Legal Definitions - foreclosure decree

A foreclosure decree is a formal court order issued at the end of a judicial foreclosure lawsuit. This decree typically directs that the mortgaged property be sold to satisfy the outstanding debt, or, in certain cases, it may directly transfer ownership of the property to the lender.

Foreclosure Decree

A foreclosure decree is a formal court order that officially authorizes or mandates the process of foreclosure on a property. This decree typically allows a lender to take specific legal steps to recover money owed on a mortgage when a borrower has failed to make payments. It can either order the property to be sold at a public auction (known as a judicial foreclosure sale) or, in rarer circumstances, transfer ownership of the property directly to the lender (known as strict foreclosure).

Here are some examples:

• Imagine a small business owner who took out a mortgage on their commercial building. Due to unforeseen economic hardship, they fall significantly behind on their loan payments. The bank, after exhausting other options, files a lawsuit to recover the debt. After reviewing the case, the judge issues a foreclosure decree. This decree formally orders that the commercial building be sold at a public auction, and the proceeds from that sale will be used to satisfy the outstanding mortgage debt owed to the bank.

• Consider a situation where a homeowner has consistently failed to make mortgage payments for over a year, despite multiple attempts by the lender to work out a repayment plan. The lender initiates a legal action to foreclose. The court, finding that the homeowner is indeed in default, issues a foreclosure decree. This decree is the final legal judgment that confirms the lender's right to proceed with the sale of the property, paving the way for the property to be listed for auction and for the homeowner to eventually vacate the premises.

• In a less common scenario involving a vacant plot of land used as collateral for a development loan, the developer defaults. The lender might argue to the court that the land's value is significantly less than the outstanding debt, and a public sale would be costly and unlikely to recover much. In such a specific case, the court might issue a foreclosure decree that grants the lender direct ownership of the undeveloped land, rather than ordering a sale. This type of decree, known as strict foreclosure, extinguishes the borrower's interest in the property and transfers it immediately to the lender.