Strict Foreclosure – This type of foreclosure is usually agreed upon as part of the terms and conditions during the granting of the mortgage loan. Its mechanics are simple, wherein the borrower executes the same deed required in the Power of Sale Foreclosure; but under this agreement the Deed of Sale will be executed in favor of the bank. The sale will be enforced once the borrower fails to settle the loan in default.
The bank's right to foreclose and sell the property as the rightful owner is subject to the provisions that the borrower was properly notified about his defaulted loan payments and of the consequential non-judicial foreclosure proceedings.
This is considered as a modern method of recovering the bank’s credit exposure without having to incur additional costs related to judicial hearings and public auctions. In addition, the bank or lender has better chances of recovering the full amount of the defaulted loan, the corresponding interests and penalty charges, as well as other related pre-foreclosure costs.
Similar to Power of Sale Foreclosures, the agreement may also include the borrower’s abandonment of his rights over the property, which includes his rights for redemption. Likewise, not all U.S. states allow this type of foreclosure method.
For purposes of comparison, below is a description of a judicial foreclosure procedures, which involves public auctions in order to dispose of the property.
Foreclosure via Judicial Proceedings
This is the traditional method of foreclosure, covered by a Deed of Mortgage which requires court hearings and deliberations before the property becomes bank–owned. Thereafter, the selling of such properties are required to be placed under the supervision of the County Sheriff or a court-assigned public auctioneer at publicly-held auctions.
Based on the information provided above, it is, therefore, clear that auctions held by banks include properties foreclosed by way of non-judicial proceedings covered by Deeds in Lieu of Foreclosure and pre-signed Deeds of Sale.
In determining what is involved in a bank foreclosure auction, it would also be best if the prospective buyer examines the accompanying deeds executed by the parties to the foreclosure. Such documents will manifest the powers and the limits of said powers vested to the bank, when auctioning-off the property.
Please proceed to the next page for information about the US state laws that allow non-judicial proceedings and the basic procedures involved.