Mortgages/security devices - Redemption after foreclosure

Learning Outcomes

This article explains redemption after foreclosure, including:

• Distinguishing the equity of redemption from statutory redemption, placing each on the foreclosure timeline, and spotting when each right is available.
• Identifying who may redeem—mortgagors, junior lienholders, and sometimes purchasers—and determining what must be tendered under equitable versus statutory redemption.
• Evaluating how acceleration clauses affect the redemption amount and recognizing when tenders of only arrears are legally insufficient to stop foreclosure.
• Assessing foreclosure’s effect on the mortgagor’s title, properly joined and unjoined junior interests, senior interests, and the rights of foreclosure purchasers.
• Comparing states that recognize statutory redemption with those that do not, and determining who holds title and possession during any redemption period.
• Tracing the consequences of foreclosure and redemption for deficiency judgments, surplus proceeds, and remaining personal liability on the underlying mortgage note.
• Applying these doctrines to MBE-style fact patterns, avoiding common traps about post-sale rights, junior lienholder remedies, and the finality of foreclosure sales.

MBE Syllabus

For the MBE, you are required to understand mortgagor and lienholder rights surrounding foreclosure and redemption, with a focus on the following syllabus points:

• The equity of redemption: timing, requirements for payment, and limits on waiver.
• Statutory redemption: when it exists, how it operates, and the statutory redemption period.
• The effect of foreclosure on the mortgagor’s title and on junior versus senior interests.
• The relationship between foreclosure, redemption, and deficiency judgments.
• Rights of purchasers at foreclosure sales and consequences if junior interests are not joined.

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 usually allow the mortgagor to do?
   1. Set aside the foreclosure sale for any reason.
   2. Redeem the property by paying the foreclosure sale price (plus allowed costs) 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 that were properly joined?
   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 ability to redeem property in the face of foreclosure is a classic MBE topic. You must track exactly when redemption is available, what must be paid, and whose interests are affected before and after the foreclosure sale. You also need to separate two distinct concepts: the equity of redemption (a common-law right that always exists before the sale) and statutory redemption (a post-sale right that exists only if a statute creates it).

Key Term: Foreclosure
The legal process by which the mortgagee (or deed-of-trust beneficiary) causes the property to be sold, usually at a public sale, to satisfy the debt. Foreclosure generally cuts off the mortgagor’s interest and all properly joined junior interests.

Key Term: Equity of Redemption
The mortgagor’s common-law right (also called equitable redemption) to prevent foreclosure by paying the amount required to cure the default—typically the full accelerated debt, plus interest, fees, and costs—at any time up to the foreclosure sale.

Key Term: Statutory Right of Redemption
A right created by statute in some states that allows the mortgagor (and sometimes certain lienholders) to regain title after a completed foreclosure sale by paying the statutorily required sum (commonly the foreclosure sale price plus interest and costs) within a fixed period.

Key Term: Junior Interest
Any lien or interest (e.g., a second mortgage or judgment lien) that is subordinate in priority to the mortgage being foreclosed. Properly joined junior interests are usually wiped out by the foreclosure sale.

The exam frequently tests whether you can locate the fact pattern in the foreclosure timeline and then identify whether only equity of redemption, only statutory redemption, both, or neither is available.

Equity of Redemption (Equitable Redemption)

At common law, every mortgagor has the right to redeem the property from the mortgage by paying what is owed before the foreclosure sale occurs. This is the equity of redemption, and it exists in every state regardless of whether the state has any statutory redemption.

• The right arises once a mortgage (or similar security device) is given and continues until the foreclosure sale.
• It applies to any security device treated as a mortgage (e.g., deed of trust, installment land contract treated as an equitable mortgage).

Key Term: Acceleration Clause
A mortgage provision that allows the lender, upon default, to declare the entire loan balance immediately due and payable. If properly invoked, the mortgagor must usually pay the full accelerated debt to redeem under the equity of redemption.

What must be paid to redeem before sale?

• If there is a valid acceleration clause and the lender has accelerated the loan, the mortgagor must usually pay:
  • The full outstanding principal, plus
  • Accrued interest, and
  • Reasonable fees and foreclosure costs.
• If there is no acceleration (or the lender has not exercised it), some jurisdictions allow redemption by paying only the amount in default (missed payments plus interest and costs).

On the MBE, if the fact pattern mentions acceleration, assume that full payment of the debt is required to exercise the equity of redemption.

No partial redemption

Equity of redemption is an all-or-nothing right:

• The mortgagor (or co-owners) cannot redeem only a fraction of the mortgage indebtedness to free a partial interest in the property.
• Any redemption pays off the mortgage as to the entire property; co-owners sort out contribution among themselves.

Who may exercise the equity of redemption?

