A redemption period, period of redemption, or simply redemption, is a period after a borrower defaults on their mortgage debt[1]. While a borrower doesn’t necessarily avoid foreclosure during this window, they can still reclaim their property before the foreclosure process starts or at times, even after the foreclosure sale has been made[2].

When a defaulting homeowner redeems the mortgage, they will pay off the entire balance of the mortgage plus associated fees.

Every borrower possesses the right of redemption, but not all are entitled to redeem their foreclosed houses once sold to the highest bidder.

Typically, buyers in a foreclosure sale dislike the right of redemption since this legal process keeps the property title from being transferred to them immediately.

Therefore, a real estate investor who wants a foreclosed property bad enough might drive the price above market value to make it more expensive for the mortgagor to redeem[3].

The two types of the right of redemption are equitable and statutory.

Equitable Right of Redemption

The equitable right of redemption applies before the foreclosure sale occurs. Though foreclosure notices may have already been served, the defaulting party has the legal right to stop foreclosure by paying off what is owed on the property plus interest and all applicable fees.

To exercise this right, the mortgagor must know the total amount to be paid. The payoff letter or statement from the foreclosing lender states this figure. This document may include disputable charges, which must be corrected before the mortgage holder can claim their right of redemption.

For this reason, anyone planning to redeem a foreclosed property should act as soon as possible. Ironing out payoff letter disputes can take some time, and the foreclosure process does not last indefinitely.

If no agreement was reached with the mortgage company when the date of foreclosure sale arrived, the mortgagor would lose the right of redemption.

Statutory Right of Redemption

The statutory right of redemption, on the other hand, kicks in after the foreclosure sale happens. Instead of zeroing out the full mortgage balance plus interest and all applicable fees, one may have to reimburse the winning bidder for the purchase price.

Since this type of redemption is based on statutes and not on equitable principles, its availability differs from state to state.

In other words, not every homeowner across the United States has the right to buy back their seized property before and after the foreclosure sale.

State laws define which foreclosure method[4] can be used (i.e., judicial foreclosure or non-judicial foreclosure) and its restrictions.

RELATED: The Full List of All Judicial and Non-Judicial Foreclosure States in the U.S.

BY THE NUMBERS: Less than 50% of U.S. states permit defaulting mortgagors to reclaim their property after a foreclosure sale within a certain period.

Source: AllLaw

The length of a redemption period in the states that allow such a foreclosure process varies. In general, the right of redemption can last up to one year.

That said, different factors could expand or shorten its duration.

For instance, borrowers can have more time to redeem when:

• The lender seeks a deficiency judgment[5].
• The unpaid mortgage was used to finance the house.
• The underlying debt has been paid off to a certain degree.
• The lender directly purchases the foreclosed property.

Conversely, the length of the redemption period may become shorter when the borrower defaults and abandons the property.

Reclaiming a house after the foreclosure auction may not be an option when the signed loan documents waive the mortgagor’s right of redemption. Moreover, the nature of the foreclosure can determine whether a post-sale redemption period even exists.

In states with statutory redemption laws like Alabama, Florida, Maryland, and Wyoming[6], buyers usually avoid foreclosed properties with the right of redemption attached to them. This is due to the waiting time associated with the redemption period and the prospect of losing the house to its defaulting owner even after the foreclosure sale is complete.

What Is the Borrower Allowed to Do During the Entire Redemption Period?

The defaulting party does not have to vacate the property during the redemption period. Technically, the foreclosed house does not belong to the winning bidder until the title changes hands.

While the foreclosure process is still ongoing, the mortgaged property is still the borrower’s home.

Should the borrower choose to, they can leave before the redemption period is up, but there is no incentive to do so.

Defaulting homeowners may use this time to mull their options:

• They can choose to stay and exercise their right of redemption.
• Use the time to find a more affordable place to live.
• Provide temporary respite to allow them to recover financially.

A cash for keys approach[7] may also benefit both parties. The homeowner can accept cash from the winning bidder to voluntarily vacate the property without waiting for the redemption period to expire.

