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Redemption States


Some states give homeowners a chance to reclaim foreclosed property, but banks may still be on the hook for liability.


“If something were to happen to the asset then the bank would take the loss and if there were injuries or suits arising out of the asset the bank may be perceived as the deep pocket, so it may be wise to insure it as if the bank legally owns it.”


Patricia Dennis, Zions Bancorp


In a “redemption states,” a bank can legally foreclose on a property, but the borrower has six months to a year to redeem the property. Even though the bank has no right to enter, secure, maintain or sell property until the redemption period expires, it’s a good idea for the bank to insure the liability exposure. Risk managers must determine how the asset is booked to know if the OREO coverage is triggered in this circumstance. Requesting that the property be put in the hands of the receiver would seem the safest option, but often the redemption period expires before that process is complete. The redemption period raises other issues because the bank may be prevented from taking steps that would keep the property in compliance with state and local code or maintenance requirements.


Copyright © 2012 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


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