Rights of Redemption and Foreclosure Laws in the State of Alabama – Buy with Confidence…

Foreclosure Right of Redemption Laws cause some retail buyers to hesitate when buying foreclosed properties.  I don’t think you should be scared at all to buy a property that still has time left ticking on its right of redemption period ( most investors sure aren’t worried!)

Right of Redemption Foreclosure LawsI live in Alabama and our redemption period is one year from the date that the property was foreclosed. [I wrote a previous post about the history of our redemption laws including redemption periods resources for other states – you can read it here]  This means that the person who was foreclosed on has a legal right to redeem (buy back) their property back for the next 12 months.

I think that this is a great opportunity given to the past owner of the home.

But not so fast!

The person got foreclosed on for a reason – it’s because they couldn’t pay their mortgage. Even if they come across the money to get their house back, they would have to pay all of the following to get back possession of their old house:

1) The mortgage amount owed, plus interest.

*it’s important to note that this is not necessarily the price paid for the house but is the amount that was owed on the home.  In today’s market buyers will typically end up paying less for a house than what the actual foreclosure amount was.

2) They would be responsible for all legal fees associated with their foreclosure.

3) If improvements were made to their property they would be responsible for reimbursing the new owner for the necessary improvements made that were made, so save receipts (of course, you should do this anyway).

This is no small amount of money, especially for a person that was unable to make the payments in the first place.

This is why we see less than 5% of properties ever get redeemed in my state – and the ones that do are people that tend to have a lot of equity in their home and they are able to find some type of private financer to work with or somehow come up with the money at the last moment.   And of these few redemptions that occur, they happen very early in the redemption period.

But other than that, don’t expect it to happen.  My company has bought 10-15 foreclosures in the last few years and I’ve never had anyone contact me during the redemption period wanting to buy their house back.

If you want to become a Real Estate Ninja, I send out tips and ticks for free to those that subscribe to our email list – do so below – I hand out free contracts, secret marketing strategies, and other goodies not necessarily available on the site.

If you or someone you know is facing foreclosure on the Gulf Coast, contact us at Mobile House Buyers, as I may be able to help you with a solution including a short sale negotiation, taking over your mortgage payments, or possibly buying the house outright.  And if I can’t help, I’ll do what I can to point you in the right direction.

If you’ve got questions or information regarding rights of redemption, I invite you to leave your questions and comments below.

PS – Happy Fathers Day to all of you Dads out there!

 

Comments

comments

{ 31 comments… read them below or add one }

Jason June 19, 2011 at 3:43 PM

Whose side are you on? The homeowner or the bank?

Brooks June 19, 2011 at 4:27 PM

Great question, and my answer is both!
If I’m buying a house, I’m looking for a solution that is fair for all parties involved. I’ve only purchased one house at a live foreclosure auction where there was still someone living there. But, we were able to pay them some money for moving out quickly and in my opinion that was a win/win.
Of course when wearing my REO agent hat, my client is the bank [as a sidenote, we've also never had a house get redeemed] and that’s whose side I legally am on. Of course, even then, most of the times we add an asset to our inventory it’s vacant. And if it’s not, the person usually has the opportunity to get some cash for moving out quickly and keeping the house in clean condition – again, in my opinion a win/win.
I have empathy for people’s situations, but it’s a fact of life — similar to deaths and doing probate deals — you handle them professionally and with courtesy and hope for the best response.

Danny Johnson June 20, 2011 at 11:11 AM

Great post, Brooks. Also, great answer to the question above. Personal responsibility. That’s all I have to say.
Danny Johnson recently posted..The Thirteenth Week – Voters Needed

Brooks June 20, 2011 at 6:17 PM

Well said Danny. Congrats to Danny on winning the best Real Estate Investing Blog of 2011!

Danny Johnson June 20, 2011 at 7:47 PM

Thank you. Next time, we need to make sure your blog is nominated.
Danny Johnson recently posted..The Thirteenth Week – Voters Needed

Brooks June 21, 2011 at 6:20 AM

Thanks Danny! I’ve really enjoyed following along with you – it’s lit a new fire under my investing business – your hard efforts don’t go unnoticed!

Matt June 25, 2011 at 1:03 PM

I’ve got a question. My wife and I had put an offer in on a house to later find out that it was scheduled to be sold at a foreclosure auction the following week. At the auction a investor bought the house for a pretty low price. The individual that had been foreclosed on has offered to sell us his right of redemption. If I was to purchase his redemption right what would be needed to take possession of the house and what cost would I be looking at? The purchase price of house at the auction or the foreclosed amount? Also what would I need to find out, past liens auction paperwork,? Any help or advice would be a great help. Thanks in advance.

Brooks June 26, 2011 at 5:08 AM

Matt, Great Question. Disclaimer, I’m not an attorney, please check with yours before proceeding, blah blah :)

You’re looking at the foreclosed amount – what was owed on the property plus whatever interest and legal fees had been piling up.

The investor possibly paid less if the bank allowed the bidding at the foreclosure auction to start at a lower amount than what was owed – maybe they just wanted to get it off their books, or maybe the amount owed was far more than the property was currently worth.

