Also known as: foreclosures by sale · judicial foreclosure
Written by attorneys · grounded in primary & secondary sources — see below
A foreclosure procedure in which the mortgaged property is sold at public auction. The sale terminates the mortgagor's equity of redemption and applies the proceeds to satisfy the secured debt.
Fatou Fall defaults on her mortgage held by Fairfield Bank. The bank initiates foreclosure proceedings and the court orders a public sale of the house. The property sells to a third-party bidder for more than the debt. Fairfield Bank receives the amount owed from the proceeds and Fatou receives the surplus.
Faith Fitzgerald buys property under an installment land contract from Frontier Capital and pays nearly half the price before defaulting. The court recharacterizes the contract as a mortgage. Frontier Capital must conduct a foreclosure by sale rather than strict forfeiture so that Faith can receive any excess proceeds after the debt is paid.
Select any source to read its text and confirm it supports the definition.
Foreclosure by sale requires a public auction of the property with proceeds applied to the debt. Strict foreclosure allows the mortgagee to take title directly without a sale and is available only in limited jurisdictions.
Supporting sources
No. Judicial foreclosure occurs through court action in every jurisdiction. About half the states also permit nonjudicial foreclosure by power of sale under the mortgage or deed of trust and applicable statute.
Supporting sources
The surplus is applied to junior liens in order of priority. Any remaining balance goes to the holder of the equity of redemption.
Supporting sources
When a buyer has paid a substantial portion of the price and holds significant equity, courts treat the contract as the functional equivalent of a mortgage. This requires the seller to use foreclosure procedures that protect the buyer's interest rather than allowing strict forfeiture.
Supporting sources
…liens or mortgages, or at the discretion of the court before which the foreclosure proceedings are pending, be foreclosed by a judicial foreclosure sale, even if the mortgage does not contain a sale provision instead of a strict foreclosure. Id. § 4531(a). Consistent with long-standing Vermont law, the norm is strict foreclosure.…