Comments on: "Right of redemption"?

Question: "Right of redemption"?

jca — Thu, 25 Aug 2005 13:56:53 -0800

Looking at houses to buy. The property I just looked at has a "right of redemption" attached to it. What does that mean exactly and should that affect my decision in buying that house?

Is this something to avoid -- foreclosed property under "right of redemption"?

By: elquien

elquien — Thu, 25 Aug 2005 14:05:43 -0800

A right of redemption means that the previous owner of the house was foreclosed on (presumably for not paying a judgment or taxes), and they have a certain period of time (prescribed by statute - usually either 6 months or 1 year) to "redeem" the house, i.e. buy the house back at the price that you paid.

So basically, you have a chance of losing the house in the next year or so. I think the money paid by the former owner would go to you, so you wouldn't be out any money, but it could be a huge pain in the butt.

By: elquien

elquien — Thu, 25 Aug 2005 14:06:57 -0800

I should note that while I'm an attorney, I don't practice in the real estate arena, so you might want to consult with someone who specializes in this area.

By: spacewrench

spacewrench — Thu, 25 Aug 2005 14:20:15 -0800

My mother just bid on (and won) a house that had an outstanding right of redemption. Apparently, the previous owner had sold his right of redemption to another person, and that person exercised it after the auction. My mom had to fork over the money she'd bid at the auction, and then permit the rights-holder to buy it from her by paying the price of the winning bid (plus interest) within a month or so.

Her lawyer said that people almost never exercise their rights, but this case was different: somebody else had purchased the rights, so it was more likely that the house would be redeemed.

The time period in which the right can be exercised is probably set by state law, and it's probably not that long -- otherwise, people would be unwilling to buy mortgage foreclosures because it would take too long to find out whether they could keep it. That would make foreclosures harder to sell, and would hurt banks. Obviously, legislators wouldn't stand for that.

If you really want the house, you might consider approaching the previous owner to purchase his right of redemption. Then, let somebody else buy it at the auction, or if nobody bids, make your own bid.

Buying foreclosures is different enough from buying a regular house that it's worth hiring a lawyer who's got experience at it. elquien is right about that (and everything else, too).

By: jca

jca — Thu, 25 Aug 2005 14:40:11 -0800

Hmm. Doesn't sound so good to this first time home buyer. ;)

By: spacewrench

spacewrench — Thu, 25 Aug 2005 14:51:22 -0800

Don't be put off -- you can get a good deal on a foreclosure. You just have to learn all you can about the process so you know what to expect and how to proceed. If you bid at an auction, you will probably be required to pay immediately, so you may have trouble arranging things if you need a mortgage. (Come to think of it, that might make buying the right of redemption more attractive -- let somebody else deal with bringing a huge cashier's check to the auction; you can force them to sell it to you a few days later, through a more traditional escrow.)

Figure out what the house would be worth to you if you bought it normally, then discount some for the extra hassle. If you can get it for that price or less, you win.

By: curlyelk

curlyelk — Thu, 25 Aug 2005 15:03:38 -0800

There are definately a lot of headaches involved with buying a foreclosed property. You should most certainly get a thorough inspection done prior to investing any money. Someone who can't afford a mortgage and/or tax payment can't afford the proper upkeep either.

By: jca

jca — Thu, 25 Aug 2005 15:05:12 -0800

This property isn't at auction. It's being listed by Coldwell Banker Premier in the local MLS. (I walked through it today.) I have no idea who the owner of the "right of redemption" is or any background on that aspect, which I'll need to ask about.

By: Mid

Mid — Thu, 25 Aug 2005 15:09:07 -0800

If you like the house and get comfortable on the legal aspects of the right of redemption, you should use the ROR as a bargaining issue when it comes to price. For instance, you could bid x% less because of the right of redemption. Or you could insist on a contract that provides you with a payment (say $5-10k) if the right of redemption is exercised. Your real estate lawyer should be able to draft something simple to make this happen.

In any event, you should get some sort of concession or compensation from the seller because of the clouded legal status.

By: fixedgear

fixedgear — Thu, 25 Aug 2005 16:20:21 -0800

you could insist on a contract that provides you with a payment (say $5-10k) if the right of redemption is exercised

Except that if the property has been foreclosed on, the bank or mortgage company owns it and would never agree to such a stpulation. They'd just find another buyer.