What Does Right of Redemption Mean?
It is the legal right of a borrower or mortgagor who owns immovable property to reclaim it once certain conditions have been fulfilled. The right of redemption allows property owners who are paying back taxes or liens on their property to avoid auctioning off their property, sometimes even after an auction or sale has taken place.
Generally, the amount paid should also include the costs incurred during the foreclosure process and the entire mortgage amount if the payout occurs after the sale or foreclosure.
When Can the Right of Redemption Be Used?
During a time frame known as the redemption period, a right of redemption may be availed, which may be before or after a foreclosure auction has been concluded. Under common practice, lenders prefer to exercise a right to redemption only after a foreclosure if they have the resources to seek it at all, despite the possibility of taking action before a foreclosure sale.
This is because it is impossible that lenders who already have adequate funds to cover the costs of paying the entire outstanding debt and other charges will go into default.
In other words, in certain situations, the creditor can make money when it invokes a right of redemption following the sale by foreclosure. A property may, for example, sell at a price lower than its value in the market through a foreclosure sale.
Provisions of Right of Redemption
Equity of Redemption:
- This gives the mortgagor the right to redeem his mortgaged property on repayment of the mortgage money.
- This also gives the mortgagor a right to redeem even after defaulting on repayment of the mortgaged money.
- This doctrine safeguards the mortgagor's right of redemption.
- This doctrine provides for redemption even when restrictions are imposed on redemption in the deed of redemption.
Clog on Redemption:
- Clog implies restraint.
- Every restraint upon the right of redemption is nugatory and is void ab initio.
- This amounts to practice against the mortgagor by incorporating any restrictive conditions against his rights in the mortgage deed.
- The clog upon redemption can be enforced only upon passing the court's decree and not otherwise.
- The clog on redemption operates only when the mortgagor's right of redemption is extinguished.
Partial Redemption:
- To redeem the property in part or in multiple transfers.
- This is void ab initio, and the right of redemption can't be exercised under numerous transfers for the same mortgage.
Requirements of Right of Redemption
- Valid Mortgage Agreement: The right only arises if there is a valid mortgage.
- Full Repayment: The borrower must pay back the principal amount, interest, and other agreed-upon costs.
- Within the Legal Timeframe: Redemption should be within the timeframe agreed in the mortgage deed.
- Legal Action (if needed): The borrower can go to court if the lender declines redemption.
- No Contractual Restriction: The mortgage contract must not expressly waive or restrict the right of redemption.
Exceptions to the Right of Redemption
- Foreclosure Completion: After the court completes foreclosure, the borrower loses the right to redeem it.
- Contractual Waiver: If the borrower has waived the right voluntarily in a binding contract.
- Sale to a Third Party: If the property has already been sold by the lender to a third party in good faith.
- Time-Barred by Law: If the borrower does not redeem within the period as per law.
- Multiple Mortgages: If various loans are secured on the same property, the first lender's priority claim might restrict redemption rights.
Key Takeaways
It is a legal process by which a delinquent mortgage borrower can reclaim their home or other property subject to foreclosure if they can repay their respective obligations in time.
This right can be availed even if a lender has re-sold the home, as long as it occurs during the redemption period and all conditions have been fulfilled.
A good redemption requires a creditor to recover all expenses incurred due to the foreclosure process to the lender or other parties.
