Decree of Foreclosure and Sale

What Is a Decree of Foreclosure and Sale?

The term decree of foreclosure and sale refers to a legal announcement relating to the foreclosure of a debtor's property, which is done to satisfy their outstanding debt. Decrees of foreclosure and sale normally involve real estate and mortgage loans.

Issued by a court, a decree of foreclosure and sale is a declaration that states the borrower's property will be sold to satisfy an outstanding debt that is in default. After the property is sold, the proceeds are used to pay off all or a portion of the debt. These court orders are required in many states before lenders can continue with any foreclosure action, although certain states allow lenders to sell properties at any time.

Understanding Decrees of Foreclosure and Sale

Purchasing real estate isn't cheap, whether you're buying your own home or a rental property. In order to afford a property, most consumers need to take out a mortgage or home loan. Once the loan is approved and advanced, the property owner is responsible to maintain regular monthly mortgage payments.

When a borrower obtains a mortgage to buy a home, the property serves as collateral for the loan. Lenders can foreclose on properties from 90 to 120 days of default. The lender can assume possession of the home and foreclose on the property. But before any of this can happen, a decree of foreclosure and sale may be needed.

As noted above, the local laws and regulations of certain jurisdictions may require lenders to seek out decrees of foreclosure and sale before they can proceed with any action. This is a court order that allows the lender to take over the property, sell it, and use the proceeds to pay off the outstanding debt. Money received from the sale can also be used to cover the lender's legal bills.

Special Considerations

Lenders file for decrees of foreclosure and sale in order to pay off any outstanding debt related to the property in question. For instance, a bank may seek a court order when a borrower stops paying their mortgage after four months.

Let's say the balance remaining on a mortgage at the time is $300,000. What happens if the lender can't recoup the total amount of the loan and only gets $250,000? After paying off the loan, the lender may be able to go after the borrower for any outstanding balance. In this case, it would be for the remaining $50,000.

Keep in mind that foreclosures greatly impact your credit history. Foreclosures remain on your credit history for seven years. As such, they can prevent you from getting credit in the future. Even if you're able to stave off the process, bring your loan up to date, and remain in your home, your credit score will take a hit.

Decree of Foreclosure and Sale With Right of Redemption

Some states allow borrowers a right of redemption. It allows homeowners in foreclosure to pay a specified sum to the lender to redeem their mortgages and keep their homes. An equitable right of redemption allows homeowners to redeem their mortgages by paying off the entire mortgage balance before a foreclosure sale. A borrower may be able to do this through refinancing if they can get a new mortgage.

Some states provide a statutory right of redemption, which allows homeowners to redeem their mortgages after the foreclosure sale by paying the sale price of the home, along with any interest and fees, to the purchaser. This also allows them to regain possession of their home.

There are many programs that are offered by the U.S. Department of Housing and Urban Development (HUD) that assist homeowners facing foreclosure. Some of these include programs to refinance at a lower interest rate, therefore reducing the monthly mortgage payment. Other programs help individuals who have lost their jobs and have no income to pay their mortgages.

With any right of redemption, the borrower must act to redeem their mortgage within the time period specified by local law, and it is always advised to first contact your bank before multiple payments have lapsed to find a resolution before a decree of foreclosure and sale has been issued.

Alternatives to a Decree of Foreclosure and Sale

Some states do not require judicial foreclosures. In these states, lenders are not required to obtain a decree of foreclosure through the court system. Instead, they may alert the borrower and the public of the foreclosure through other means. These may include a:

• Notice of default followed by a notice of sale
• Notice of sale specifying an auction date
• Simple publication of a notice of sale in a newspaper

In states with non-judicial foreclosures, the foreclosure process generally operates more quickly than in states requiring a court-issued decree of foreclosure.