• The mortgagor (owner).
• Anyone with an interest subordinate to the mortgage (e.g., a junior mortgagee or judgment lienholder) may redeem to protect that interest by paying off the senior mortgage in full.

Key Term: Clogging the Equity of Redemption
Any attempt by the lender, in the original mortgage or related instruments, to waive or unduly burden the mortgagor’s equity of redemption (e.g., a clause stating “borrower waives all rights to redeem”) is called “clogging” and is generally invalid.

Courts closely scrutinize provisions that effectively prevent redemption. A term in the original mortgage by which the borrower purports to waive the equity of redemption is usually void as contrary to public policy.

Key Term: Deed in Lieu of Foreclosure
A voluntary conveyance by the mortgagor to the lender of all the mortgagor’s interest in the property in exchange for the lender’s agreement to cancel the mortgage debt, thereby avoiding formal foreclosure.

A deed in lieu is not clogging if negotiated after default, with full information and fair terms; it is simply a consensual alternative to foreclosure. The mortgagor cannot be forced to give such a deed.

Statutory Right of Redemption

Many—but not all—states create a statutory right of redemption that survives the foreclosure sale for a short time. The MBE will tell you if such a statute exists.

Key Term: Statutory Redemption Period
The limited time after a foreclosure sale during which the mortgagor (and in some states certain lienholders) may redeem under a statutory right of redemption, usually by paying the foreclosure sale price plus interest and costs.

Key features (for exam purposes):

• Exists only if a statute grants it. In states with no statutory redemption, the mortgagor’s rights end at the sale.
• Runs after the foreclosure sale, typically for six months to one year, but the exact period is jurisdiction-specific.
• The redeeming party usually must pay:
  • The foreclosure sale price, plus
  • Statutory interest and allowed costs.
• Redemption under the statute divests the purchaser’s title and restores title to the redeeming party.

Some statutes also allow junior lienholders to redeem during the statutory period, either from the foreclosure purchaser or from a redeeming mortgagor, stepping into the foreclosing mortgagee’s position.

Effect of Foreclosure on Redemption Rights

Once the foreclosure sale is complete:

• The equity of redemption is extinguished.
  In every state, the mortgagor cannot rely on equity of redemption after the sale.
• Only a statutory right of redemption (if any) survives the sale.

Key Term: Foreclosure Sale Purchaser
The person or entity (often the lender) who acquires title at the foreclosure sale, subject to any surviving senior interests and any statutory right of redemption.

In a state without statutory redemption:

• The purchaser at the foreclosure sale takes title free of the mortgagor’s rights.
• The mortgagor cannot later compel reconveyance by tendering the debt.

In a state with statutory redemption:

• The purchaser holds title subject to the mortgagor’s statutory redemption right for the duration of the statutory redemption period.
• If the mortgagor redeems within that period, the purchaser must surrender title and, in most states, possession.

Effect on Junior and Senior Interests

As to other interests in the property:

• Senior interests (those recorded or attached before the foreclosed mortgage) are not affected by the foreclosure of a junior mortgage; the buyer takes subject to them.
• Junior interests (those recorded after the foreclosed mortgage) are:
  • Eliminated by foreclosure if properly joined in the action.
  • The holder loses its lien on the land but may still sue the mortgagor personally on the promissory note.
  • Entitled to share in any surplus after the foreclosing lender is paid.

If a junior interest is not joined in the foreclosure:

• That junior lien survives, and the buyer takes the property subject to that junior interest.
• The junior lienholder can later foreclose, subject to any senior interests.

Junior lienholders also have their own redemption rights:

• Before the foreclosure sale, a junior lienor can redeem the senior mortgage by paying it off to protect its position.
• In statutory redemption states, statutes often allow junior lienors to redeem during the statutory redemption period as well.

Redemption and Possession

In many statutory redemption states:

• The mortgagor may remain in possession during the statutory redemption period.
• The foreclosure purchaser does not obtain an unqualified right to possession until the period expires without redemption.

However, jurisdictional rules vary. If the exam cares about who has the right to possession during the statutory redemption period, the fact pattern will usually signal the rule.

Redemption and Deficiency Judgments

Key Term: Deficiency Judgment
A personal judgment against the mortgagor for the difference between the total mortgage debt and the foreclosure sale proceeds when the sale price is insufficient to satisfy the debt.

Although deficiency judgments primarily concern lender remedies rather than redemption, the topics interact:

• If the foreclosure sale price is less than the debt, the lender may seek a deficiency judgment (subject to any anti-deficiency statute).
• If a mortgagor later exercises statutory redemption by paying the foreclosure sale price, that payment goes to the purchaser. Whether an existing deficiency judgment is affected depends on the statute and is rarely tested in detail on the MBE.

