What is Equity of Redemption?
Equity of Redemption refers to a homeowner’s legal right to reclaim their mortgaged property once it has been defaults on, provided that the remaining mortgage debt and interest due are fully settled before the foreclosure sale occurs. This period during which the homeowner can redeem their property varies depending on state laws and the terms of the mortgage contract.
Key Features
- Redemption Period: A fixed time frame, varying by jurisdiction, during which the borrower can pay off the mortgage debt in full to avoid foreclosure.
- Legal Right: Ensures that the homeowner has a fair chance to reclaim their property before it transfers ownership through the foreclosure process.
- Debt Settlement: To exercise this right, the borrower needs to pay the entire amount owed, typically including principal, interest, late fees, and legal costs.
Examples of Equity of Redemption
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Pre-Foreclosure Debt Settlement:
Suppose a homeowner falls behind on mortgage payments, and foreclosure proceedings commence. If the homeowner can gather enough funds to pay off the mortgage debt and any additional fees before the foreclosure sale, they can exercise their Equity of Redemption to reclaim the property.
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Third-Party Assistance:
A homeowner arranges for a relative or friend to provide the needed funds to cover the mortgage debt before the foreclosure sale. By doing so, the homeowner or the assisting party can pay off the debt, allowing the property to revert to the homeowner or transfer to the assisting party who settles the debt.
Frequently Asked Questions (FAQs)
How long is the redemption period?
The redemption period varies by state and can range from a few days to multiple months post the foreclosure sale. Some jurisdictions have specific laws outlining the duration, so it’s important to check local regulations.
Can the lender prevent equity of redemption?
Generally, lenders cannot prevent the exercise of the Equity of Redemption unless terms explicitly mentioned in the mortgage contract are violated or if the redemption period has expired.
Is there a difference between statutory redemption and equity of redemption?
Yes, statutory redemption allows the borrower to repurchase the foreclosed property after the foreclosure sale during a statutory redemption period. The Equity of Redemption, by contrast, must be exercised before the foreclosure sale.
Do all states recognize the equity of redemption?
While widely recognized, the specifics of the Equity of Redemption and the length of the redemption period vary by state. Local legal advice is recommended for accurate information.
- Foreclosure: The legal process by which a lender takes possession of a property due to the borrower’s failure to pay the mortgage.
- Statutory Redemption: The right allowing former owners to repurchase a property after a foreclosure sale, subject to specific state laws.
- Lien: A legal claim against property as security for a debt or other obligation.
- Deficiency Judgment: A judgment made by a court when the foreclosure sale does not cover the loan amount, leaving the borrower liable for the remaining debt.
Online Resources
References
- “Real Estate Law,” Marianne M. Jennings
- “Foreclosure: Investing with no money down,” Tony Martinez
Suggested Books for Further Study
- “The Home Mortgage Book: Insider Information Your Banker & Broker Don’t Want You to Know” by Dale Mayer
- “Real Estate Investing for Dummies” by Eric Tyson
- “Principles of Real Estate Practice” by Stephen Mettling and David Cusic
Real Estate Basics: Equity of Redemption Fundamentals Quiz
### The Equity of Redemption allows a homeowner to reclaim their property by:
- [ ] Creating a repayment plan with their lender.
- [x] Paying off the outstanding mortgage debt before the foreclosure sale.
- [ ] Filing for bankruptcy.
- [ ] Renegotiating the loan terms.
> **Explanation:** The Equity of Redemption allows homeowners to reclaim their property by paying off the full outstanding mortgage debt before the foreclosure sale.
### The period during which a homeowner can exercise their right of redemption is known as:
- [x] Redemption Period
- [ ] Mortgage Period
- [ ] Recovery Period
- [ ] Payback Period
> **Explanation:** The Redemption Period is the timeframe during which a homeowner can pay off their debt to reclaim the property before the foreclosure sale.
### Which of the following is included in the amount a homeowner must pay to exercise their right of redemption?
- [ ] Principal only
- [ ] Interest only
- [ ] Both principal and interest, including late fees and legal costs
- [ ] Only late fees
> **Explanation:** To exercise the right of redemption, a homeowner must pay the entire owed amount, which includes both principal and interest, along with any late fees and legal costs.
### Can lenders deny the exercise of equity of redemption during the redemption period?
- [ ] Yes, in all cases.
- [ ] No, never.
- [x] Only if terms of the mortgage contract stipulate conditions.
- [ ] Only after 30 days of missed payments.
> **Explanation:** Lenders generally cannot deny the equity of redemption as long as all liens are fulfilled during the redemption period and there is no specific breach of contract.
### State laws regarding the duration of the redemption period:
- [ ] Are uniform across all states.
- [x] Vary depending on the jurisdiction.
- [ ] Are always at least six months.
- [ ] Do not exist.
> **Explanation:** The duration of the redemption period varies by jurisdiction, and it is governed by state laws.
### The right to repurchase property after a foreclosure sale during a specific period is called:
- [ ] Equity of Redemption
- [x] Statutory Redemption
- [ ] Mortgage Forbearance
- [ ] Deferred Redemption
> **Explanation:** Statutory Redemption allows former owners to buy back their property after the foreclosure sale.
### The legal confiscation of property due to the borrower's failure to pay the mortgage is known as:
- [x] Foreclosure
- [ ] Lis Pendens
- [ ] Probation
- [ ] Short Sale
> **Explanation:** Foreclosure is the process by which a lender legally confiscates a property due to the borrower’s failure to meet mortgage obligations.
### Deficiency judgment means:
- [ ] The total amount owed including legal fees.
- [ ] Judgment given when property value exceeds loan balance.
- [ ] The owner reclaimed the property.
- [x] Judgment made against a borrower when a foreclosure sale doesn’t cover the full loan amount.
> **Explanation:** A Deficiency Judgment occurs when the sale price in a foreclosure does not cover the total debt owed, leaving the borrower responsible for the remaining amount.
### Lien refers to:
- [x] A legal claim against property as security for a debt.
- [ ] The title of an unpaid mortgage.
- [ ] The final settlement of a mortgage.
- [ ] An insurance premium on a property.
> **Explanation:** A Lien is a legal claim against a property that provides security for a debt or obligation.
### During the redemption period, a homeowner typically needs to pay:
- [ ] Principal balance only.
- [x] Outstanding mortgage debt including interest and any additional charges.
- [ ] Interest accrued without principal.
- [ ] Legal fees only.
> **Explanation:** To reclaim the property within the redemption period, the homeowner must pay off the total outstanding mortgage debt, which includes both the principal amount and any accrued interest, as well as any additional fees.
