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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.

4 Responses to FHA Loans, Foreclosure, and the Redemption Period

  1. Adam Benson says:

    My home is in foreclosure in Minnesota and the Sheriff sale is scheduled for Nov. 14th 2011. My roomate and I have both already moved out of the house. We have no way of keeping the house or coming up with the past due payments. Is there a way to forgo the redemption period and instead of a Certificate of Purchase to the new buyer from the sheriff sale, can we just be done? Is there a way to for-go the redemption period and the buyer can have the house at that point? I just want the process to be over already.

  2. The Reverse Mortgage Co….(Lender name deleted) changed to (Lender name deleted) told us in Feb 2014 they would pay our property taxes for 2013 because we were struggling. As of today and 35 calls later they still have not paid them.Today for the first time I heard the words “redemption period” She assured me we would be notified AGAIN as soon as they are paid and we can make arrangements to pay it back. We are close to the end of the year and id not paid by Dec. we are in trouble with our local tax bureau. I don’t understand what is going on. Will (lender name deleted) pay our property taxes or are they lying to us and causing us to lose our home? We were lied to this company before at the settlement. I asked at least a half dozen times about my husband’s name being addes and the rep. and the loan officer both assured me several times. Yes he will be added in three years when he turns the age for a Reverse Mortgage, Needless to say, they said than “it’s impossible. So the house we lived in for 30 years my husband would have to leave if I die first. Please help me with this new word they used today when I called…”redemption”

    • Joe Wallace says:

      Your best course of action may be to consult a lawyer and make arrangements to pay your property taxes directly with the appropriate agency. We can only answer questions specifically related to FHA loans and FHA loan rules.

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