New Alabama Foreclosure Laws
Are you thinking of buying a foreclosure? Did you know that the previous owner of a foreclosed property has the right to buy the property back whether the new owner wants to sell it or not? That is called the Right of Redemption. The Right of Redemption period used to always be 1 year, but recently a bill reduced the Right of Redemption period to 6 mos on SOME properties. Check out this article from the Alabama Association of Realtors for more information on the Right of Redemption in Alabama!
A Note From The Legal Helpdesk: Right of Redemption in Alabama
March 20, 2018
The Legal Helpdesk has received multiple phone calls regarding the recent changes to the Right of Redemption statute adopted a few years ago. Below are some basics that may help you as you interact with interested parties, such as mortgagees, mortgagors and potential buyers.
Right of Redemption Basics
The right of redemption period is the period in which the former owner of a foreclosed property can buy back the property, regardless of whether the current owner wants to sell. The period begins on the date of the sale of the foreclosed property.
The Time Period
Until January 1, 2016, the right of redemption for residential property was one year. However, a bill passed several years ago changed the right of redemption for certain homesteaded properties. The recent change only changed the right of redemption for a narrow subset of properties – homesteads with a mortgage created on or after January 1, 2016.
If the mortgage was created before January 1, 2016, the right of redemption period is one year, for all real property.
If the mortgage was created on or after January 1, 2016, the right of redemption period is six months for a homesteaded property.
Notice of Foreclosure and a Recent Change
Alabama law requires the mortgagee, or financial institution, to provide notice to the mortgagor, or homeowner, of the foreclosure sale. If the mortgagee does not provide the notice as required, the right of redemption start date does not begin until the notice requirements are met. However, the law on notice was recently changed to state that, even if the notice is never corrected, the right of redemption period is one year from the foreclosure sale.
Two other points on notice are important to remember: 1) inadequate notice does not invalidate the foreclosure sale, and 2) possession or production of proof of mailing the notice is an affirmative defense if a lawsuit alleging inadequate notice is filed.
Questions to Ask
To determine the right of redemption period, ask yourself the following questions:
Was the mortgage created before or on/after January 1, 2016?
If before, a one-year period applies to all property.
If the mortgage was created on or after January 1, 2016, was a homestead exemption declared on the property for the tax year during which the sale occurred?
If the answer is yes, then the right of redemption period is six months.
If the answer is no, then the right of redemption period is one year.
When was notice given to the mortgagor at the address of the foreclosure property?
If given before the foreclosure sale, then the right of redemption period is six months or one year from the foreclosure sale, depending on the answers to 1 and 2 above.
If after the foreclosure sale or notice was not given, the redemption period begins when notice is given, but remember that the redemption period cannot go beyond one year from the foreclosure sale. For example, if notice of the foreclosure is given nine months after the foreclosure sale, the redemption period is three months – until the one-year date.
Who Can Redeem
Alabama law sets out seven categories of those entitled to redeem real estate after a foreclosure sale. Those are as follows:
Junior mortgagees, or transferees
Judgment creditors, or transferees
Transferees of the interests of the debtor or mortgagor, either before or after the sale
Spouses of debtors, mortgagors or transferees of a debtor or mortgagor, if married on day of foreclosure sale
Children, heirs or devisees of a debtor or mortgagor
A Few Tips
If you have customers who purchase a property out of foreclosure, here are a few practice notes:
Redemption rare – After explaining all the details on the right, remember that the right of redemption is rarely exercised.
Be prepared – Even if redemption occurs very infrequently, purchasers should be prepared by maintaining records of and receipts to any permanent improvements made on the land since the foreclosure sale.
When redemption happens – Purchasers of foreclosed properties are entitled to be paid back certain costs, including the purchase price, insurance premiums and permanent improvements. Once a purchaser receives a letter requesting an itemized statement of debts and charges from a party exercising the right of redemption, the purchaser has 10 days to provide the statement, or risk forfeiting the compensation related to improvements.
Source: Ala. Code §§ 6-5-247 to 6-5-257.
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