A foreclosure occurs when a mortgagor, or mortgage holder, defaults on the loan associated with a piece of property and the property owner, usually the lender, seeks to legally reclaim that property. In the face of foreclosure, it's important to understand the equitable right of redemption and how this impacts the mortgagor's ability to maintain ownership of the property.
Equitable right of redemption, also referred to as right of redemption, is a legal right, granted under state law or by the mortgage itself, that allows the mortgagor to reclaim a mortgaged property in the event of default by paying the balance due on the mortgage. Depending upon individual state law, the mortgagor can pay this amount prior to or on the day of foreclosure, after the completion of the foreclosure or even after the foreclosure sale of the property.
Equitable right of redemption allows the mortgagor to keep the property. Once the balance is paid, the mortgagor owns the property and the mortgage associated with that property no longer exists. This usually applies to the primary, or first mortgage. If a second mortgage is present on the property, that lender still has an interest in the property and any debt owed to it must be paid or the secondary lender can initiate foreclosure proceedings.
The mortgagor is not the only person that can exercise the equitable right of redemption associated with the property. The right extends to the successor or assignees of the mortgagor in the event of the mortgagor's death. In addition, the right extends to the mortgagor's bankruptcy trustee, the mortgagor's judgment creditors or anyone with a lien against the property. State law details the hierarchy of redemption, and specifies which party can exercise the right first.
The equitable right of redemption must be granted or it can't be enforced. The verbiage of the mortgage may explicitly specify the right, or the right may be conferred to mortgagors under state law. If neither the mortgage itself nor state law provides for this right, the mortgagor is not entitled to it and cannot exercise it in the event of a default. Some states also allow for reinstatement, which allows you to catch up on past-due mortgage payments and keeps the mortgage intact, but again, unless state law specifies it, such a right is unenforceable in court.