What Is a Strict Foreclosure?
- A strict foreclosure comes about when a mortgage agreement containing a strict foreclosure decree is violated. Such a decree states that if the homeowner defaults on payments, the lender may file a lawsuit against the debtor with the aim of obtaining full possession of the property if the owner cannot pay the mortgage loan in full by a certain date. States that permit strict foreclosure decrees include Maine, New Hampshire, Connecticut, Indiana, Illinois, and Vermont.
- When a homeowner goes into default, and the lender chooses to execute a strict foreclosure decree, the lender will typically file a lawsuit asking the court to give the homeowner a specific deadline by which the entire amount still left unpaid on the mortgage must be paid completely. The court is saying that the lender can take possession of the property if, by the time that date passes, there is any debt left on the loan.
- In most cases, the owner cannot pay in full, since he may have been given only a few months to pay off a loan that was originally suppose to be paid over a period of 10 years or more. At this point, the lender immediately takes full ownership. This is done without the property going up for auction and without the involvement of the local sheriff's department, as in other types of foreclosure.
- In a mortgage with a strict foreclosure decree, the borrower risks forfeiting his or her entire equity to the lender if the borrower falls behind on her payments. Strict foreclosures usually occur in cases in which the borrower is upside down or underwater on the mortgage. In other words, it happens when the amount the homeowner owes on the mortgage is greater than the actual market value of the underlying property. The debt is then canceled.
