Equity of Redemption

Definition§

The Equity of Redemption is a right reserved for mortgagors who find themselves in default on their mortgage payments. It grants these individuals the opportunity to reclaim their property by paying the entire mortgage debt along with any additional costs and accrued interest before the foreclosure proceedings are finalized. This right is a protective measure embedded in common law to prevent unduly harsh consequences of foreclosure and to afford the mortgagor the chance to reclaim ownership upon debt settlement.

Examples§

1. Homeowner’s Last Resort: A homeowner, who has defaulted on their mortgage payments and is on the brink of foreclosure, decides to sell valuable personal assets to gather funds. They manage to pay off the entire debt including interest and legal costs to the lender, thereby utilizing the equity of redemption to save their home from being foreclosed.

2. Commercial Property Reclamation: A company that owns commercial property defaults on its mortgage payments during a period of financial strain. Before the foreclosure process is completed, the company secures an emergency business loan, clears the outstanding mortgage debt, and retains ownership of their real estate, thanks to the right of equity of redemption.

Frequently Asked Questions (FAQs)§

Q1: What steps must a mortgagor take to exercise the equity of redemption?

• A1: The mortgagor must tender full payment of the outstanding mortgage debt, including any accumulated interest and legal costs, to the mortgagee before the property is sold in foreclosure.

Q2: Can the equity of redemption be waived by the mortgagor?

• A2: Generally, equity of redemption cannot be contractually waived because it is established by law to protect the rights of the mortgagor.

Q3: Is there a time limit for exercising the equity of redemption?

• A3: The timeframe to exercise the equity of redemption extends up until the foreclosure sale. Once the property is sold in foreclosure, the equity of redemption is extinguished.

Q4: Does exercising the equity of redemption affect the credit score of the mortgagor?

• A4: While exercising the equity of redemption prevents foreclosure and potential further credit damage, the initial default and late payments may have already negatively affected the mortgagor’s credit score.

Q5: How does the equity of redemption differ from a statutory right of redemption?

• A5: The equity of redemption must be exercised before the sale of the foreclosed property, while a statutory right of redemption allows the borrower to redeem the property even after the foreclosure sale, dependent on state law.

Related Terms§

• Foreclosure: The legal process by which a lender takes control of a property, evicts the homeowner, and sells the home after the homeowner defaults on mortgage payments.

• Default: Failure to fulfill the legal obligations (or conditions) of a loan, particularly repayment terms on a mortgage.

• Mortgage: A legal agreement by which a bank or creditor lends money at interest in exchange for taking title of the debtor’s property, which is forfeited if the loan is not repaid according to the agreed terms.

• Mortgagee: The lender or entity that holds the mortgage and the accompanying rights to the property under the mortgage agreement.

• Redemption Period: The period during which the homeowner can pay off the full mortgage debt plus interest and costs to prevent a foreclosure sale and reclaim the property.

Online Resources§

• NOLO Legal Encyclopedia: Equity of Redemption Explained
• Investopedia: Equity of Redemption
• FindLaw: Mortgage Foreclosure and Redemption Rights

Suggested Books for Further Studies§

1. “Principles of Real Estate Practice” by Stephen Mettling and David Cusic
2. “Real Estate Law” by Marianne M. Jennings
3. “The Law of Mortgages” by Dale Whitman, Ann Burkhart, R. Wilson Freyermuth
4. “Understanding Property Law” by John G. Sprankling

Fundamentals of Equity of Redemption: Real Estate Law Basics Quiz§

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