The Right of Redemption of California Properties
The right of redemption is a legal right to redeem, or recover, a mortgaged property. According to BusinessDictionary.com, this right may be exercised on or before the date of foreclosure, after the foreclosure or after the foreclosure sale, depending on the laws in the property's jurisdiction. Some sources define right of redemption to mean the right to recover a property after foreclosure. In the state of California, the right of redemption varies with the type of foreclosure.
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California Foreclosure Process
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The foreclosure process varies state to state, the key difference being whether the process involves court action. In California, lenders can choose between a judicial (in court) or nonjudicial (out of court) process. Most lenders choose the nonjudicial process because it is less costly and quicker. The nonjudicial foreclosure process in California begins with the lender recording a Notice of Default (NOD) on the property title and mailing a copy to the borrower. The sale of the property is scheduled three months later by the trustee who is identified in the property's deed of trust. If the property does not sell for the amount owed by the borrower, title is transferred to the foreclosing lender. In a judicial foreclosure, the lender files a lawsuit against the borrower, ultimately resulting in the property's sale if the court approves the foreclosure.
Before Sale Right of Redemption
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During the nonjudicial foreclosure process in California, the borrower has the right to pay off the mortgage, plus penalties plus all applicable foreclosure costs the lender has incurred, up to five business days before the trustee's sale. This is referred to as the period in which to "cure the foreclosure," as opposed to being a true period of redemption.
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Right of Redemption After Sale
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When a judicial foreclosure is completed in California, a borrower has up to one year to redeem the property. According to attorney Douglass Lahammer of Paul, Hastings, Janofsky & Walker, LLP, the redemption price is determined by a statutory formula that may be less than the property's fair market value or the preforeclosure mortgage balance. It is based primarily on the purchase price at the foreclosure sale. The right to redeem a property may be sold, and a buyer may wish to first purchase the right to redeem and then redeem the property rather than to buy it outright because the price may be lower and because this strategy removes the possibility that the former owner will redeem the property up to a year later.
Trade-Offs
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Although the post-foreclosure right of redemption allows the borrower up to a year after the foreclosure to recover the property, the judicial foreclosure process that is required to trigger this right also allows the foreclosing lender to obtain a deficiency judgment against the borrower. A deficiency judgment is a judgment requiring the borrower to repay the lender the difference between the mortgage balance and the net proceeds the lender receives when the property is sold.
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References
- Photo Credit Sold Home For Sale Sign on Burst image by Andy Dean from Fotolia.com
