In Kentucky, two issues are common in most Kentucky foreclosures: redemption and rescission, particularly during the post-sale redemption period. Kentucky’s foreclosure laws establish the procedures and rules lenders must follow during foreclosure. Kentucky state statutes, TILA and RESPA impact how to get your house back after a foreclosure sale and your redemption and rescission rights.
Redemption gives a homeowner who went through a foreclosure sale the right to repurchase their house if the sale was for less than 2/3rds of its value. Under KRS 426.530, if the property sold for less than two-thirds (2/3) of its appraised value, the homeowner can redeem it. You can purchase it back from the new owner within six (6) months from the day of sale. You must pay the new owner the purchase money plus ten percent (10%) per annum interest, and reasonable costs incurred by the purchaser. This includes maintenance or repair of the foreclosure property, including but not limited to utility expenses, insurance, association fees, and taxes. It also includes the costs to bring the property up to code under local minimum standards.
Kentucky Foreclosures Redemption period and the right of Rescission
The homeowner only needs to pay the redemption to the court clerk, and then the commissioner will immediately convey the property back. Redemption is why lenders often bid at least two-thirds of the home’s appraised value at a foreclosure sale. A bid above that threshold cuts off the former owner’s right to redeem.
The redemption period is short and most people cannot come up with the money after the foreclosure auction. Even if there was a foreclosure auction a foreclosed home may still belong to foreclosed homeowners because until the home is paid for the buyer only has an equitable interest in the home.
Until the home is transferred to the new owner and the redemption period has passed there is a chance to recover the home if the sale price was too low. The foreclosed home belongs to the owner who can stop the sale with a bankruptcy until the auction. After that he may voluntarily leave or the judge orders the borrower to turnover the property to the purchaser. Homeowners are given a minor amount of notice by the court before the sheriff evicts the residents.
A sale can also run the other way. When the home brings more than the debt, the extra money belongs to the former owner, and it sits with the court until someone asks for it. Learn how to claim surplus funds the Commissioner is still holding.
Understanding the Foreclosure Process
The foreclosure process can be complex and varies by state. In Kentucky, the foreclosure process typically begins when a homeowner falls behind on mortgage payments. The mortgage lender will send a notice of default to the homeowner, stating they have a certain amount of time to bring their payments up to date. If the homeowner fails to do so, the lender will proceed with the foreclosure process. This initial stage sets the tone for the subsequent steps in the foreclosure process.
The homeowners can ask for a modification, attempt a short sale, file a bankruptcy, sell the home, or file a Chapter 13 bankruptcy and take up to five years to bring the mortgage loan current. But as time goes on, you lose options. Attempting to stop the sale the day before a judicial foreclosure sale often guarantees you lose the home and all of any equity and money you could have kept.
Overview of the Foreclosure Process in Kentucky
Kentucky is a judicial foreclosure state. A lender must file a lawsuit in Circuit Court and obtain a judgment before the property can be sold. Some states allow nonjudicial foreclosure, where the lender sells without going to court. Kentucky does not. Because every Kentucky foreclosure runs through the court, the state’s foreclosure timeline, the notice you receive, and your deadlines are all set by the Circuit Court record in your case.
Redemption Periods and Rights
The redemption period is a critical component of the foreclosure process. During this time, the homeowner has the right to redeem the property by paying the purchase money plus ten percent per annum interest and the allowable costs. Miss the timing, correct amount or other elements and you lose the ability to recover your property.
This period provides the only final opportunity for homeowners to reclaim their foreclosed home and avoid eviction proceedings. Missing the length and conditions of the redemption period means you have lost the home permanently. With a foreclosure, it may take three to seven years before you can buy another house. A foreclosure is much worse on your credit history than a bankruptcy.
Explanation of Redemption Periods
In Kentucky, the redemption period depends on the sale price. If the property sold for less than two-thirds of its appraised value, the former owner has six months from the sale date to redeem it. If the sale met or exceeded two-thirds of the appraised value, there is no right of redemption at all.
