Foreclosure and Redemption Rights (real estate, foreclosures, mortgage)

[valentine1110]

Does anyone have any thoughts to share on the redemption rights in Alabama or any experience with this? We are considering purchasing a foreclosed property and know the risks, but like to see what others have to say on the topic...thanks

[Back Again]

Nothing wrong with buying foreclosed property, I have made offers on my fair share of them for my Clients, and you can get some great deals right now.

The Rights of Redemption time in Alabama is a year. However, please note, it is not as simple as the foreclosued owner just saying they want the property back. In addation to the back payments due, there will be fines and interest payments due as well, and if the new owners made NEEDED repairs -- this too needs to be reimbursed as well. Note, I said NEEDED repairs, not improvements. Lets say the home needs a new roof. That would be reimbursed. Now if you put in a pool, that does not have to be reimbursed.

Just make sure you use a Realtor familiar with dealing in foreclosed properties. The different types of mortgages, and foreclosure bonds needed to protect your investment.

Good luck.

[harry chickpea]

I had to foreclose on my owner held mortgage a few years back. The only real risk is if you put a lot of money into the property in improvements, and an investor sees the huge increase in value. That investor could then go to the original owner with a cash-n-carry deal.

Here is how it would work:
1. Original mortgagee goes into foreclosure and abandons house, leaving a remaining mortgage of $25,000. Ownership reverts to company holding mortgage.
2. Mortgage holder sells house on courthouse steps for $50,000
3. The new buyer spends $60,000 in improvements and a lot of sweat equity on the house over six months.
4. Renovated home is featured in prominent magazine with a new tagged worth of $250,000.
5. Investor sees increase in value and notes that it was a foreclosure.
6. Investor contacts original mortgagee, saying "How would you like to make $1,000 in one month with no risk and no work?" Mortgagee, being destitute, says "H*ll, yes!"
7. Investor draws up contracts and fronts the money for the right of redemption by the defaulting mortgagee, who then takes full legal possession of the home.
8. Investor invokes second contract and buys home from that mortgagee for the cost of the front money for the right of redemption, plus $1,000, and pays off the original mortgage.
9. Investor has paid out $1,000 fee + $25,000 mortgage + court costs ($2,000?) + costs of making mortgage good ($4,000?) Total cost for newly refurbished $250,000 home? $32,000.
10. Investor sells house for $250,000 and makes a profit of over $200,000 for the cost of some paperwork and legwork.

How too keep this all from happening? Make only needed interior repairs during the first year, and pay for labor. By building up the repair costs, the property flip becomes less desirable.

FWIW, when I explained this possibility to an attorney and real estate agent, they had never heard of anyone doing the required steps.

[valentine1110]

Originally Posted by Back Again

Nothing wrong with buying foreclosed property, I have made offers on my fair share of them for my Clients, and you can get some great deals right now.

The Rights of Redemption time in Alabama is a year. However, please note, it is not as simple as the foreclosued owner just saying they want the property back. In addation to the back payments due, there will be fines and interest payments due as well, and if the new owners made NEEDED repairs -- this too needs to be reimbursed as well. Note, I said NEEDED repairs, not improvements. Lets say the home needs a new roof. That would be reimbursed. Now if you put in a pool, that does not have to be reimbursed.

Just make sure you use a Realtor familiar with dealing in foreclosed properties. The different types of mortgages, and foreclosure bonds needed to protect your investment.

Good luck.

What are foreclosure bonds?

[Back Again]

Originally Posted by valentine1110

What are foreclosure bonds?

Redemption bonds which are required on foreclosures when you are borrowing more than the amount the property was foreclosed on (loan amount). these are equal to 1% of the new loan amount. this allows the lender to have clear title and to ensure that if the right of redemption is exercised that they will be covered by the additional risk of the new loan amount.

[valentine1110]

Originally Posted by Back Again

Redemption bonds which are required on foreclosures when you are borrowing more than the amount the property was foreclosed on (loan amount). these are equal to 1% of the new loan amount. this allows the lender to have clear title and to ensure that if the right of redemption is exercised that they will be covered by the additional risk of the new loan amount.

Ok, thanks. I don't think we would require this since the original owner owes more than what we are offering to pay. So thanks for the heads up.

[Back Again]

Originally Posted by valentine1110

ok, thanks. I don't think we would require this since the original owner owes more than what we are offering to pay. So thanks for the heads up.

good luck!

[mike F moore]

If the mortagagor owed $500K on a loan he was foreclosed on, and the property sold for $400K + 20k in misc expenses and interest in the first 12 months, would the right of redemption apply to the $420k or the orginal $500K he defaulted on? in other words could they buy it back for $420K or $500K? Does the 12 months start when the orginal loan was foreclosed on, or the date that the property was resold to a new unrelated party? Mike Moore

[Back Again]

Redemption would be on the amount the prior owner owed, no matter what it sold for and the Right of Redemption starts the day the bank foreclosed, typically about 3 months prior to the home going on the market, unless the home went into foreclosure while on the market. This is why you should work with a Realtor that knows foreclosures - costs you NOTHING.

[dcap5]

can they foreclose if your 30 days