Definition
Equity of Redemption is the legal right of a property owner who has defaulted on their mortgage to reclaim their property before it is sold at a foreclosure auction by paying off the amount owed, including principal, interest, and any associated legal fees. This right exists up until the final sale of the foreclosed property.
Examples
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Example 1: Abel has missed several mortgage payments, and his property is scheduled to be foreclosed. Just days before the foreclosure sale, Abel gathers enough funds to pay off the total mortgage debt, accrued interest, and legal fees. Under the equity of redemption, he is able to reclaim his property before the foreclosure sale takes place.
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Example 2: Sarah’s home is at risk of foreclosure due to missed mortgage payments. She manages to secure a loan from a family member and uses this money to settle the outstanding debt with her lender. Leveraging her equity of redemption rights, Sarah stops the foreclosure and retains ownership of her home.
Frequently Asked Questions
What is the difference between equity of redemption and statutory right of redemption?
The Equity of Redemption is the common law right to reclaim property before foreclosure is finalized by paying the owed debt. The Statutory Right of Redemption allows an owner to reclaim foreclosed property even after the sale, for a specified period, by paying the sale price and additional costs.
Can an equity of redemption period vary by state?
Yes, the availability and duration of the equity of redemption period can vary significantly from state to state. Some states grant property owners a few days to a few months to redeem the property before foreclosure is complete.
What happens if the amount due is not paid during the equity of redemption period?
If the property owner fails to pay the due amount within the equity of redemption period, the lender can proceed with the foreclosure sale of the property.
- Foreclosure: The legal process by which a lender takes control of a property following defaulting on mortgage payments, usually leading to the sale of the property to recover the debt.
- Principal: The original sum borrowed through a loan or mortgage, excluding interest and additional fees.
- Interest: The cost paid by a borrower to a lender for the use of their monetary assets, typically calculated as a percentage of the principal.
- Mortgage Default: The failure to meet the terms of a loan agreement, particularly in terms of scheduled payments.
- Statutory Right of Redemption: A law allowing former property owners to redeem their property after it has been sold at a foreclosure auction within a specified legal timeframe.
Online Resources
References
- “Real Estate Law: What It Is and How to Use It” by Bonnie J. Montey.
- “The Law of Real Estate Financing” by T. Frederick Davis.
Suggested Books for Further Studies
- “Real Estate Finance and Investments” by William Brueggeman and Jeffrey Fisher.
- “Property Law: Rules, Policies, and Practices” by Joseph William Singer.
- “The Essentials of Real Estate Law” by Lynn T. Slossberg.
Real Estate Basics: Equity of Redemption Fundamentals Quiz
### What period does the equity of redemption right cover?
- [ ] After foreclosure sale only.
- [x] Before the foreclosure sale is finalized.
- [ ] During property purchase agreement.
- [ ] It can only be used within 30 days of defaulting.
> **Explanation:** The equity of redemption right allows the borrower to reclaim their property by paying off the debt before the foreclosure sale is finalized.
### What payments must be made to reclaim the property under equity of redemption?
- [x] Principal, interest, and legal expenses.
- [ ] Only the remaining balance of the mortgage.
- [ ] Just interest payments.
- [ ] Property taxes.
> **Explanation:** To reclaim the property, the homeowner must pay the total principal, accrued interest, and any legal costs incurred due to the default.
### Can equity of redemption be exercised after the foreclosure sale?
- [ ] Yes, always.
- [ ] Only within a specified timeframe.
- [x] No, it must be exercised before the sale.
- [ ] It depends on federal laws.
> **Explanation:** Equity of redemption must be exercised before the foreclosure sale occurs. Post-sale rights are covered under statutory right of redemption.
### In which case is statutory right of redemption applicable?
- [ ] Before the final mortgage payment.
- [x] After a foreclosure sale.
- [ ] During the initial closing process.
- [ ] Only in case of a new property purchase.
> **Explanation:** Statutory right of redemption is applicable after a foreclosure sale, allowing the defaulted owner to reclaim the property within a set period.
### Which party benefits from the equity of redemption right?
- [ ] The lender.
- [ ] Home inspectors.
- [x] The property owner.
- [ ] Real estate agents.
> **Explanation:** The benefit of equity of redemption goes to the property owner by providing a final opportunity to reclaim their property before foreclosure.
### What results if the property owner cannot make the payment during equity of redemption?
- [ ] Reduction in mortgage terms.
- [ ] Option for refinancing.
- [x] The foreclosure sale proceeds as planned.
- [ ] The owner retains a portion of property.
> **Explanation:** If the payment cannot be made within the equity of redemption period, the lender can proceed with the foreclosure sale of the property.
### What determines the grace period in equity of redemption?
- [x] State-specific laws.
- [ ] Federal mortgage policies.
- [ ] Lender's discretion.
- [ ] Local municipality rules.
> **Explanation:** The period for equity of redemption is determined by state-specific laws which can vary significantly.
### Does equity of redemption apply before or after bankruptcy?
- [ ] Always before.
- [ ] Always after.
- [ ] Simultaneously with filing.
- [x] It depends on state laws.
> **Explanation:** State laws dictate whether equity of redemption can apply before or after bankruptcy, and the rules can vary by jurisdiction.
### Is equity of redemption automatically granted?
- [x] No, payments must meet specified criteria.
- [ ] Yes, it is a fundamental right.
- [ ] It requires court proceedings.
- [ ] It depends on broker negotiations.
> **Explanation:** The equity of redemption right must meet specific payment criteria, including the full outstanding debt, interest, and legal fees to be effective.
### Who can assist in exercising equity of redemption?
- [ ] Home buyers’ associations.
- [ ] Real estate appraisers.
- [ ] Local police.
- [x] Real estate attorneys.
> **Explanation:** Real estate attorneys can assist property owners in navigating the complexities of exercising their equity of redemption rights.
