The process of homeowners losing their homes to foreclosure is initiated when they fall behind on their mortgage payments. During this process, the mortgage lender takes ownership of the property and then sells it at auction to recoup their losses. Even though the lender has already begun the foreclosure process, the homeowner still has the option to redeem the mortgage using the equity of redemption.
For instance, Mary has fallen behind on the payments for her mortgage. Thus the lender has decided to accelerate the loan, which means that the lender has asked that the whole amount be paid immediately. If the mortgage is not paid, the property will be put up for foreclosure. However, Mary can locate another source of funding to pay off the principal amount, the interest, and the charges associated with the equity of redemption. In other words, Mary may maintain property ownership if she pays the mortgage with monies obtained from another source. In addition, the statutory right of equity of redemption definition is recognized in several states. After the foreclosure sale, this allows the property's owner a limited period to reclaim the property by satisfying all of the claims and fees against it.
How Equity of Redemption Works
You are considered to have taken out a loan or mortgage when you made a down payment on a property rather than paying for it in full. The property serves as collateral for the mortgage. In other words, if you fail to make payments as agreed upon, the lender has the right to seize the property and sell it to recoup the money it invested.
If you think you cannot keep up with the payments on your mortgage, you should contact your lender as soon as possible. Many are prepared to work with you, particularly if you have extenuating circumstances such as a recent loss of employment or significant medical expenses. Lenders can sometimes recuperate their losses, although this is not the case in most cases. These days, most mortgages are guaranteed in some way, shape, or form by governmental or quasi-governmental organizations. Some examples of these organizations include the Federal Housing Administration (FHA), Fannie Mae, Freddie Mac, the Department of Agriculture (USDA), and the Department of Veterans Affairs (VA).
People can qualify for loans they otherwise would not be able to get without certain guarantees supplied to the lender, thanks to the guarantee provided by the government. Additionally, it assures that the lender will get either partial or whole relief if the borrower fails on the loan. The criteria that the lender uses to qualify the borrower and the conditions they impose on the borrower to get a loan must be met for the lender to be eligible for the guarantee. Lenders may impose the minimum amount that must be put down and a certain credit score is two examples of conditions.
When Things Go Wrong
Suppose a borrower falls into financial difficulties and cannot keep up with mortgage payments. In that case, the lender will sometimes issue a demand for payment in full or "accelerate" the mortgage. If the borrower can't keep up with the payments, the lender will "accelerate" the mortgage. This indicates that to prevent foreclosure, the borrower must either become current on past-due payments or pay the balance due.
Suppose the lender files a demand for full payment. In that case, the borrower can pursue additional financing and pay the outstanding debt in full, including any applicable interest and penalties. However, the borrower can "redeem" the property if they can come up with the necessary funds. If the borrower is experiencing financial difficulties, it is quite improbable that they will be able to locate a financing source that would assist them in paying off the debt of equity right of redemption.
Houses seized by the government
Some states even let borrowers come back after their houses have been foreclosed on or seized by the government and pay the outstanding taxes or mortgage payments to regain ownership of their properties. Sometimes, the redemption period may run from a few months to a few years.
Investors need to be aware of this, particularly if they specialize in purchasing properties foreclosed on or confiscated by the government. In jurisdictions where individuals have the legal right to redeem, there is always the potential that they will be able to raise funds necessary to restore ownership of their properties.
The Bottom Line
Homeowners who have joined the foreclosure process may be able to save their houses under the equity of redemption provision. If you are in the foreclosure process due to financial issues, you may be required to pay the outstanding debt in full. Because foreclosure laws and redemption equity differ from state to state, the best resource for you to consult if you have issues is probably a local real estate attorney or a legal aid agency in your area.
