Borrower's Right of Redemption After Foreclosure

I was recently asked by a real estate agent whether Tennessee is a "redemptive state," as she wanted to verify something she was told by another real estate agent. Initially I wasn't sure what she was referring to, but when I learned the identity of the other real estate agent (an REO specialist) I realized that she was asking about a borrower's right to redeem property after it has been foreclosed. I found it interesting that this was the second time I had been asked that question in as many weeks, but I presume that since foreclosures and REOs are making up a greater percentage of the transactions in the marketplace, these issues become more and more important. In this case, the agent had been told that Tennessee is not a "redemptive state," but that is simply not true. Under Tennessee law (TCA Section 66-8-101 for anyone inclined to look it up), a borrower under a deed of trust which has been foreclosed by power of sale (which is the typical foreclosure in Tennessee) has a right to redeem the property within 2 years after the foreclosure sale.

This begs the question of what, exactly, is the right to redeem. It is the right of the borrower who lost the property at foreclosure to pay the successful bidder (or current titleholder if subsequently sold) the amount such person paid for the property at foreclosure plus a certain amount of interest and costs defined by the law. As previously mentioned, this right extends for 2 years from the date of sale. If you're following along, you may be asking yourself how you can protect your buyer who purchases an REO property from losing title to the property when the foreclosed borrower exercises his right to redeem - good question. Fortunately, Tennessee law allows a borrower to waive the right to redeem in the deed of trust document, and such waiver allows lenders to foreclose without the threat of future redemption by the borrower. Thankfully, almost all deeds of trust in Tennessee will contain an appropriate waiver clause - in fact I don't remember the last time I saw one without it. So while technically Tennessee is a "redemptive state," for all practical purposes the right to redeem does not present any problems in a foreclosure.

For our friends in Mississippi, Richard Johnson, one of our Mississippi attorneys, has informed me that, as in Tennessee, the borrower has the right to redeem the property before foreclosure. However, there is no right spelled out in the Mississippi Code to redeem after foreclosure.

Please contact your Realty Title representative with any other questions about foreclosures and REOs.

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