Redemption Bonds: A Tool to Manage the Risk

In some situations, buyers may be able to purchase a Redemption Bond (also known as a Surety Bond) to protect against the possibility of the property being redeemed.

What Is a Redemption Bond?

A Redemption Bond is a guarantee issued by a surety company that protects a lender, title company, or subsequent purchaser from financial loss should the property be redeemed during the statutory period.

What Does It Cover?

The bond:

• Insures the title insurer against the risk of loss

• May allow title insurance policies to be issued

• Can help secure construction loans

• Allows a buyer to move forward with certain limited improvements on the land

It's important to note: The bond does not eliminate the right of redemption—it simply provides financial protection to the title company or lender in case the redemption is exercised. You could still lose possession of the land, but your liability to others is covered.

Who Issues Redemption Bonds?

Redemption bonds are typically sold by surety bond companies, often working in tandem with:

• Title insurance companies

• Real estate attorneys

• Local insurance agencies

• National bonding companies that specialize in real estate title issues

Your closing attorney or title company can usually refer you to an approved bond provider or underwriter.

How Much Does It Cost?

The cost of a redemption bond depends on several factors:

• Purchase price of the land

• Amount of coverage required (often the full sale price + allowable expenses)

• Creditworthiness of the buyer

• Duration of coverage (usually tied to the length of the redemption window)

In general, premiums range between 1% and 3% of the bond amount, which could equate to a few thousand dollars depending on the size of the land deal.

Pros and Cons of Buying Foreclosed Land

Pros

• Discounted Pricing: Bank-owned land is often priced below market value.

• Potential Appreciation: Buying low can result in significant equity if the market continues to rise.

• Customization: You control the design, layout, and construction timeline.

Cons

• Redemption Risk: You may lose the land if the former owner redeems it.

• Financing Hurdles: Many lenders will not fund construction during the redemption period.

• Limited Improvements: Any construction done before the redemption window closes could be lost or unreimbursed.

• Added Costs: Redemption bonds and extended legal due diligence can add upfront expenses.

Final Thoughts

Buying vacant land in Orange Beach—especially a foreclosed lot—can be a smart move, but it’s not without its complexities. The Right of Redemption law in Alabama is powerful and should be taken seriously. If your goal is to build right away, this legal waiting period can make or break your plans unless you pursue a bonded title strategy or wait for the redemption window to expire.

If you’re considering a lot that’s been through foreclosure, I recommend working with a knowledgeable real estate attorney, title company, and possibly a bonding agent to determine whether the purchase is truly feasible given your construction goals and timing.