Even after your lender forecloses and sells your house, it may not be lost forever. Some states, such as Arizona, Connecticut and Iowa, give you a "right of redemption" -- the right to buy back your house from whoever purchased it at the foreclosure auction. Redemption is only an option if your lender files in court to take your house, and if you have enough money to regain ownership.
Some states require your lender go to court to foreclose. Other states allow non-judicial foreclosure and some let the lender choose either option. Even in judicial foreclosures, you only get a right of redemption if state law grants it. Alabama gives you up to a year to redeem your house, Minnesota gives you six months and Connecticut lets the judge set the redemption period. Some states have special restrictions and exemptions. Arizona law, for example, won't let you redeem farmland.
Redeeming your house isn't cheap. In Alabama, for example, you have to pay back the new owner whatever she paid for the house, plus interest. The redemption price also has to cover any permanent improvements she's made to the property, or any taxes, insurance or property liens she paid off. If the bank wound up buying the property, you redeem it by paying off the mortgage, even if the bank paid more than the mortgage debt.
One alternative to exercising the right of redemption is to prove that the lender foreclosed on your property illegally. Florida homeowners don't have a right of redemption, but consumer groups and owners' attorneys have successfully overturned a number of foreclosures by showing the lender didn't follow legal procedure. If you can show that, for instance, your lender's staff didn't give your case a proper review, a judge may agree to give you your house back.
Reclaiming your house doesn't always end your money woes. If the foreclosure sale didn't wipe out your mortgage debt, some states let lenders sue you for the deficiency. If you lose, you'd have to pay that along with what you paid to redeem the house. If you overturn a foreclosure, that often reinstates the mortgage. If you haven't fixed the problems that led to the original default, your victory may only buy you time. The bank, may, however, agree to modify your loan rather than go through foreclosure again.
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