Surety Bond Professionals is a family-owned and operated bonding agency with over 30 years of experience. With access to a broad range of surety markets, our expert agents are ready to assist with all your Alabama right of redemption bond needs.
What Are They?
Alabama right of redemption bonds come into play when someone purchases a property in a foreclosure auction or sale for the purpose of “flipping” it—selling it for a profit, typically after making some improvements to it. The bond is required because, in Alabama, the original owner has the “right of redemption.”
The right of redemption allows the original owner to redeem the property by paying off back taxes and/or liens against the property within one year of the date of the foreclosure sale. The redemption period for homestead property is 180 days. Homestead property is defined as a single-family owner-occupied home, and the land the home sits on does not exceed 160 acres. The right of redemption applies even if the property has been flipped in the meantime.
An Alabama right of redemption bond is the flipper’s guarantee to pay off any mortgage issued to a person purchasing the property from the flipper if the original owner subsequently redeems the property. Without a right of redemption bond, it’s highly unlikely that any lender would be willing to issue a mortgage on a property that could still be redeemed by the original, pre-foreclosure owner.
Who Needs Them?
Any party flipping a foreclosed property must purchase an Alabama right of redemption bond to provide financial protection to the lender granting a mortgage to the new owner. The required bond amount typically is equal to the amount of the mortgage. The bond must have a duration that exceeds the redemption period.
Speak with a Surety Bond Professionals agent today to discuss your bonding needs.
How Do They Work?
The surety bond agreement for a right of redemption bond is a legally binding contract involving three parties:
- The lender issuing a mortgage to finance the purchase of a flipped, foreclosed property is the “obligee” requiring and protected by the bond.
- The party flipping the property is the “principal.”
- And the bond company underwriting and approving the bond is the “surety.”
In the event that the original owner redeems a flipped property by paying off back taxes and/or liens within the redemption period, the obligee will have a valid claim against the right of redemption bond. The principal is legally obligated to pay that claim. However, the surety most likely will pay the claim on behalf of the principal and then be reimbursed by the principal. This common practice ensures that the claim is paid promptly and allows the principal to repay the resulting debt owed to the surety in manageable installments rather than a single, large lump sum.
What Do They Cost?
The surety is taking a risk in issuing a right of redemption bond, and the degree of perceived risk is reflected in the premium rate the principal must pay to purchase the bond. The underwriting criteria are comparable to those for securing a mortgage and are based primarily on the principal’s personal credit score. The better the principal’s credit and financial situation, the lower the premium rate.
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Our surety bond professionals will get you the Alabama right of redemption bond you need at a competitive rate.
