What is Right of Redemption?
Right of redemption is the legal right of a property owner to reclaim their property after foreclosure by paying the full amount owed (the foreclosure sale price plus certain costs). This right exists in some form in most states, though the specifics — when it applies, how long it lasts, and what must be paid — vary significantly by jurisdiction.
For real estate investors who buy foreclosed properties at auction or through sheriff's sales, the right of redemption creates a period of title uncertainty. Even after you've purchased the property and paid in full, the former owner may have the legal right to reclaim it for months or even years. This risk directly affects how you price foreclosure acquisitions and what you can do with the property during the redemption period.
Types of redemption rights
Equitable right of redemption (pre-sale): This right exists in virtually all states and allows the borrower to stop the foreclosure process by paying the full amount owed (all past-due payments, fees, and costs) before the foreclosure sale occurs. The cure rights during the default period are part of this equitable redemption right. Once the borrower brings the loan current, the foreclosure stops and the property is no longer at risk.
Statutory right of redemption (post-sale): This is the more significant right for investors. In states that recognize it, the former owner can reclaim the property even after the foreclosure sale has occurred by paying the foreclosure sale price plus specified costs (which may include interest, taxes, and reasonable improvements made by the purchaser). The statutory redemption period varies by state.
State-by-state variation
| State | Post-sale redemption period |
|---|---|
| Texas | None for most residential (180 days for tax sales) |
| Alabama | 12 months |
| Illinois | None (7 months pre-sale right only) |
| Minnesota | 6 months (12 months for properties over 10 acres) |
| Michigan | 6 months (1 year if balance > 2/3 of original loan) |
| Kansas | 12 months |
| California | None for trustee sale (1 year for judicial foreclosure) |
Texas investors benefit from having no post-sale redemption right for most residential foreclosures, which means the purchaser at auction gets clear title immediately. However, Texas tax sale purchases do carry a 180-day redemption period (2 years for homestead properties and certain agricultural land), during which the former owner can redeem by paying the purchase price plus 25% (or 50% if redeemed after the first year).
Impact on foreclosure investors
In states with long redemption periods, investors face several challenges: they can't sell the property with clean title until the redemption period expires, they may be unable to obtain title insurance during the redemption period, they bear the risk that the former owner will redeem and they'll lose any improvements they've made, and they typically can't evict the former owner during the redemption period in some states.
These factors should be priced into your bid at the foreclosure auction. A property in a state with a 12-month redemption period needs to be purchased at a larger discount than an identical property in a no-redemption state, because you're tying up capital for a year with the risk of losing the deal entirely.