

Judicial foreclosure is not the only way a lender can foreclose on a borrower who has not kept up with their mortgage payments. Some states allow nonjudicial foreclosure, which is a process where a lender uses a power of sale clause that’s in the mortgage or deed of trust. In many nonjudicial foreclosure states, homeowners cannot reclaim the home by catching up on their payments after the property is sold by catching up on missed payments. This is because in a nonjudicial foreclosure, the homeowner usually does not have a redemption period after the sale of the property. Legally, this means the property transfers to the new buyer directly after the sale is finished.

Not all states allow for the statutory right of redemption. But all states allow homeowners to pay back their debts and reclaim their homes before their residences reach the public auction stage of foreclosure. This is called the equitable right of redemption.

Understanding equitable redemption

The equitable right of redemption allows homeowners who have fallen behind on their mortgage payments to ‘catch up’ by paying back what they owe, plus any interest or fees, within a reasonable timeframe.

The exact timeline varies based on the state, so it’s important to get clarity around the deadlines from your mortgage lender if you are racing against the clock to reclaim ownership of your home.

For example, let’s say Sally lost her job after an extended recovery from a car crash drained her savings. Without her income, she quickly falls behind on her mortgage payments. After missing multiple payments, she finally lands a new job and gets in touch with her mortgage company. She communicates the situation and realizes she can ‘catch up’ on what she owes before the foreclosure process commences. By sticking to a strict budget with her new income, she’s able to retain the home and remove the immediate threat of foreclosure.

How redemption works in real estate

The right of redemption can help struggling borrowers retain their homes after a home has been foreclosed on. But there are challenges: Most notably, states differ on the redemption power they give to borrowers.

Only certain jurisdictions offer a statutory right of redemption, when owners can reclaim their homes after they have sold to another buyer. The redemption period, the time during which borrowers can pay back what they owe and reclaim their homes, also varies by state, with some states being more generous than others.

All states offer the equitable right of redemption, though it would be difficult for a borrower who is behind in their mortgage payments to pay off their entire mortgage plus any additional fees and interest that are owed before the foreclosure sale.

Before seeking this legal protection, researching the right of redemption laws in your state can help you know what the rules are and how to effectively navigate your situation. Consider starting your research with the United States Foreclosure Law website.

How borrowers can leverage their right to redeem

The right of redemption is a safety net for homeowners in danger of losing their residences to foreclosure. But this right doesn’t come cheap for you as the mortgagor. Here’s how to navigate the process:

1. Research your state’s timeline to redeem: Every state has slightly different rules on the redemption process. Take the time to research the timeline in your state.
2. Ask for a statement of charges: Your lender should be able to provide a comprehensive statement of the charges you’d need to pay to save your home.
3. Pay fees and missed payments: If you can pay back what you owe, plus interest and fees, within the right of redemption period, you can save your home from foreclosure.

The limitations of the right of redemption

Due to the costs, relatively few homeowners can prevent a foreclosure during the right of redemption period. After all, homeowners who fell behind on their mortgage payments in the first place likely don’t have stashes of extra cash lying around.

For homeowners struggling with their mortgage payments, communicating the situation with your lender and exploring your options before falling into default can save you time and heartache.

Depending on the situation, your lender might offer you a loan modification, which could result in a lower monthly payment that better suits your budget. Although lenders aren’t required to offer a loan modification, many do to avoid the costs associated with the foreclosure process.

If you are a client of Rocket Mortgage^®, you can turn to our in-house loss mitigation team that can help you avoid defaulting on your loan. If you are not a client of ours, you might also work with a housing counseling agency that can help negotiate loan modifications on their behalf. Borrowers should work only with non-profit housing counselors. A good place to look for reputable counselors is through the U.S. Department of Housing and Urban Development.

How the right of redemption impacts investments

While the right of redemption might offer a path forward to struggling homeowners, it could represent a hassle for real estate investors interested in purchasing foreclosed homes. From a real estate investor's perspective, the ability for a homeowner to reclaim their home after the sale could lead to complications.

Say you’re a real estate investor who finds a home for sale at a good price at a public auction. Or maybe you purchase a foreclosed home directly from a lender. If the home’s previous owners can now repay what they owe, and the statutory right of redemption period hasn’t expired, these former owners can reclaim their home, even if you’ve already purchased it.

It’s true that the lender from which you purchased the home will repay your investment. But this still represents a loss of time and a loss in potential future profits from your purchase.

FAQs

If you have remaining questions about the right of redemption, explore the answers below.

How many types of redemption are there?

Two types of redemptions exist including equitable redemption and statutory redemption. Equitable redemption involves the owner paying what they owe before the foreclosure sale. Statutory redemption involves the owner paying what they owe after the foreclosure sale.

Which state has the longest foreclosure process?

The foreclosure process can drag out. As of writing, Louisiana has the longest average foreclosure process, with an average timeline of 3,015 days.

Are foreclosures on the rise?

As of the end of 2024, foreclosures were down 9% from 2023.

The bottom line: The right of redemption may apply to you

If you have fallen behind on your mortgage payments and want to avoid losing your home, the right of redemption might help you remove the threat of foreclosure. Of course, catching up on what you owe, plus any interest charges or fees, can represent a significant financial hurdle.

For homeowners currently seeking to avoid foreclosure, get familiar with all of your options.