Some states give foreclosed owners the right to buy their property back at the foreclosure bid price. They have different time periods depending on the state, ranging from three months to twelve months.
Buying rights of redemption is similar to buying options on real estate. You pay the former owner a small sum of money, usually $500 to $1,000. You receive a deed or a bill of sale (depending on the state) for the redemptory rights. That gives you the right to buy the property for the foreclosure bid price at any time before the redemptory period expires.
This type of investing is only for the very experienced. It requires you to know every nook and cranny of a subtle area of law. The person who sold you the right of redemption might not be the only one entitled to redeem the property. If you purchase the property, someone else might be able to then buy it from you for the same price. While you will get your purchase price back if this happens, you will not be reimbursed for the interest on the money you borrowed to finance the purchase, the money you spent on the closing, or any other pre-purchase expenses such as home inspections.
Another type of redemption investing is to buy at foreclosure, usually real estate tax sale foreclosures. You buy at a very low price, secure in the knowledge that the former owner will be able to redeem at some point in the future. Tax sales often carry much longer redemption periods than regular foreclosures, sometimes as long as three years.
Why are you hoping the former owner redeems in such situations? Suppose you have some money to invest. You can put it in CDs at the bank, for very low interest rates.
Or, you can put it in the stock market and hope you choose the right stocks. Or, you can buy tax sale and similar properties because most states require the redeeming owner to pay 12% interest. They must reimburse you for your purchase price, plus 12% per year in interest, plus (usually) money you spent for taxes and insurance.
If you buy right, the worst thing that happens is that the former owner never redeems and you have a valuable piece of real estate for a very small investment.