Strict Foreclosure
What is a "strict foreclosure"?
A "strict foreclosure" is a foreclosure proceeding in which the lender is entitled to take possession of the property directly upon default of the mortgage agreement.
Strict foreclosure is very similar to a deed in lieu of foreclosure, except the borrower does not have the option to refuse. Their only course of action if they wish to fight the proceeding is to take the matter to court.
In simple terms, the mortgage agreement states that the lender owns the property until the mortgage has been paid in full. If the borrower breaks any of the conditions of the mortgage before it is paid in full, they will lose any right to the property and the lender will take possession of it. The borrower forfeits any equity they have built in the property through repayment of principal or increase in property value.
Laws differ between various states, but the lender generally needs to take the matter to court and prove that the borrower is in default under the terms of the mortgage. The borrower is then given a length of time, determined by the court, to come up with the money.
If the borrower fails to repay the debt within the allotted time, the lender receives full title to the property as complete settlement of the debt. No sale is required, and the borrower does not receive payment for any equity they may have accumulated in the property.
Because of the obvious opportunities for abuse and the general unfairness to the borrower, strict foreclosures are quite rare in the modern marketplace.