For MBE purposes, focus on:

• Foreclosure primarily affects interests in the land.
• Redemption (equitable or statutory) changes who owns the land, not automatically whether the mortgagor still owes money personally, unless the facts or statute specify otherwise.

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, the homeowner’s equity of redemption is extinguished. In a state with no statutory redemption, there is no post-sale right to redeem, so she cannot compel the purchaser to reconvey the property, even if she tenders the full debt plus costs.

Worked Example 1.2

A mortgagor in a state with a one-year statutory redemption period loses his property at a foreclosure sale. The property sells for $300,000. Six months later, he tenders the full sale price plus statutory interest 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 (plus any required interest and costs) within the statutory redemption period. Redemption divests the purchaser’s title and restores ownership to the mortgagor.

Worked Example 1.3

Owner gives Bank a mortgage on Blackacre with a valid acceleration clause. After default, Bank accelerates the loan and schedules a foreclosure sale for July 1. Owner tenders the missed payments, plus interest and costs, on June 25, but not the remaining principal. Bank refuses to stop the sale. Is Owner entitled to redeem and halt the foreclosure?

Answer:
No. Because Bank validly exercised an acceleration clause, the entire loan balance became immediately due. Under the equity of redemption, Owner must tender the full accelerated debt (principal plus interest and costs) before the foreclosure sale to redeem. Paying only the missed installments is insufficient, so Bank can proceed with the sale.

Worked Example 1.4

Owner gives First Bank a mortgage, then later gives Second Bank a junior mortgage. Owner defaults on the First Bank mortgage. First Bank properly joins Second Bank and forecloses. The foreclosure sale pays First Bank in full, but nothing is left for Second Bank. Six months later, in a jurisdiction with a one-year statutory redemption period, Second Bank tenders the foreclosure sale price to the purchaser. Can Second Bank redeem?

Answer:
Yes, if the jurisdiction’s statute grants junior lienholders a statutory right of redemption. Because Second Bank was a properly joined junior mortgagee, its lien was cut off by the sale, but the statute may permit it to redeem by paying the foreclosure sale price within the statutory redemption period. In that event, Second Bank takes title and effectively steps into the purchaser’s shoes.

Exam Warnings

On the MBE, be careful to distinguish:

• Equity of redemption: exists in every state, but ends at the foreclosure sale. It usually requires payment of the full accelerated debt, not just missed installments.
• Statutory redemption: exists only if the question says so and operates after the sale, typically by paying the sale price, not the original loan amount.

Common traps:

• A question that says, “The jurisdiction does not recognize statutory redemption.” In that case, no post-sale redemption is available.
• A mortgagor offering to pay only arrears when the loan has been accelerated; this does not satisfy equitable redemption unless the lender agrees.
• Confusing rights of junior lienholders (which are wiped out by a properly conducted foreclosure) with rights of senior lienholders (which survive).

Revision Tip

When analyzing a foreclosure fact pattern, identify:
(1) Is the sale completed?
(2) Does the jurisdiction provide statutory redemption?
(3) Is the party trying to redeem a mortgagor or a junior lienholder?
Your answers determine which redemption rights, if any, still exist.

Key Point Checklist

This article has covered the following key knowledge points:

• The equity of redemption allows the mortgagor (and junior lienholders) to redeem before the foreclosure sale by paying the amount required, usually the full accelerated debt plus interest and costs.
• The equity of redemption cannot be cloggled or waived in the original mortgage; courts invalidate attempts to “clog” the equity of redemption.
• A deed in lieu of foreclosure is a negotiated alternative where the mortgagor conveys title to the lender in exchange for release from the debt; it is not a waiver of future redemption rights in the original transaction.
• After foreclosure, the equity of redemption is extinguished; no redemption is available unless a statutory right exists.
• Statutory redemption (if provided) allows post-sale redemption within a statutory redemption period, usually by paying the foreclosure sale price plus interest and costs.
• Foreclosure eliminates the mortgagor’s interest and properly joined junior interests; the purchaser takes title free of those junior interests but subject to senior interests and any statutory right of redemption.
• Junior lienholders may protect their interests by redeeming the senior mortgage before the sale and may sometimes redeem during the statutory redemption period, depending on the statute.
• A deficiency judgment is separate from redemption and concerns the lender’s ability to recover any unpaid balance after foreclosure; redemption primarily affects title, not personal liability.
• On the MBE, carefully read whether the jurisdiction recognizes statutory redemption and whether an acceleration clause has been exercised, as these facts determine the amount necessary to redeem and whether redemption is still possible.

Key Terms and Concepts

• Equity of Redemption
• Statutory Right of Redemption
• Statutory Redemption Period
• Foreclosure
• Foreclosure Sale Purchaser
• Junior Interest
• Acceleration Clause
• Clogging the Equity of Redemption
• Deed in Lieu of Foreclosure
• Deficiency Judgment