Definition
Equity of redemption is your legal right to reclaim mortgaged property after defaulting but before foreclosure sale by paying off all debt, interest, costs, and penalties. This right is crucial if you face temporary hardship.
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Equity of redemption protects borrowers by allowing them to cure default and keep their property. From the moment a borrower defaults on a mortgage until the foreclosure sale is completed, they have the right to redeem (buy back) the property by paying the full debt plus costs. This right is crucial for borrowers who face temporary hardship—if they can pay the arrears plus foreclosure costs and attorney fees, they keep their home. Equity of redemption represents the borrower's ownership interest in the property (the 'equity' above the mortgage debt). Some states provide additional redemption rights even after the foreclosure sale (see 'statutory redemption'), allowing a borrower a period to repurchase from the foreclosure buyer. Equity of redemption cannot be waived—no mortgage can eliminate this right. Lenders prefer borrowers exercise equity of redemption to a full foreclosure because it's faster and cheaper. This right can be complex when a property has multiple mortgages or liens, as all must be satisfied to redeem.
Pro Tip
If facing foreclosure, act immediately. You have equity of redemption only until the foreclosure sale completes.
Example
A borrower misses three mortgage payments. Before foreclosure sale, they receive a promotion and bonus. They pay the lender three months of missed payments plus $1,500 in foreclosure costs. This exercise of equity of redemption stops the foreclosure and allows them to keep their home.