In this climate of foreclosures, numerous individuals have contacted our law offices requesting information concerning their rights in regards to foreclosure, specifically the right of redemption. The right of redemption is the right to pay off the debt and interest secured by the deed of trust, together with all sums paid out by the purchaser at the foreclosure sale, and for taxes and assessments and all legal charges and costs of the foreclosure sale.
Foreclosures and the right of redemption arises with deeds of trust and mortgages securing amounts owed to a third party, frequently, a lender; real property taxes which are seriously delinquent; and in the bankruptcy court. All of these scenarios are discussed below.
Redemption Upon Foreclosure of Deed of Trust
Missouri statutes provide for a homeowner’s right of redemption. If the holder of the debt which is being foreclosed upon purchases the property at the foreclosure sale, then the homeowner has the right of redemption at any time within one (1) year from the date of sale. If someone else besides the holder of the debt purchases the property at the foreclosure sale, the homeowner’s right of redemption is extinguished. A homeowner, in order to perfect this right of redemption, must give written notice of his or her intent to redeem. The notice is to be given to the person who is making the sale, most likely the trustee under the Deed of Trust. Further, the notice must be given at the sale or within ten (10) days before the date of the sale.
Once the required redemption notice is given, a homeowner must apply to the circuit court of the county where the property is located for approval of a redemption bond. This application and approval process must be accomplished within twenty (20) days after the foreclosure sale has occurred. The circuit court will approve the posting of the bond if the amount posted equals the interest on the debt foreclosed upon which would accrue within one (1) year after the foreclosure sale; payment of all legal charges and costs of the foreclosure sale; payment of all interest which accrued, or which may accrue after the foreclosure sale on any other encumbrances secured by the real estate, whether paid or not by the purchaser; all taxes and assessments and interests and costs thereon, whether for general or special, accrued or accruing, during the year allowed for redemption, whether paid by the purchaser at the sale or not; interest at the rate of six (6) percent per annum on all sums paid by the purchaser; and damages for waste which may be committed by the homeowner during the redemption period if the property is not redeemed.
If the homeowner does not redeem the property, then upon application to the court, the purchaser (the holder of the debt prior to the foreclosure) will be allowed the amount of the bond posted and the homeowner loses the bond. This posting of a bond is the most difficult hurdle for homeowners facing foreclosure to meet. Since a homeowner is already in financial distress, it is unlikely that they would be able to post a bond in the amount required by the statute. Moreover, at the bond hearing the purchaser may likely be arguing for a higher amount to compensate for damages due to waste, whereas the homeowner would argue for a lower amount.
Setting aside the issue of how much the court will require for waste damages, there is still the set amount required for the past interest due on the debt; interest which will accrue for the one (1) year period; taxes and assessments unpaid, if any, and those which will accrue during the one (1) year period; the costs of the foreclosure sale which includes publication costs and attorney’s fees; as well as six (6) percent interest per annum for the sum of these items. This amount alone is probably too large an amount for most homeowners to meet their bond obligation required by Missouri law.
Furthermore, even if a homeowner is able to post the amount set by the court at the bond hearing, the purchaser can request additional bond be given at any time during the one-year period upon application and at least five (5) days’ notice of such application.
If a homeowner can get through the grueling and expensive process described above, the final step is to pay off the entire debt within the one (1) year period after the foreclosure sale occurs. This usually involves the homeowner’s ability to refinance the debt on the property. Because Missouri’s right of redemption process is so difficult, few if any homeowners are able to complete the process with success, therefore, the right of redemption is rarely exercised in Missouri.
Redemption Upon Tax Lien Foreclosure
The right of redemption from a tax sale differs substantially from the right of redemption after a foreclosure of a deed of trust. Furthermore, this right of redemption from a tax sale may differ depending on which county the real estate is located in, as St. Louis County and the City of St. Louis have different procedures.
In St. Louis County and other Missouri counties, if a parcel of real estate goes to tax sale and is sold at either of the first two successive years’ tax sales, the homeowner has a ninety (90) day right of redemption after receiving notice that the property was sold at tax sale. This notice is sent by the purchaser at the tax sale within two hundred seventy five (275) days after the tax sale. If the property goes to tax sale for a third successive time, the homeowner’s right of redemption is foreclosed. This right of redemption is the reason why most property in St. Louis County is not sold until the third successive tax sale is cried by the sheriff.
In the City of St. Louis, the homeowner is given notice of his or her right to redeem by the Sheriff for the City of St. Louis. This notice is given to the owner of record not later then twenty (20) days prior to the sheriff’s sale. The notice must inform the homeowner of his or hers right to redeem the property prior to the tax sale. Failure to redeem prior to the tax sale by the sheriff forever bars the individual’s right to redeem their property.
In both the City and County, the homeowner must pay the taxes, penalties, interest, attorney’s fees and costs in order to redeem the property. Furthermore, both the City of St. Louis and St. Louis County are generally willing to enter repayment plans with the homeowner for the payment of back taxes which are due and owing.
Redemption in Bankruptcy
Not to be confused with the preceding rights of redemption is a debtor’s ability to redeem property in bankruptcy and a homeowner’s right to a homestead exemption.
Federal bankruptcy law uses the term “redeem” in terms of a debtor’s assets, i.e. vehicles and real estate. Under bankruptcy law, if a creditor allows it, a debtor may redeem an asset as long as the debtor agrees to pay the debt secured by the asset. Most of the time, a debtor and creditor will enter into a redemption agreement approved by the bankruptcy court, where the debtor agrees that the debt secured by the asset will not be discharged in the debtor’s bankruptcy. Moreover, the debtor agrees that she or he will continue to make payments of the debt to the creditor. In return, the creditor agrees to allow the debtor to retain possession of the asset.
As for homestead exemptions, in Missouri, like most states, a homeowner has a homestead exemption in real property which is the homeowner’s primary residence. A homestead exemption is available to a homeowner only when there is equity in the real estate. If a homeowner’s home is sold to pay off a debt, usually because of a judgment against the homeowner, the homeowner will get the first fifteen thousand dollars ($15,000) realized from the sale, after all liens secured by the property are satisfied.
For example, a creditor gets a judgment against an individual in the amount of one hundred thousand dollars ($100,000). The individual owns a home as his primary residence, which is worth fifty thousand dollars ($50,000) and has a mortgage against the property of only ten thousand dollars ($10,000). The judgment creditor can sell the property by way of a sheriff’s sale. However, the first ten thousand dollars ($10,000) would pay off the lien held by the mortgage company, and the homeowner would get the next fifteen thousand dollars ($15,000) realized from the sale, and the balance, if any would go to the judgment creditor to pay off the judgment. A judgment creditor rarely uses sheriff’s sales to foreclose on their judgment liens unless there exists a large amount of equity in the real property. This is because the bids offered at a sheriff’s sale are usually far below fair market value, and mortgage liens and the homestead exemptions must be satisfied from the sale proceeds first before the creditor receives any funds.