Redemptive Period

[Jason Burton]

I don't know hardly anything about foreclosures and I haven't found the answer in the forums yet. I have found a property that would be a great deal (#s look great, due diligence still needed). But I was told by the listing agent that in the state of Alabama (and it might be this way in a lot of places, I'm not familiar though) there is a law that lets the previous owner of a property reclaim the property for up to one year if they can afford to get current on their mortgage. This is called a redemption period. This just makes me uncomfortable thinking about what could happen if someone tried to reclaim a property after I purchase it and do any upgrades or rehab. Anyone have any insight about this? Are there any methods to protect yourself if you purchase the property while it's still in the "redemption period"? Has anyone purchased a property while it was still redeemable? If anyone knows of any threads deep in the BP archives related to this please post the link.

[Dion DePaoli]

In the state of Alabama, the redemption period is post foreclosure sale for 1 year. For the record, Florida's redemption period is prior to sale, it is not non-existent. It is different in each state.

Alabama has rules protecting the purchaser of a foreclosed property and the investment they made allowing for the following:

1. The purchase price paid at foreclosure sale, plus interest (at the rate allowed to be charged on money judgments, which is currently 12%);
2. Permanent improvements to the real property;[11]
3. Taxes paid or assessed;
4. All insurance premiums paid or owned by the purchaser;
5. Any other valid lien paid or owned by the purchaser, or if the redeeming party is a judgment creditor or junior mortgagee (or any transferee thereof), then all recorded judgments, recorded mortgages and recorded liens having a higher priority in existence at the time of sale which are revived;
6. If the redemption is made from a person who, at the time of redemption, owned the debt for which the property was sold, the redemptioner must also pay the balance due on the debt, with interest; and,
7. All mortgages made on the real property by the purchaser to the extent of the purchase price paid at foreclosure sale

So in short, you will not loose your money and could make a couple bucks on the interest. The risk would be if you improve the property and then take out a loan exceeding your total investment. The redeemer would not have to pay for that.

One other side note, the parties that can redeem are not limited to the borrower who was foreclosed. Junior lien holders have an established interest in the property and have a right of redemption as well.