If a borrower defaults, and if a secured lender exercises its rights under a mortgage or security agreement to foreclose, the borrower still is able to avoid losing the collateral. This is because, in Indiana, borrowers have a right of redemption. “Redeem" means “to buy back. To free property from mortgage . . . by paying the debt for which it stood as security. " Black's Law Dictionary. Redemption (basically, a payoff) is the way for a borrower to keep the property, end the lien enforcement litigation and free itself of the plaintiff/lender's mortgage or security interest. In Indiana, two main statutes cover redemption.
Real estate. I. C. § 32-29-7-7 “Redemption by owner before sheriff's sale" states:
- Before the [sheriff's] sale under this chapter, any owner or part owner of the real estate may redeem the real estate from the judgment by payment to the:
- (1) clerk before the issuance to the sheriff of the judgment and decree; or
- (2) sheriff after the issuance to the sheriff of the judgment and decree;
- of the amount of the judgment, interest, and costs for the payment or satisfaction of which the sale was ordered. If the owner or part owner redeems the real estate under this section, process for the sale of the real estate under judgment may not be issued or executed, and the officer receiving the redemption payment shall satisfy the judgment and vacate order of sale . . . .
Personal property. Indiana provides for the right to redeem non-real estate collateral in its UCC statute, I. C. § 26-1-9.1-623:
- (a) A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral.
- (b) To redeem collateral, a person shall tender:
- (1) fulfillment of all obligations secured by the collateral; and
- (2) the reasonable expenses and attorney's fees described in IC 26-1-9.1-615(a)(1).
- (c) A redemption may occur at any time before a secured party:
- (1) has collected collateral under I. C. § 26-1-9.1-607;
- (2) has disposed of collateral or entered into a contract for its disposition under I. C. § 26-1-9.1-610; or
- (3) has accepted collateral in full or partial satisfaction of the obligation it secures under I. C. § 26-1-9.1-622.
The rights and time period parallel those associated with mortgages/real estate. The full amount due must be submitted before repossession or disposition of the property.
Timing. Under Indiana law, the right to redeem the property from the foreclosure judgment terminates with the sheriff's sale. Once a sheriff's sale takes place, a mortgage-debtor is no longer the title holder. Judge Coachys concluded in a 2005 case that a sheriff's sale is complete when the hammer falls and that the actual delivery of the sheriff's deed is purely ministerial. Upon a sale, title is transferred, and the loan is terminated. To avoid losing the property, the borrower/owner must pay the entire debt (usually, the accelerated amount) before the sale or disposition of the property. Otherwise, the party's over.
John D. Waller is a partner at the Indianapolis law firm of Wooden & McLaughlin LLP. He publishes the blog Indiana Commercial Foreclosure Law at http://commercialforeclosureblog.typepad.com - John's phone number is 317-639-6151, and his e-mail address is firstname.lastname@example.org.