Legal Definitions - statutory redemption

Statutory redemption is a legal right, established by state law, that allows a former property owner to reclaim their property after it has been sold due to a debt, such as a mortgage foreclosure or an unpaid tax lien. This right is not automatic; it must be exercised within a specific timeframe set by statute, and typically requires the former owner to pay the full amount for which the property was sold, plus any additional costs, interest, and sometimes improvements made by the new owner. The purpose of statutory redemption is to provide a final opportunity for the original owner to recover their property, even after a forced sale has occurred.

Here are some examples illustrating statutory redemption:

• Mortgage Foreclosure on a Home:

  Imagine a family defaults on their home mortgage, and the bank forecloses, selling their house at a public auction to a new buyer. In some states, even after the sale is finalized, the former homeowner might have a statutory right to redeem the property. For example, if the state law allows a six-month redemption period, the family could, within that timeframe, pay the new buyer the amount they paid at auction (plus any interest, taxes, or legitimate costs incurred by the new buyer). If they successfully do so, ownership of the home reverts back to the original family, effectively undoing the foreclosure sale.

• Tax Sale of Vacant Land:

  Consider an individual who owns a vacant parcel of land but fails to pay property taxes for several years. The county eventually sells the land at a tax sale to recover the unpaid taxes. A new investor purchases the land. However, if the state where the land is located has a statutory redemption law, the original owner might have a period (e.g., one year) to pay the investor the amount they paid at the tax sale, along with any penalties, interest, and subsequent taxes paid by the investor. If the original owner makes this payment within the statutory period, they regain full ownership of the vacant land.

• Foreclosure of a Commercial Property:

  A small business owner takes out a loan secured by their commercial building. When the business struggles, they default on the loan, and the lender forecloses, selling the building to another company. If the state's laws include statutory redemption for commercial properties, the original business owner might have a limited window (perhaps three months) to repurchase their building. To do this, they would need to pay the new owner the full amount of the foreclosure sale price, plus any allowable interest and expenses, thereby reclaiming their business premises.