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!)
I 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.
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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!
{ 15 comments… read them below or add one }
Whose side are you on? The homeowner or the bank?
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.
Great post, Brooks. Also, great answer to the question above. Personal responsibility. That’s all I have to say.
Well said Danny. Congrats to Danny on winning the best Real Estate Investing Blog of 2011!
Thank you. Next time, we need to make sure your blog is nominated.
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!
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.
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!
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?
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!
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!
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…..
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!
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
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?
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.
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!