Some states make it possible for you to save your home after foreclosure, but the process is far from realistic for many homeowners. It's called a right of redemption, and it typically involves coming up with a great deal of cash or financing. If you were able to do this, you would have been able to avoid foreclosure to begin with. The option sometimes exists nonetheless, although you're under no obligation to exercise it.
Right of Redemption
A right of redemption is your opportunity to buy your property back after it's been sold at a foreclosure auction. In states that recognize this right, the winning bidder has no guarantee that he can keep the property he's purchased until your redemption period expires. This could be anywhere from six months to a year, depending on your state – the amount of time is set by statute. Redemption typically isn't possible if your lender took your property in a non-judicial foreclosure. This type of foreclosure can occur because your mortgage or deed of trust included a power-of-sale clause, authorizing your lender to sell your property if you default. A judicial foreclosure requires that your lender seek the court's permission before it can foreclose, and this kind of foreclosure often involves rights of redemption afterward.
The exact procedure to redeem your home varies by state. Normally you have a limited period of time right after the sale during which you can notify the winning bidder that you want to exercise your right to redeem your home. This usually involves making a written demand for all charges that must be paid in order for you to reclaim the property. Although you might be able to redeem for the amount of the winning bid – not the amount of your outstanding mortgage – other fees are typically tacked on. These include interest and reimbursement to the winning bidder for any improvements he made to the property or any costs he incurred when he took possession. For example, if he paid property taxes or insurance, you'd have to pay him back for this. If you pay these sums during the redemption period, ownership of the home reverts to you.
Forfeiting Your Right
If you want to forfeit your right to redeem your property – or if it simply isn't possible for you to do so – you would simply do nothing. Don't make a written demand for charges from the buyer. If you take no action, your right to redeem automatically expires when the redemption period expires. If your state has a long redemption period, such as a year, it might be to your advantage not to take any decisive action to waive your redemption right. You would hate to do so, then win the lottery 11 months later.
Depending on your state's laws, you may or may not be able to remain in your home throughout the redemption period. Typically, you must vacate as soon as the winning bidder gives you notice to do so, or within a relatively short period of time after that. In some states, if you refuse to leave, you can forfeit your right to redemption even if you raise the money before the period expires. If your lender buys your home back at the auction, which sometimes occurs if no one else bids a satisfactory amount for the property, it might offer you cash for keys if you vacate willingly and leave the home in good condition. This money can help you get established somewhere else.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.