When a home goes into a foreclosure proceeding, it most often forecloses through one of two processes: judicial or nonjudicial foreclosure. However, there’s a third, lesser-known, and less common form of foreclosure available in only a handful of states, called strict foreclosure.
Today, let’s break down strict foreclosure in detail and explore everything you need to know about this foreclosure process.
In a nutshell, a strict foreclosure uses a court order to quickly and forcibly seize property from a homeowner. If the court approves a lender’s strict foreclosure request, the homeowner only gets a certain amount of time to resolve the debt complaint and avoid foreclosure.
If the mortgagee is unable to pay the remaining balance in the specified timeline, the property automatically returns to the lender, who assumes full ownership of the property. This is different from the other foreclosure processes because the lender assumes full ownership prior to an auction of the property.
With a traditional foreclosure, the lender who owns the mortgage tries to auction the property off to recoup its costs through the sale price. The big difference between a traditional foreclosure and a strict foreclosure is that the latter allows the bank full ownership of the property without going through a commercial sale or public auction.
Strict foreclosures can make it more difficult for a homeowner to recoup their property in the set timeline because it circumvents the traditional process of auction and gives the lender full ownership of the property. Just like any foreclosure process, the lender has to follow specific steps and protocols to get their strict foreclosure request approved.
The strict foreclosure process is as follows:
Some circumstances exist in which lenders cannot legally force strict foreclosures on homeowners. The above objection rule is one of them; it stops homeowners from having their interest in the property’s fair market value cut off too quickly.
Additionally, lenders cannot push strict foreclosures if the borrower has repaid at least 60% of the total loan amount on the mortgage deed. So if you have paid off 60% of your mortgage total, your lender can never force you into acceptance of strict foreclosure.
There are only three real reasons why a lender might desire a strict foreclosure over a traditional foreclosure.
A strict foreclosure is faster, more straightforward, and beneficial to lenders under certain circumstances.
Borrowers should avoid strict foreclosures at all costs because they come with big considerations and limitations.
If a strict foreclosure is approved, the borrower no longer has the right of redemption. That means you will not be able to repurchase the property from the mortgagor as you can with a traditional foreclosure process, even if you acquire the funds necessary to do so. If you wish to purchase your home back, you’ll have to convince the plaintiff to sell it to you, which may be very hard if you have reached a strict foreclosure in the first place.
Furthermore, it may not be possible for you to purchase the home back at any future date unless the property changes hands and goes to another bank or financial institution. In some ways, a strict foreclosure is the most serious type.
In any foreclosure situation, it is important to look for options to stop the foreclosure process immediately. There is never a benefit to a foreclosure since the homeowner loses ownership of their property and their credit is greatly impacted. It is important to know and research your options so that you can save your home.
Even though strict foreclosure is considered a different process than judicial and nonjudicial foreclosure, the methods of stopping foreclosure are the same. These methods include:
Homeowners may also consider co-investing with Balance Homes. This innovative and effective strategy can help you avoid foreclosure and retain ownership of your home in an affordable and flexible way.
In a nutshell, Balance Homes purchases the equity in your home and gives you up to $50,000 in cash to pay off outstanding debts, in addition to paying off your current mortgage loan. As a co-investor, Balance pays their share of the home's expenses and you will make monthly payments to Balance.
As your financial situation improves, you can purchase additional equity from Balance. You can alternatively refinance your home and exit the co-investment at any time within the 7 year period.
As you can see, this may be a great way to avoid foreclosing on your property or losing ownership entirely. You can check out our website or contact us today for more information.
You may not have heard of strict foreclosures because they are very rare. In fact, only two states currently allow strict foreclosures under specific circumstances. Those states are Vermont and Connecticut.
In Connecticut, strict foreclosures are allowed until Law Day. If the strict foreclosure is not pursued or approved then the foreclosure is usually judicial.
In Vermont, it’s the same way. Strict foreclosures are allowed after lenders receive a foreclosure decree by a judge. All other foreclosures are judicial rather than nonjudicial.
If you don’t live in Connecticut or Vermont, you don’t need to worry about your lender trying to force a strict foreclosure because they won’t be able to. Even if you live in these two states, judicial foreclosures are still far more common.
There are two other types of foreclosures aside from strict foreclosures: judicial or nonjudicial foreclosures.
Judicial foreclosures are the most common type throughout the US and are allowed in 28 out of 50 states. With a judicial foreclosure, the court must order the sale of a property to satisfy the terms or requirements of a mortgage.
With a judicial foreclosure, the lender files a lawsuit against the homeowner, and the homeowner is required to pay off their debts by a certain date. If they fail to do so, the property is then sold at an auction, and any proceeds are used to pay off the mortgage, lienholders, and other debts.
Judicial foreclosures are typically long and are not advantageous for either party. Even though a lender may request a judicial foreclosure, they may not be approved. Lenders must prove there is a reason for the foreclosure, so the court agrees with them before the process can begin.
Nonjudicial foreclosures occur in 22 out of 50 states and are possible if a mortgage has a “power of sale” clause. They may also be preferred in states where deeds of trust are used instead of mortgages.
With nonjudicial foreclosure, the lender has the right to foreclose on the property without getting the approval of a court first. They are still required to make a formal notification to the homeowner, but the deadline before a homeowner is evicted could be shorter.
A nonjudicial foreclosure is usually better for the lender since they can quickly close the property.
A strict foreclosure is a type of foreclosure in which a lender takes direct possession of the property once the homeowner is evicted or leaves. Instead of selling the home at auction, the lender may take full ownership of the property for another sale or for some other use entirely. It’s always best to avoid a strict foreclosure if possible, so it’s important to know debt repayment strategies ahead of time.
If you’re interested in learning more about co-investment with Balance Homes, feel free to contact us today. Foreclosure can be a stressful time, but we may be able to help.
Sources:
Chart: Judicial v. Nonjudicial Foreclosures | Nolo.com
Foreclosure Process/US Department of Housing and Urban Development | HUD.gov
Key Aspects of State Foreclosure Law: 50-State Chart | Nolo.com
