Only Connecticut and Vermont have laws that permit a strict foreclosure. If you live in one of these states, you should take the time to find out about how this type of foreclosure works. In general, a strict foreclosure allows the lender to circumvent the foreclosure sale process that occurs in a judicial or non-judicial foreclosure. The lender simply asks the court to declare the homeowner to be in default on the mortgage. The court can transfer title to the home to the lender directly if it finds in favor of the lender and approves the foreclosure.
Strict Foreclosure in Connecticut
The law on strict foreclosure in Connecticut can be found in Title 49, Chapter 846, Section 49-24 of the General Statutes of Connecticut. The lender must serve the homeowner with a summons and the complaint that it filed with the court. The homeowner has an opportunity to respond. If they do not respond, or if the court finds that they are in default, the court will give ownership of the home to the lender. You should be aware that some types of homeowners receive protections from this type of foreclosure under Section 49-31e. Also, you may be able to get assistance from the Connecticut Housing Finance Authority or use the state foreclosure mediation program to resolve the dispute.
Even if the court finds in favor of the lender, the homeowner can pay off the debt on the loan and redeem their home by a certain deadline, known as the Law Day. Failing to redeem the home by the deadline will result in the loss of title to the property and may also lead to a deficiency judgment against you. Since there is no foreclosure sale in a strict foreclosure, the deficiency would be defined as any amount that you owe on the loan that exceeds the fair market value of the property.
Strict Foreclosure in Vermont
Strict foreclosures in Vermont bear many similarities to strict foreclosures in Connecticut. You can read the strict foreclosure law in Vermont at Title 12, Chapter 172, Section 4941 of the Vermont Statutes. As in Connecticut, the homeowner will receive a summons and complaint once the lender files the lawsuit, and they will have a certain period to respond. If they do not respond, or if the court does not find their defense persuasive, the court will grant title to the lender.
A Vermont homeowner generally has six months to redeem their home and stop a strict foreclosure.
You can pay off the mortgage and prevent the foreclosure within the redemption period, which is usually six months. The court has discretion to provide a shorter redemption period in some cases. Failing to take advantage of the redemption period will automatically result in the lender gaining ownership of the home. Also similar to strict foreclosures in Connecticut, strict foreclosures in Vermont can result in a deficiency judgment. The deficiency again is defined as the difference between the debt on the loan and the fair market value of the home.
However, Vermont provides additional protections to homeowners beyond those offered in Connecticut. Under the same section of the Vermont Statutes, you can ask the court to order a foreclosure sale instead of a strict foreclosure at its discretion. The state also limits the use of strict foreclosure to situations in which a home is “underwater.” This means that, in the court’s opinion, the amount that you owe on the mortgage exceeds the value of the home. As a result, a strict foreclosure in Vermont will virtually always give the lender a right to seek a deficiency judgment.