What are Redemption Rights?
Many states have what are called "Redemption Rights", which allow a homeowner going through foreclosure to buy back their home after the sale is complete. What this means is that during a specific timeframe allowed by the state, you can come back with proper funds and get your home out of foreclosure.
This might be done through a mortgage investor or by obtaining a Quick Claim Deed from the buyer allowing you to redeem the property yourself.
The homeowner can waive a right to redemption or after the completion of the foreclosure if written consent is received by the court clerk, however, only if the lender waives the right to a deficiency.
One example would be the state of Illinois where the homeowner has the right to redeem within seven months starting from the date when the foreclosure lawsuit was filed or three months after the court entered the judgment. In addition, the court has the right to extend the redemption if they choose. A foreclosure attorney can answer any questions relating to your specific state.
Another factor to consider is bankruptcy. Whether or not there is a bankruptcy involved, there has to be a notice of intent to redeem the property filed with the court. In most cases, this timeframe is five days before any redemption rights can be exercised. The court then determines what amount will be required to redeem the property, which must be paid directly to the court clerk who then provides you with a receipt for that amount. The lender will then be required to provide you with a release of mortgage or satisfaction of judgment and as long as the court does not object, the price is set. If the court does object, then a hearing is held making a ruling on the objection. The homeowner is then given the opportunity to redeem at the price the lender tried to sell the property for.
Redemption rights provide great benefits to both you as the taxpayer and the Government. If a homeowner defaults on the mortgage payments and there is an IRS tax lien on the property, then the Government has the right to come in and exercise that lien. In other words, they can go directly to the person that purchased the home during the foreclosure sale and buy it from them. The IRS is thereby redeeming the property and recouping the value of their lien as well as any expenses associated with the sale. In addition, any remaining money is paid back to the taxpayer - you!
According to the Department of Treasury - Internal Revenue Service:
Redemption Rights: The rights of redemption, as specified in Internal Revenue Code Section 6337, are quoted as follows:
Sec. 6337. Redemption of Property
(a) Before Sale. - Any person whose property has been levied upon shall have the right to pay the amount due, together with the expenses of the proceeding, if any, to the Secretary at any time prior to the sale thereof, and upon such payment the Secretary shall restore such property to him, and all further proceedings in connection with the levy on such property shall cease from the time of such payment.
(b) Redemption of Real Estate after Sale
(1) Period. - The owners of any real property sold as provided in Section 6335, their heirs, executors, or administrators, or any person having any interest therein, or a lien thereon, or any person in their behalf, shall be permitted to redeem the property sold, or any particular tract of such property at any time within 180 days after the sale thereof.
(2) Price. - Such property or tract of property shall be permitted to be redeemed upon payment to the purchaser, or in case he cannot be found in the county in which the property to be redeemed is situated, then to the Secretary, for the use of the purchaser, his heirs, or assigns, the amount paid by such purchaser and interest thereon at the rate of 20 percent per annum.
The bottom line is that if you are going through a foreclosure or know of someone who is, redemption rights give you another opportunity to save your home.