Thursday, June 27, 2013

MBE Fast Fact: Redemption (Mortgages)

Foreclosure is the process by which property is sold to satisfy a debt in whole or in part. But all is not lost for a debtor who defaults on a loan. On the MBE, you should keep in mind both redemption in equity and statutory redemption, paying special attention to the distinctions between the two.

Redemption in equity allows a mortgagor who defaulted on a loan to redeem the property by paying off the amount in default prior to the foreclosure sale. Importantly, if the note or mortgage contains an acceleration clause, then rather than owing only the amount in default, the debtor, to redeem, will have to pay the entire remaining balance on the note.

In contrast, statutory redemption allows the mortgagor to redeem property, but that right is not limited to a time period prior to foreclosure. Rather, the mortgagor may redeem the property for some fixed period of time even after the foreclosure sale has occurred.

Note the distinction above, and also note the similarly; namely, that both forms of redemption act as one last opportunity for a debtor-mortgagor to avoid losing his property. The type of redemption allowed will depend upon the state, and because the MBE applies common law, the question will have to clue you in as to which type of redemption to apply.

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