Strict foreclosure is the legal foreclosure procedure applicable in many states of the US. Its definition is “The lending parties or their respective affiliates, who are not entitled to the right of first refusal, of lien or right of redemption of a debt obligation on the securities or assets of a debtor for the performance of obligations existing under a promissory note, agreement, or contract, but are not at the time of writing acting as creditors” (Broadloom Equity Network, Inc. v. Ashburn) Basically, it is a foreclosure procedure in which the mortgage lender or his agent is given the power to sell off the property without any prior notice or opportunity to redeem. Strict foreclosure in terms of the law of equity interests in the United States is the non-judicial foreclosure of real property subject to such an equity interest. This is allowed under Article 9 of the Uniform Commercial Code. This article provides, “No right of redemption or interest may be claimed against the property, other than the right of redemption or payment of the debt.” In other words, the borrowers have no right to redeem their properties from the strict foreclosure process.
However, the Vermont courts have ruled that strict foreclosure by a power of sale does not violate the rights of the borrowers under the federal laws. Moreover, under state statutes the power of sale is conferred only upon the lenders. Furthermore, the state laws allow for non-judicial foreclosures. Finally, the state supreme court has explicitly upheld the constitutionality of non-judicial strict foreclosure in Vermont. It is, therefore, wise to consult with an attorney who is familiar with the relevant state law before going forward with this option. Another reason to avoid a strict foreclosure is that it is often associated with a significant amount of money. In many instances, homeowners are unable to pay off their mortgages in full. A huge deficiency judgment could consequently drag on for years. In some cases, homeowners may be sued for the balance of the mortgage loan after the sale of the property has been completed. Therefore, if you face such a deficiency judgment against you in Connecticut, it is important to consult an experienced attorney to prevent the pendency of the case and pursue your claim in a Connecticut court.
In addition, there are numerous tax consequences that can result from strict foreclosure in CT. You may be held liable for taxes on the outstanding balance of the mortgage or the entire balance owed under the mortgage. The lender may also be ordered to reimburse your losses in some circumstances. In certain cases, the lender may be required to return all commissions paid to him by you as a result of a strict foreclosure. In both cases, a competent Connecticut real estate lawyer can assist you throughout the process. The third consequence of a strict foreclosure works on the homeowner’s credit report. Once you have been given a notice of default, you will find it extremely difficult to obtain any type of credit from a lending institution. The duration of this negative impact on your credit is generally six months. If you fail to remedy the situation before this time, the lender will assess you as a risk and will not provide you with any type of financing. A competent Connecticut real estate lawyer can help you mount a strong defense in this matter.
Consequences of Strict Foreclosure
One of the most common complications related to a strict foreclosure is that the home owner may be required to leave the house while the process is being completed. This means that the family is not always able to remain in the property during the strict foreclosure process. In some cases, the homeowner may have to move out of the property in a period of days. The Connecticut courts recognize two different scenarios that can result in a home being removed from the homeowner while the foreclosure process is in progress. One of these scenarios pertains to the transfer of title between the parties and the other scenario involves the court ordering the home sold by an auction. These are just some of the more common types of strict foreclosure. Nonjudicial foreclosure is one of the least common types of foreclosure and involves a lengthy court process. The Connecticut state court provides the authority for judges to order nonjudicial foreclosures. There are three nonjudicial states in which homeowners may face the loss of their homes: New Haven, Connecticut; Monroe and Putnam, Georgia and Washington, D.C.