Statutory Redemption

The right granted by legislation to a mortgagor, one who pledges property as security for a debt, as well as to certain others, to recover the mortgaged property after a foreclosure sale.

Statutory redemption is the right of a mortgagor to regain ownership of property after foreclosure. A mortgagor is a person or party who borrows money from a mortgagee to purchase property. The arrangement between a mortgagor and mortgagee is called a mortgage. Foreclosure is the termination of rights to property bought with a mortgage. Most foreclosures occur when the mortgagor fails to make mortgage payments to the mortgagee. After foreclosing a mortgage, the mortgagee may sell the property at a foreclosure sale. Statutory redemption gives a mortgagor a certain period of time, usually one year, to pay the amount that the property was sold for at the foreclosure sale. If the mortgagor pays all of the foreclosure sale price before the end of one year after the foreclosure sale, or within the statutory redemption period, the mortgagor can keep the property.

A mortgagor in a state that offers statutory redemption may stay on the premises after foreclosure during the statutory redemption period. If the mortgagor does not redeem the property by the end of the period, the purchaser at the foreclosure sale receives title to, and possession of, the property.

In states that have redemption statutes, an individual mortgagor cannot waive a statutory redemption period. Many states that offer statutory redemption make a special exception for corporations, which may waive the statutory redemption period if it is incompatible with the reorganization or dissolution of the corporation.

Approximately half of all states have passed statutes that allow mortgagors to redeem property after a mortgage foreclosure. The states that allow statutory redemption have done so to drive up foreclosure sale prices for the benefit of both the defaulting mortgagor and creditors of the mortgagor who have obtained an interest in the property. Statutory redemption is designed to prevent extremely low sale prices by giving the mortgagor an opportunity to match the sale price. Some legal commentators have observed, however, that statutory redemption has failed to increase the amount of bids on foreclosed property because title to property that is subject to statutory redemption is so uncertain. Because the mortgagor could redeem the property within a year and creditors of the mortgagor could make claims to the property, potential buyers of foreclosed property adjust their bids to account for these hazards.

Statutory redemption is distinct from equitable redemption. Equitable redemption is the right of a defaulting mortgagor to reclaim property by paying all past due mortgage payments anytime prior to foreclosure. Statutory redemption, by contrast, begins at the point of foreclosure and requires that the defaulting mortgagor pay the full foreclosure sale price. Equitable redemption is a common-law concept, which means it exists as law in the form of judicial opinions. All state courts have recognized a mortgagor's right to equitable redemption.