It can work to purchase his redemption rights and then you would get in touch with the investor that purchased the property — but be sure that what was owed on the property was well below market value and that with all of your costs the numbers work! Just proceed with caution.

And yes, investors that buy at foreclosure auctions are responsible for all liens (which is why it’s not for the faint of heart) and you will be too if you decide to go after this property.

Good luck!

Matt June 27, 2011 at 9:01 AM

Brooks,
Thanks for your response. What is the easiest way to find out how much is owed, leagal fees, and interest that has built up on the property? That way I could know what the purchase price range would be. Also, since the auction was only a week ago the foreclosure deed hasn’t posted under the probate website.

Say if the purchase price after the interest and fees looked alright and I was to purchase the owners right of redemption what would be the next steps to take control of the property be (minus the tenant moving out)? Also, what would I need to do to make sure there isnt any leins on the property? Is the onlyt way to reasearch this through a title company?

Brooks June 27, 2011 at 9:17 AM

Hey Matt,
What was owed and legal fees, etc – you can get with the past home owner that you may buy the rights of redemption from and get a very recent letter from the mortgage company and see what the latest payoff and reinstatement amount was (before the foreclosure sale) – this will give you an idea.

Foreclosure Deed – will show you the purchase price when probate gets updated

Title Search – you can do a “quick and dirty” one yourself by searching for liens on the property and past owners by searching in probate. But if you decide to do the deal, you definitely want to pay the title company that provides your title insurance to do the title search.

You’re now getting into the realm of needing a real estate attorney – good luck!

Beth July 28, 2011 at 10:33 AM

We are looking to buy a forecosed home. It was sold on the courthouse steps in March. The man who bought it added flooring and appliances and now is selling it for $65,000 more than he paid for it (that includes his improvements). My question is, If we buy this house from him, we will be the 2nd buyer…what do we stand to loose if the owner exercises their right of redemption? Do we loose our downpayment, closing costs, payments made up till then? Its hard to find any information for the 2nd buyer. I really like this house but don’t want to loose everything invested in it. Thanks!

Brooks July 28, 2011 at 10:53 AM

Beth, great question. Once again, I’ve got to go the disclaimer route and tell you to consult a real estate attorney on that one. But…..
That being said, do you know the original foreclosure date? I would actually place $1,000 bet on the fact that the house will never be redeemed, even without knowing any more of the situation. Not that this calms your nerves any further :) They would be redeeming the property from you, so they would have to reimburse your expenses as the new owner. I don’t think that you as a second owner makes any difference – you’re the owner. Even if you resold it again for another $20k gain, my understanding would be that this buyer has the same protection of costs —- talk about a legal muck that past owner would have to go through!

carol cook July 31, 2011 at 9:47 AM

I put earnest money on a foreclosure,waiting on right of redemption,my question is systemlink did the foreclosure,sirote (atta)did the title(mobile home)
I have a paper from system link to my agent that reads this
Land only,no alta 7 endorsement to be issued on fifan title policy and says this deed shoud not be construted as conveying interest or transferring title to mobile home.then below this is reads,
The name,vin #s,title #”s,atively titled to (previous owners)with no lien holder(copy of DMV search posted to AE):Under 50K,to be marketed/sold as HH/Land contract?cash sale only.-I am paying cash,I was told this is just giving homesteps permission to advertise and sell this home.after closing,can the previous owners come back and say that is their mobile home?or will the title be desolved when at closing?

Brooks August 4, 2011 at 11:55 AM

Hi Carol,
It looks like you may be referring to ServiceLink, one of the national companies that FreddieMac outsources title to. Is that correct?
There is always a chance that someone can redeem property within the year’s right of redemption – it’s a legal right of the past owner – again, slim chance.
Due to the mobile home not being fixed property, it looks as if they are directing you to the DMV in order to obtain title to the mobile home.

Brooks August 4, 2011 at 12:15 PM

The mortgage is tied to land and non-movable property. So, again Carol, it depends on how much time is left on the right of redemption and specifically what type of property it is – it seems as if you need to take your closing docs to the DMV and attempt to get title to the trailer in your name after closing on the deal. Good luck and consult an attorney and your agent!

John March 8, 2012 at 8:49 PM

Brooks,

I have a question…. My fiance and I are looking at buying a foreclosed home in the shelby county area that still has 6 months left on the right of redemption. I believe the date is sometime in august of this year. Anyway, the list price on the house is 150,000 and we have recently found out that the amount owed at the time of foreclosure is around 112,000. We are currently trying to contact the previous owner to purchase the right of redemption so we will have peace of mind in knowing that if we buy the house that we wont have to worry about someone coming in and taking it from us. Now I realize that there is still a possibility of a second mortgage or another lien holder that could have a right of redemption as well but that doesnt really effect my question… i just havent researched yet if there are any or not. But I want to ask you that if we make an offer and come to an aggreement that is above 112,000 and move forward to buy the home, what will happen if someone uses their right to redemption and is able to get the house back from us. In other words if we buy the home for say 140,000 and make some small repairs and they use the right of redemption for 112,000 plus whatever taxes and fees, will we just be reimbursed for the 112,000 that they owed and be out that 28,000 over the 112,000 that we paid or will we be reimbursed the whole 140,000 that we paid for the home plus repairs. Thank you for any info you can provide

Brooks March 8, 2012 at 9:52 PM

John, I believe that it would only be for the foreclosure amount plus repairs (as long as they are necessary improvements and the costs well documented). But you can get a foreclosure bond that will protect your $28,000 difference (literally insurance — if you’re using financing, your bank will usually require this) — Good luck to you guys! Of course a disclaimer — i’m not an attorney!