This foreclosure action helps borrowers soften the financial burden of losing a foreclosed home. The buyer pays a little more money in the long run, but a good property might be worth the added cost for some real estate investors.

Redemption and reinstatement are similar concepts, but the difference is that redemption requires paying off the entire mortgage balance (plus fees), while reinstatement only brings the mortgage current.

Reinstating a mortgage involves making a lump-sum mortgage payment on or before the deadline specified by the state law, mortgage or deed of trust, or lender. Apart from the missed payments, the borrower has to take care of the fees and expenses incurred by falling into arrears on the loan[8].

Once the delinquent mortgage is reinstated, the foreclosure process stops and the borrower resumes regular monthly payments.

Reinstatement can be more manageable than redemption. After all, paying past dues plus late fees is more doable than reducing the entire debt to zero in one fell swoop.

Recovering a mortgage loan will not suddenly reverse the negative effects of late payments on one’s credit scores[9]. Nevertheless, reinstating a delinquent mortgage is an opportunity to repair the damage to one’s credit. Avoiding missing payments again can improve creditworthiness in the long run[10].

Unfortunately, reinstatement can still be too expensive for homeowners experiencing financial difficulties. Many defaulting borrowers are so cash-strapped that they cannot halt the foreclosure process even if they have positive equity.

BY THE NUMBERS: Nearly 28% of mortgage borrowers facing foreclosure have more than 50% equity on their properties.

Source: CNBC

• A redemption period is the time a homeowner in foreclosure has to buy back the house (i.e., pay the entire mortgage balance plus fees) after getting sold at an auction.
• All home loan borrowers have the right of redemption before a foreclosure sale, but not every state allows mortgagors to reclaim the property after a successful auction.
• During the redemption period, the homeowner can stay in the house and sell redemption rights to the winning bidder.
• Reinstatement is a cheaper alternative to redemption to stop a foreclosure, which only involves bringing the mortgage current and associated fees incurred with late payments.

1. Martin, E. (2021, August 18.) What is a mortgagor vs. mortgagee? Bankrate. Retrieved from https://www.bankrate.com/mortgages/mortgagor-vs-mortgagee/
2. You Have One Job: The Narrow Duty of a Trustee Under a Deed of Trust. (2019, September 10.) Deeds.com. Retrieved from https://www.deeds.com/articles/you-have-one-job-the-narrow-duty-of-a-trustee-under-a-deed-of-trust/
3. Lynne, R. (n.d.) What Does the Right of Redemption Mean in Real Estate? SF Gate. Retrieved from https://homeguides.sfgate.com/right-redemption-mean-real-estate-96342.html
4. Judicial vs. Non-Judicial Foreclosure. (2022, October 18.)  Justia. Retrieved from https://www.justia.com/foreclosure/judicial-vs-non-judicial-foreclosure/
5. Deficiency Judgments After Foreclosure. (2018, July 26.) NY CourtHelp. Retrieved from https://www.nycourts.gov/Courthelp/Homes/foreclosureDeficiency.shtml
6. Loftsgordon, A. (n.d.) Key Aspects of State Foreclosure Law: 50-State Chart. Nolo. Retrieved from https://www.nolo.com/legal-encyclopedia/50-state-chart-key-aspects-state-foreclosure-law.html
7. What Are My Rights During the Redemption Period? (2014, July.) Legal Aid of Western Michigan. Retrieved from https://static1.squarespace.com/static/53c5b05ee4b0caa47b29a446/t/53ed2792e4b04a8ebc036b62/1408051090225/redemption+period+and+sale+FAQ-June-2014.pdf
8. Hammer, S. (2021, July 13.) What You Need To Know About Late Mortgage Payments. LendingTree. Retrieved from https://www.lendingtree.com/home/mortgage/late-mortgage-payment/
9. Mahuron, S. (n.d.) How Does a Re-instated Loan Affect Your Credit? The Nest. Retrieved from https://budgeting.thenest.com/reinstated-loan-affect-credit-21364.html
10. Stolba, S. (2017, May 31.) What Affects Your Credit Scores? Experian. Retrieved from https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-affects-your-credit-scores/