Strict Foreclosure

In depth

Strict foreclosure cuts off the borrower's equity of redemption and transfers title to the lender without a public sale. The court sets law days by which the borrower must pay or lose all rights. Misconception: strict foreclosure is rare and not available in most states; only Connecticut, Vermont, and a few others permit it routinely. Practically, strict foreclosure benefits lenders when the property value is at or below the loan balance because no sale costs are incurred and surplus proceeds are not an issue. When property exceeds the debt, however, the borrower loses windfall equity, leading some states to abolish strict foreclosure for residential property. Sellers and contract for deed vendors in strict foreclosure states have unusually strong positions, making thorough buyer counsel critical.