Also known as: acceptance of collateral in full satisfaction of the debt · accepting collateral in satisfaction of the debt · strict foreclosure
Written by attorneys · grounded in primary & secondary sources — see below
A foreclosure method by which the mortgagee obtains title to the mortgaged property in full or partial satisfaction of the debt without a sale. The mortgage or state statute must authorize the procedure. It terminates the mortgagor's equity of redemption and is permitted only in limited jurisdictions.
Anchor Bank held a mortgage on Bridge Auto's showrooms after a floor-plan default. The mortgage expressly authorized strict foreclosure. Anchor obtained a court order transferring title to the real property without a sale, terminating Bridge Auto's equity of redemption because the debt equaled or exceeded the property's value.
Summit Bank held a mortgage on Orion AeroParts' hangar and testing facility. After default the mortgage permitted any foreclosure method authorized by state law, including strict foreclosure. Summit obtained a judgment vesting title in itself without a sale, cutting off Orion's redemption rights under the statute's limited allowance for that procedure.
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A secured party may accept collateral in full or partial satisfaction of the obligation when the debtor consents or fails to object to the secured party's proposal within the statutory period. The procedure is encouraged because it often produces better results than a sale for all parties involved.
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No. Strict foreclosure allows the mortgagee to obtain the property itself without a sale when the mortgage or statute authorizes it. The mortgage or statute dictates the procedure, and the absence of a sale does not invalidate the foreclosure if the chosen method is permitted.
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Junior lienholders receive notice of the proceeding. When the debt equals or exceeds the property value, no surplus exists, so requiring a sale would impose unnecessary expense without benefiting the junior creditors.
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Yes, when both the mortgage and state statute authorize each method. The lender may elect different foreclosure types on a parcel-by-parcel basis provided each proceeding complies with the applicable notice, sale, and redemption rules.
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