FHA Loans, Foreclosure, and the Redemption Period
When an FHA borrower gets in trouble on an FHA mortgage loan, there is a specific set of steps that take place. From the time the first FHA loan payment is missed to the cut-off date to avoid foreclosure after multiple payments have been missed, there are places along the way where foreclosure could be avoided in many cases. But some borrowers wind up in foreclosure regardless, and the loss of the home can be devastating.
But is there a second chance for a borrower to get their home back once it goes into foreclosure proceedings? According to the FHA, in some cases the answer is yes thanks to something known as the redemption period.
Redemption is a transaction where the original owner of the foreclosed home is allowed to reclaim the home by paying the outstanding balances due plus any costs generated by the foreclosure process on the home. But redemption is not guaranteed in all cases, and the rules covering it vary depending on state law where the foreclosure occurred. Each state has its own foreclosure laws. Some may provide a redemption period, some may not.
In states where redemption is possible, “…the redemption period and availability is often determined by whether the foreclosure is judicial or non-judicial. And, timelines and procedures can vary greatly from state to state.” That is according to the HUD official site, which also displays this link to state laws on foreclosure.
Reclaiming a home in the redemption period is a last-chance measure. Buyers should not rely on a possible redemption period to try to save the home–there will be additional expenses and it’s much easier and affordable to turn to other options including loan forbearance, refinancing, loan modification or other programs designed to prevent foreclosure in the first place.
The moment an FHA borrower gets into financial trouble it’s important to contact the lender and the FHA to see what options can prevent the loan from going into default. For those who find themselves in need of the redemption period, it is definitely an option if allowed in your state…but it should be viewed as the last resort.