Right of Redemption

The right of redemption is the legal right granted to a property owner (and in some cases, other interested parties such as mortgage holders) to reclaim their property after it has been sold at a tax sale. To exercise this right, the owner must pay the full amount of delinquent taxes, plus all accrued interest, penalties, and fees, within the state's designated redemption period.

This right exists as a safeguard to protect property owners from permanently losing their homes or investments due to temporary financial hardship. Most states view property tax delinquency as a recoverable situation and provide property owners with a reasonable opportunity to make good on their obligations. The specifics of redemption rights vary significantly by state, including the length of the redemption period, the interest rate charged, and who is eligible to redeem.

For tax lien investors, the right of redemption is actually the primary source of profit. When a property owner exercises their right to redeem, the investor receives their original investment back plus the statutory interest rate. Since the vast majority of tax liens are eventually redeemed, investors are essentially lending money secured by real property at interest rates set by the state.

It's important to note that the right of redemption may extend to parties beyond just the property owner. Mortgage lenders, other lien holders, and sometimes even tenants may have the right to redeem a tax lien to protect their interests. These additional potential redeemers actually increase the likelihood that an investor will receive their investment back with interest, adding another layer of security to tax lien investments.