Also known as: redeems collateral · redeemed collateral · redeeming collateral · redemption of collateral · right of redemption · collateral redemption
Written by attorneys · grounded in primary & secondary sources — see below
A statutory right allowing a debtor, secondary obligor, secured party, or lienholder to recover collateral by tendering fulfillment of all obligations secured by the collateral plus reasonable expenses and attorney fees. The right exists until the secured party disposes of the collateral or enters a contract for its disposition.
Elm Design held a junior lien on sound equipment after Harbor Design defaulted on its loan from Crest Creative. Elm Design contacted Crest and tendered the full principal plus expenses to reclaim the collateral and keep the venue running. Crest rejected the tender and scheduled an auction instead.
In state X, River Ocean granted a security interest in warehouse equipment located in state Y to a lender based in state C. States X and C shared identical local rules on a debtor's right to redeem after default. The court aggregated the contacts in X and C and treated the redemption issue as arising in a single state.
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Debtors facing repossession during an economic emergency received a statutory extension of time to redeem their collateral by paying the full debt. The extension preserved the right to redeem even after the original contractual deadline had passed, allowing payment to restore possession before any sale closed.
A debtor, any secondary obligor, or any other secured party or lienholder may redeem collateral. This standing arises once default occurs and the secured party has taken possession or begun enforcement.
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The redeeming party must tender fulfillment of all obligations secured by the collateral together with reasonable expenses and attorney fees incurred by the secured party. If the debt has been accelerated, the full accelerated balance must be paid.
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The right ends when the secured party disposes of the collateral or enters into a contract for its disposition. A binding lease or sale contract cuts off redemption even if the actual transfer has not yet occurred.
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In a consumer-goods transaction the right cannot be waived before default. Outside consumer-goods transactions, waiver is permitted only by a post-default authenticated agreement.
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…Beverly , 163 U.S. 118, the Court held that a statute which authorized the redemption of property sold on foreclosure, where no right of redemption previously existed, or which extended the period of redemption beyond the time formerly allowed, could not constitutionally apply to a sale under a mortgage executed before its passage.…