By: Richard Koreto
Published: July 27, 2010
Redemptions and reinstatements are among the rarest tactics to fight foreclosure. Your home must be in a state that supports them; even more important, you must have access to cash.
Your state may be trying to give you a break to avoid or turn back the clock on foreclosure with a couple of special provisions: the right of redemption, which can let you buy the home back from the person who bought it at foreclosure; and the right of reinstatement, which allows you to catch up on payments in default, including fees and penalties, and continue with the same loan.
Know your redemption rights
The right of redemption is not available in every state, and even among states that offer it, procedures vary greatly.
You may obtain a right of redemption only if your state offers a judicial foreclosure—that is, a foreclosure that proceeds through the courts.
The terms vary even among judicial foreclosure states. If you live in Kansas, you may have as long as a year to regain ownership through redemption. In Maine, you’ll have three months. But if you live in New York, you have no redemption rights at all, even though it is also a judicial foreclosure state.
Consult an attorney. Redemption laws are very complicated.
Be prepared to deal with your home’s new owners, as they may take possession of your home even if your right of redemption is still valid.
To check your state’s foreclosure laws, review this helpful guide.
Be prepared to pay
Unfortunately, redemption is only a last chance—not a magic bullet. If you haven’t heard of the right of redemption, it’s because they rarely happen, even in states that allow them. Why? You must come up with the price paid by whoever purchases your house plus associated fees and taxes. The same situation that led you to foreclosure probably will keep you from getting the cash or financing for redemption. So unless you just won the lottery or your rich uncle died and left you a bundle, you won’t get redemption.
Understand reinstatement
Reinstatement is different from redemption, although it’s easy to confuse the two. Reinstatement, available in many states, allows you stop the foreclosure process up to five days before the auction. To do this, you must:
Bring your loan up to date with all fees, expenses, and late charges.
Pay with “real money.” That is, come with a certified check, not a credit card.
Be willing to take a hit in your credit score. However, you keep your house and the same mortgage, and over time you can repair your score. And at this point, your credit score probably already has taken a hit.
Note the important distinction: in reinstatement, you only have to come up with what you missed; in redemption, you have to come up with the entire amount owed on the house.
Again, to find out if reinstatement is available for you, consult a lawyer and a foreclosure counselor. You should talk to your lender about whether it’s invoking acceleration—that is, declaring the entire amount due after several missed payments. Although, based on the terms of your loan, that may be the lender’s right—effectively disallowing a reinstatement—your bank may be willing to negotiate a reinstatement.
Even if you can scrape together money for a reinstatement by pawning some jewelry and borrowing cash from relatives, you can’t do that every month. If sufficient income looks like it will be a long-term problem, you might be better off saving your money for new housing and proceeding with a foreclosure, short sale, or deed in lieu of foreclosure.
Richard J. Koreto, a freelance writer, is the former editor of several professional financial magazines and the author of “Run It Like a Business,” a practice management book for financial planners. He and his wife own a pre-Civil War house in Rockland County, N.Y.