It’s essential to note that the redemption period is not the same as the right of redemption, which is the right to bring the property current. The right of redemption is a state law homeowner’s right to stop a foreclosure sale by paying off the mortgage debt before the sale happens. The redemption period, on the other hand, is the state laws time period after the foreclosure sale during which the homeowner might be able to redeem the property.
If you’re facing foreclosure in Kentucky, it’s crucial to understand your rights and options. Consult a real estate attorney or foreclosure lawyer to understand the Court and what is owed and how to redeem and pay the allowable charges. Certain circumstances will modify your redemption rights when a property is foreclosed. Only the necessary costs are allowed.
Your lawyer can help you work through the foreclosure process and determine the best course of action for your situation before a sale date cuts off rights. A knowledgeable foreclosure attorney will provide guidance on the state law redemption process, help you understand your right of redemption, and assist in negotiating with your mortgage lender or loan servicer to explore possible alternatives to a foreclosure sale date.
Kentucky foreclosure rescission, right of redemption, and Truth in Lending Act (TILA).
If you refinance your home within three years before the sale, TILA gives you grounds to rescind a home mortgage loan. One common closing mistake is failing to provide borrowers with two copies of the notice of right to cancel. Even if the note and mortgage are to one spouse only, the other spouse also has the right to be given notice. Under the Truth in Lending Act, if the loan is invalid, the loan default is also invalid, which stops a foreclosure action. Invoking the right of rescission is just one of many rights and defenses. However, there are several defenses to help you save a home.
First, you must gather all of the paperwork and documents you used to purchase or refinance your home and take it to law offices so you can be advised. To apply for a mortgage, you must provide a copy of your taxes, pay stubs, any prior bankruptcy proof, and proof of citizenship. You also must explain where the down payment comes from and prove that you intend to live there, along with numerous other items. These documents all went into the loan decision. This is important because a rescission is possible if the lender misrepresents facts such as the actual cost or fees.
The purpose of the Truth in Lending Act.
The reason for TILA is to protect borrowers from hidden fees and fraudulent or deceitful practices. It prevents the sloppy paperwork you commonly find in early mortgage loans. The Truth in Lending Act gives borrowers the benefit of the doubt. The TILA right of rescission will temporarily stop foreclosure actions and may allow a borrower to walk away from the foreclosure. Although damages under the statute are often minor, a lender may offer a modification or workout as a response. Missed payments can lead to foreclosure actions, and TILA plays a crucial role in protecting borrowers by ensuring transparency and fairness in the lending process.
You went through all that paperwork to buy the home to ensure compliance with laws like the Truth in Lending Act (TILA). When defending a foreclosure, it’s time to check and confirm the lender is in compliance with these laws. The Truth in Lending Act requires the mortgage lender to obtain specific information and documents and disclose them to the homeowner. For instance, TILA requires mortgage companies and banks to provide two copies of the right to cancel, one copy for each spouse or co-debtor. If two copies are not provided at closing, a homeowner or borrower has three years to rescind the transaction. Plus, the borrower may recover damages.
Nick Thompson, Real Estate Attorney.
Kentucky redemption and rescission are two methods to help stop a sale and prevent a deficiency or income tax debt from the foreclosure sale. We are recognized in Avvo (who ranks us 10 out of 10) and in Google (who ranks us 5 out of 5) as one of the highest-ranked bankruptcy and foreclosure attorney in Kentucky for 2012, through 2020 based on the ratings from other attorneys and clients. Threebestrated.com ranks us as one of the top 3 offices for bankruptcy and foreclosure in Louisville and obtaining consistently favorable results for clients. We represent distressed homeowners throughout Kentucky.
Resources for Bankruptcy
Kentucky Foreclosure Defenses TILA RESPA
Bankruptcy Motion 722 Redemption
Chapter 7 Bankruptcy Auto Loan Redemption
Louisville Kentucky Foreclosure Defense
If you are considering bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office right away to start the conversation. Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
Understanding the eviction process is also essential. It details the legal steps required for a new owner to reclaim property from a resident after a foreclosure sale. Our resources explain this process, including the variations in legality and timelines across different states.