Legal Definitions - statutory right of redemption

The statutory right of redemption is a legal entitlement, established by state law, that allows a property owner to reclaim their property after it has been sold in a foreclosure auction. To exercise this right, the original owner must pay the full amount of the debt that was owed, including the principal, interest, and any other associated costs and fees incurred during the foreclosure process, within a specific timeframe set by state statute.

This right is distinct from the "equity of redemption," which allows an owner to prevent a foreclosure sale by paying off the debt before the sale occurs. The statutory right of redemption, however, provides a second chance to recover the property even after it has been formally sold to a new owner at auction. It is important to note that this right varies significantly from state to state, with some states offering it and others not, and the specific terms and timeframes differing where it does exist.

Here are a few examples illustrating the statutory right of redemption:

• Residential Homeowner: Maria fell behind on her mortgage payments, and her home was eventually foreclosed upon and sold at a public auction to an investor named David. In Maria's state, there is a six-month statutory right of redemption. Three months after the foreclosure sale, Maria receives a significant settlement from a personal injury claim. She decides to exercise her statutory right of redemption by paying David (or the court/lender, depending on state law) the exact amount he paid for the property at auction, plus any interest and costs he incurred. By doing so, Maria legally reclaims ownership of her home from David.

• Small Business Owner: "The Daily Grind," a local coffee shop, defaulted on its commercial mortgage, leading to the foreclosure and sale of its building to a real estate developer. The state where The Daily Grind operates provides a one-year statutory right of redemption for commercial properties. The coffee shop owner, determined to save their business, secures a new loan from a different bank within that year. They use these funds to pay the developer the full amount of the foreclosure sale price, plus any additional interest, taxes, and maintenance costs the developer incurred during their brief ownership. This action allows The Daily Grind to regain ownership of its original location and continue operations.