17.20 Redemptions From Mortgage Foreclosures

17.20.1

In General

There are two types of redemption: Equitable redemption and Statutory redemption.

  • Equitable Redemption

    In every jurisdiction, ?equitable redemption? means the right of the mortgagors, within a certain period of time, before the foreclosure sale, to either bring the loan current, pay it off, or perform their obligations under the mortgages/deeds of trust.

The mortgagor's right of equitable redemption is terminated by the foreclosure action.

  • Statutory Redemption

Texas does not have a statutory right of redemption.

17.20.2

Redemption Rights Of The United States

Under federal law, the United States has certain redemption rights when its liens are eliminated in a foreclosure sale.

First, if the United States has a lien senior to the lien being foreclosed, the sale must be made subject to the lien of the United States . In this situation, the lien of the United States may not be disturbed unless the United States consents to a sale free of its lien.

Where the United States has a lien junior to the lien being foreclosed, the United States has a right to redeem as follows:

  • In a judicial sale

    One year from the date of the sale, unless the junior lien is one arising under the internal revenue laws in which case the United States has 120 days or the period allowable for redemption under State law, whichever is longer, (28 U.S.C.A. Sec. 2410[c]).
  • In a nonjudicial sale

    Only the period allowable for redemption under state law, if any, unless the junior lien is one arising under the internal revenue laws in which case the United States has 120 days or the period allowable for redemption under State law, whichever is longer, (26 U.S.C.A. Sec. 7425[d]).
Examples of liens not arising under the internal revenue laws would include among others, mortgages\deeds of trust held by the Small Business Administration or the Farmers Home Administration. An example of a lien arising under the internal revenue laws is a Federal Tax Lien.

The right of the United States to redeem property from a sale must be shown as an appropriate exception in the title commitment and/or policy being issued. Such exception must remain in the title commitment and/or policy until the applicable redemption period has expired and no tender of redemption has been made by the United States within the time permitted for redemption. THE FEDERAL RIGHTS OF REDEMPTION CANNOT BE CUT OFF BY RE-FORECLOSURE OF AN OTHERWISE PROPERLY FORECLOSED MORTGAGE SIMPLY TO CORRECT LACK OF NOTICE TO IRS.

17.20.3

Federal Preemption Of State Mortgage Law

Under the Supremacy Clause of the United States Constitution, federal law (which is validly adopted and within the constitutional power of the federal government) is the supreme law of the land and supersedes state law.

Consequently, where the mortgage is one in which the United States is the holder or has an interest, or as the Federal Housing Administration, the Veterans Administration, the Small Business Administration or some other agency of the U.S. Government, the question arises as to what extent state redemption provisions are binding against the government.

In this respect, though the law of preemption is still far from being settled, the vast number of court decisions hold that the state redemption law is inapplicable.