In a typical scenario a bank or mortgage company files a lawsuit to foreclose on a home sure to a default in payment on the mortgage note. The lawsuit ends with the mortgage foreclosure and the sheriff sells the property at an open auction. From the date of the auction, the homeowner typically has 90 days to pay the amount bid at the sheriff’s sale and “redeem” the property. This process that focuses on redemption rights places the property back into the homeowner’s name free and clear of the mortgage that was foreclosed upon. During this period, the owner has no obligation to pay the mortgage note and can list the home for sale or sell the redemption rights to another person or entity.
The process is legally referred to as the “equitable” right of redemption where equitable means “fair” in this scenario. The equitable right of redemption allows the homeowner to sell the property or the redemption rights to the property and capture some, or all, of the equity in the property. The equity in the property is created by a combination of increase in value over time and reduction of debt as the mortgage has been paid.