Mortgages/security devices - Redemption after foreclosure

Learning Outcomes

After reading this article, you will be able to explain the right of redemption after foreclosure, distinguish between equity of redemption and statutory redemption, and analyze the consequences of foreclosure on the mortgagor’s rights. You will be able to apply these principles to MBE-style questions and avoid common pitfalls regarding post-foreclosure rights.

MBE Syllabus

For MBE, you are required to understand the legal principles governing a mortgagor’s right to redeem property after foreclosure. This includes:

  • The distinction between the equity of redemption and statutory redemption.
  • The effect of foreclosure on the mortgagor’s rights and junior interests.
  • The limitations on redemption after foreclosure.
  • The impact of foreclosure sale on the title and the possibility of redemption in various jurisdictions.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which of the following best describes the mortgagor’s right to redeem the property after a foreclosure sale in a state with no statutory redemption?
    1. The mortgagor may redeem at any time after foreclosure.
    2. The mortgagor may redeem only before the foreclosure sale is completed.
    3. The mortgagor may redeem only with the lender’s consent.
    4. The mortgagor may redeem at any time within one year after foreclosure.
  2. In a state that recognizes statutory redemption, what does this right allow the mortgagor to do?
    1. Set aside the foreclosure sale for any reason.
    2. Redeem the property by paying the foreclosure sale price within a statutory period after the sale.
    3. Redeem the property only before the foreclosure sale.
    4. Redeem the property by paying the original loan amount at any time.
  3. After a foreclosure sale, which of the following is true regarding junior interests?
    1. All junior interests are automatically reinstated.
    2. Junior interests are eliminated if they were joined in the foreclosure.
    3. Junior interests remain unaffected.
    4. Junior interests become senior interests.

Introduction

A mortgagor’s right to redeem property after foreclosure is a frequently tested area on the MBE. Understanding when and how redemption is available, and the effect of foreclosure on both the mortgagor and junior interests, is essential for exam success. This article explains the difference between equity of redemption and statutory redemption, and clarifies what happens to the right to redeem once foreclosure is complete.

Equity of Redemption

Before foreclosure, the mortgagor has the right to redeem the property by paying the full amount due, including interest and costs. This right is called the equity of redemption and exists in every state. The mortgagor may exercise this right at any time before the foreclosure sale is completed.

Key Term: Equity of Redemption The mortgagor’s right to redeem the property by paying the full debt, interest, and costs at any time before the foreclosure sale is finalized.

Statutory Right of Redemption

Some states provide a statutory right of redemption that allows the mortgagor (and sometimes junior lienholders) to redeem the property even after the foreclosure sale, for a limited period (often six months to one year). To redeem, the mortgagor must pay the foreclosure sale price, not the original debt.

Key Term: Statutory Right of Redemption A right granted by statute in some states allowing the mortgagor to reclaim the property after foreclosure by paying the foreclosure sale price within a set period.

Effect of Foreclosure on Redemption

Once the foreclosure sale is complete, the equity of redemption is extinguished. In states without statutory redemption, the mortgagor cannot redeem the property after the foreclosure sale. In states with statutory redemption, the mortgagor may redeem only within the statutory period and only by paying the sale price.

Key Term: Foreclosure The legal process by which the mortgagee sells the property to satisfy the debt, extinguishing the mortgagor’s right to redeem unless a statutory right exists.

Effect on Junior Interests

Foreclosure generally eliminates all junior interests (such as second mortgages or judgment liens) if they are properly joined in the foreclosure action. The purchaser at the foreclosure sale takes title free of these junior interests.

Key Term: Junior Interest An interest in the property (such as a second mortgage) that is subordinate to the foreclosed mortgage and is usually eliminated by foreclosure if joined in the action.

Worked Example 1.1

A homeowner in a state with no statutory redemption defaults on her mortgage. The lender forecloses, and the property is sold at auction. One month after the sale, the homeowner offers to pay the full debt plus costs to redeem the property. Can she compel the purchaser to return the property?

Answer: No. Once the foreclosure sale is complete in a state without statutory redemption, the equity of redemption is extinguished. The homeowner cannot redeem the property after the sale.

Worked Example 1.2

A mortgagor in a state with a one-year statutory redemption period loses his property at a foreclosure sale. Six months later, he tenders the full sale price to the purchaser. Must the purchaser return the property?

Answer: Yes. In a state with statutory redemption, the mortgagor may redeem the property by paying the foreclosure sale price within the statutory period after the sale.

Exam Warning

On the MBE, be careful to distinguish between the equity of redemption (which ends at the foreclosure sale) and statutory redemption (which may continue after the sale, but only if provided by statute). Do not confuse the two.

Revision Tip

If a question specifies that the jurisdiction does not recognize statutory redemption, redemption after foreclosure is not available.

Key Point Checklist

This article has covered the following key knowledge points:

  • The equity of redemption allows the mortgagor to redeem before the foreclosure sale by paying the full debt, interest, and costs.
  • After foreclosure, the equity of redemption is extinguished; redemption is not available unless a statutory right exists.
  • Statutory redemption allows the mortgagor to redeem after foreclosure by paying the sale price within a statutory period, but only if state law provides.
  • Foreclosure eliminates junior interests if they are joined in the action.
  • The purchaser at a foreclosure sale takes title free of junior interests and the mortgagor’s right to redeem, unless statutory redemption applies.

Key Terms and Concepts

  • Equity of Redemption
  • Statutory Right of Redemption
  • Foreclosure
  • Junior Interest
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