Foreclosure is actually a good money making business in the world of real estate. Investors are making millions off foreclosure properties. Unfortunately they are thriving off individuals who are losing their homes. Below is a brief guide on foreclosure by power of sale 101.
Generally, a person can loan some amount against his property to a bank or other lending institution. The higher the market value of the property, the higher the loan amount will be. As soon as the contract is sealed, the mortgage loan is issued. This gives the lender the right to foreclose on the property if the money is not paid according to the loan terms.
The right of redemption is given to the property owner to redeem his or her foreclosed property back from the person who purchased it at the foreclosure sale. Many homeowners do not understand their redemption rights after a foreclosure. As a result they often miss the opportunity to buy their home back after the foreclosure auction.
Right of Redemption is totally different from the right of reinstatement because:
- The homeowner may still have a chance to redeem the property back, provided it is sold by judicial foreclosure.
- While the homeowner can reinstate their mortgage by paying the delinquencies, the redemption involves paying the redemption price, which means paying the outstanding principal balance including other fees and charges.
- A homeowner cannot invoke this right over his or her property at a trustee’s sale or sold under a trustee’s sale.
In other words, it is only under judicial foreclosure that the right of redemption can be called. This is the reason why judicial foreclosure is less preferred by lenders. In addition, it makes the house in question hard to sell since it is being held until the expiration of the redemption period.
How long can a redemption period last?
Redemption periods change from state to state. The calculation would be base on the home’s value when sold, and whether the proceeds of the sale are enough to pay off the secured debt on the property. If it is, the redemption period will last for 3 months, otherwise, 12 months. There are states that allow the extension of a redemption period if the foreclosure is found faulty or has resulted from fraud.
What Exactly Has to be Paid to Reclaim a Home with Redemption Rights?
The redemption price must be paid in order to redeem the foreclosed house. The original homeowner must pay the buyer the outstanding balance or the principal mortgage amount, including the taxes, costs and interest.
Redemption Rights As Seen by Foreclosure Investors
The original property owner can still buy the property back as long as the redemption value is produced. Before you purchase a foreclosed home, you need to know how long the redemption period will take. In some states, as soon as the property is purchased, the original homeowner has lost their right to buy the property back. If this is the case, your investment is safe and you can move on putting it on the market again. But, since it usually will take 12 months by most state’s laws, the original homeowner will have plenty of time to pay the redemption price which puts your investment at risk.
If possible eliminate this risk by buying the redemption rights from the homeowner either before the auction or shortly after. Foreclosed homeowners are typically in financial trouble, so your luck in negotiating might prove fruitful.
If you are a homeowner facing foreclosure or plan on investing in a foreclosure, knowing how the process works for both parties is essential. I urge you to speak with a professional and get familiar with your state’s laws