Buying Right of Redemption

[Gary Houck]

Does anyone out there have experience buying the right of redemption from people that have had property sold at auction. Any advice on how to approach them? This is in KY if that helps.

[William D.]

Gary, I think this is a fascinating strategy. I have researched it in the past and just went through some of my old notes. It is difficult to talk on all points with respect to all states (title theory v. lien theory) and (judicial v. non-judicial).

Basically, what I came down to is that you start with the general premise that absent specific legislative restriction most property rights are alienable. This means there is a policy that you should be able to sell anything -- which would include redemption rights in this situation. However, you need to really step back and view in the abstract what you are actually buying when you purchase redemption rights.

When you give a mortgage deed to a lender you are basically giving them a bundle of rights and retain for yourself the equitable right of redemption. Thus, if you conveyed a quit claim deed to a 3rd party that person would only be getting what you own. And what do you own? The equitable right of redemption. The reason for this is because when you gave the mortgage deed you gave away your interests in the property subject to defeasance. The defeasance incident would be the redemption of the property. This gets complicated when you talk title theory v. lien theory. However, the basic point is that I think you can make the argument that you can convey redemption rights simply through a quit claim deed and don't need a special instrument to evidence your right to redeem.

The second point is the execution of proving standing to redeem. I would imagine a certified copy of your recorded quit claim deed should evidence standing in most judicial states. However, I would think you would some how have to become a party to that lawsuit. Perhaps just filing a motion to be made party defendant would suffice.

I think it is a very interesting strategy but when it comes down to it is it no different than trying to buy pre-foreclosures directly from homeowners (sounds less cutting edge when you put it that way). I would love to hear some stories of people successfully executing the strategy and redeeming as a 3rd party successor to the right of redemption. Unfortunately for me I never made it past the proverbial drawing board.