Redemption after Sale of REO.

[James W.]

Hi guys - 

What happens if the foreclosed owner tried to redeem the property that I have bought from the lender?

The property is no longer with the lender - so does he take it back from me?

Does the owner pay the lender, or me?

Does the bank return me my purchase price?

Thanks.

[Denise Evans]

In Alabama, there are two different rules for redemption, depending on when the mortgage was originated. If the mortgage was originated before January 1, 2016, then:

• The borrower has one year from the foreclosure to redeem
• Redemption is the auction bid amount (whether by lender or 3rd party purchaser) plus 12% per annum interest
• Redemption also includes the VALUE of any improvements made after the foreclosure. This includes new construction, upgrades, additions and/or repairs, plus 12% interest. Note that it is the value of the improvements, not the cost.   Note also that if the auction credit bid by the bank was $100,000, but then an investor purchased from the bank for $125,000, the redemption price is $100,000 plus the extras described above. The investor just lost his $25,000.
• The redemption price tag also includes taxes and insurance paid or owed by the current owner.
• If the borrower makes written demand for redemption, the current owner has 10 calendar days within which to reply in writing with an itemized redemption amount. This means $A for principal, $B for improvements, $C for taxes, $D for insurance and $E for interest.  If the current owner misses his 10-day deadline, then he forfeits the right to collect for the improvements, but can still collect for other sums
• If the borrower disputes the value placed on the improvements, it has 10 calendar days to provide the current owner with the name and contact information for a referee selected by the borrower.  This begins what is called the Mandatory Binding Arbitration process.  There are no requirements for who can be a referee.  If the borrower misses his deadline, he forfeits the right to dispute the value placed by the investor on the improvements.  If the borrower writes a nasty letter and disputes the value and threatens 18 different kinds of repercussions, but does not identify a referee, that does not qualify as a legally valid dispute for purposes of redemption.
• Once the borrower names his referee, the current owner has 10 calendar days to name his own referee.  If the current owner misses his deadline, this is now his second opportunity to forfeit the right to recover for the value of the improvements.
• The two referees have 10 calendar days to agree on a value for the improvements. If they agree, both parties are stuck with that number. That's why it is called Mandatory Binding Arbitration. If they cannot agree, they must appoint an Umpire (tie breaker) within that same 10 days. If the referees cannot agree, and if they fail to appoint an umpire, there are no consequences to the parties. They can simply continue their negotiations, or sue each other.

If the mortgage was originated on or after January 1, 2016, then everything above is the same EXCEPT for the time limits for redemption.  In that case:

• For properties that had a homestead exemption in the ad valorem tax year of the foreclosure, certain notices must be sent to the borrower within specified time limits before the foreclosure. That same notice language must be included in the newspaper foreclosure notice.
• If the notices are done properly, the redemption period is only 180 days, not one year. If they are done improperly, then redemption continues until it is done properly, but no longer than 2 years.
• All other properties continue to enjoy a one-year redemption period.