Definition
Statutory redemption is a statutory right allowing a foreclosed borrower to reclaim property within a specified period (usually 6 months to 2 years) after foreclosure sale by paying the sale price plus costs. Not available in all states.
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Statutory redemption is distinct from equity of redemption. While equity of redemption allows redemption before the foreclosure sale, statutory redemption allows it after the sale. This provides a second chance for borrowers who couldn't stop foreclosure. A person with statutory redemption rights (typically the foreclosed borrower, sometimes junior lienholders) can reclaim the property from the foreclosure purchaser by paying the sale price (which is often much less than the debt) plus costs and interest. Statutory redemption periods vary: some states allow 6 months, others a year, some two years or more. During the redemption period, the foreclosure buyer doesn't receive clear title—they're merely holding it pending the redemption deadline. This uncertainty reduces foreclosure sale prices because buyers fear redemption. Not all states provide statutory redemption; it's less common than equity of redemption. Statutory redemption is particularly important in distressed situations where a property sells for much less than owed—redemption might allow recovery if financial circumstances improve.
Pro Tip
If purchasing a foreclosed property, verify whether statutory redemption rights exist and whether the redemption period has expired.
Example
A home forecloses and sells at auction for $150,000 to an investor, though the owner owed $300,000. The owner, if statutory redemption is available, has one year to pay the investor $150,000 plus costs and reclaim their home.