John March 8, 2012 at 9:56 PM

Ok thanks….. what about if we are paying cash…. i probably should have said that before…. and also what all is involved in getting a foreclosure bond and what does it guarantee

Brooks March 8, 2012 at 9:59 PM

The bond is insurance that protects the difference between the foreclosure amount and the price that you pay if they were to redeem. If you’re paying cash then you should be partnering with me in real estate ;) [if you're paying cash then the you can self-insure as you see fit --- google foreclosure bond --- I can point you to who we use in Mobile, but not sure about your area] — good luck!

John March 8, 2012 at 10:02 PM

Thank you so much…. if i have any further questions i will definitely ask you…. great info on your site

Pam March 16, 2012 at 6:18 PM

I am looking at purchasing a right of redemption foreclosed home. The home is uninhabitable and would cost more to repair it than it would to build another house. There is 5 acres of land with the house and the land is worth the price. What I would like to know is if there is any possible way to demolish this house during the right of redemption period? If we do purchase the property and cannot demolish it, can we start repairs which include taking the house apart? The ceilings are only 7′ 2” high and not high enough for my 6′ 5” husband. What options do we have?

Thank you.

Brooks March 17, 2012 at 12:11 PM

Great Question. I know that the law states that ”necessary” repairs are covered, but I’m not sure about demolishing and rebuilding. I would consult a real estate attorney. But I would tell you to take detailed photos of the home that is uninhabitable and then ask you this: if it’s uninhabitable, what do you think the chances of someone wanting to redeem their redemption rights are and how much time is left in the redemption period? Good luck!

Brooks April 9, 2012 at 10:35 PM

I get lots of questions via email on this topic and am looking to create an e-Book on the topic. Information would be provided by me, title agents, and local attorneys and would be priced from $37-$49. Please provide me feedback if this is a product that you could use to help you with your foreclosure purchase. Also let me know what information that you would like to see in the book that would be useful for you!

Carmen June 22, 2012 at 4:58 AM

I want to know if a house has been purchased by Freddie Mac is the house out of foreclosure period in Alabama?

Brooks June 26, 2012 at 7:13 AM

Not necessarily – you’d have to find the actual foreclosure deed date – it’s a year from that point – good luck!

Dave July 12, 2012 at 6:00 PM

Hi Brooks, Thank you for your site, it is very informative. My situation is a little different. We were going thru the loan modification process with B of America and the girl said she would postpone the foreclosure, I just started a new job and would have no problem making my payments, but the foreclosure went thru anyway. How can I buy my house or who do I have to get in touch with to find out about getting it? I understand that I now have a year for redemption, I also know it did not sell when it went thru the foreclosure. thanks!

Brooks July 22, 2012 at 9:18 PM

Thanks for the kind words. Your situation is frustrating, but it happens all the time. “The right hand doesn’t know what the left is doing” – if it didn’t sell, then the bank now owns the property – so you still need to find out from them what to do to purchase – if they don’t seem to comply, then you need to contact an attorney to assist you with the redemption. Best of luck.

Mitch August 9, 2012 at 10:09 AM

Great Website……I have bought a couple of foreclosures in the past. However, I have a question…..I am interested in buying a foreclosed home and moving it to another location. The price is right and would save me thousands moving the home about 8 miles to my land and renovating it there and using it as my personal home and putting the lot up for sale. Can you move a home during the redemption period? If so, if it were reclaimed how would it be reclaimed if it is not on the original parcel that sold? Thanks for your help.

Talena August 14, 2012 at 1:20 PM

Would buying a foreclosed poultry farm work the same way? There are several repairs and updates that need to be made so it would be workable again. Does a business foreclosure work the same as a home? Thank-you

I browsed around but couldn’t exactly find the answer I was needing.

Karen Holmquist June 27, 2013 at 5:01 PM

Hi Brooks, I know your talking already foreclosed properties but, what if it was in short sale and a contract written to buy the house. Now both parties approved price, and all conditions of purchase. Then the bank was written to approve amount offered, and the owner was written back a letter saying they needed to turn over the property for foreclosure. Now the property is under another realty which says it’s in foreclosure, won’t list it, and won’t sell it to me. Does the contract have no meaning? How do I buy this house? How do I even find out if it really is in foreclosure? Thank you, we’re so frustrated.

Brooks September 1, 2013 at 8:41 AM

Hey Karen,
In a short sale situation, even if buyer/seller agree on a price the bank must approve this sale (since they are taking the loss on the loan). It sounds like the bank didn’t approve and that they moved forward with a foreclosure. Yes, it will most likely be marketed with a different real estate agent. Best of luck!

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