What is a Decree of Foreclosure in Real Estate Law?
I've seen many property owners freeze up when they hear the words "decree of foreclosure." Let's clear up the confusion and break down exactly what this legal document means for both property owners and lenders.
Decree of Foreclosure: A decree of foreclosure is a formal court order that authorizes the sale of a mortgaged property when the borrower has defaulted on their loan payments. The order requires that proceeds from the sale be used to repay the outstanding debt owed to the lender.
The Path to a Decree of Foreclosure
Nobody wakes up planning to face foreclosure. The process typically starts with default triggers that put the loan at risk. Missing mortgage payments is the most common trigger, but you might be surprised to learn that falling behind on property taxes or letting your insurance lapse can also start this process.
Before a court issues a decree, several steps must happen:
The lender sends a notice of default
You receive a right to cure period to catch up on payments
The lender files legal paperwork if the default isn't resolved
Key Components of a Foreclosure Decree
A decree of foreclosure isn't just a simple document saying you lost your house. It contains several critical pieces of information:
The exact property description and address
The total amount you owe, including fees and interest
Specific instructions for the property sale
What each party can and cannot do
Deadlines for various actions
Legal Rights and Protections
You have more rights than you might think during foreclosure. The right of redemption lets you reclaim your property by paying off the full amount owed. You can appeal the decision if legal errors occurred, and sometimes you can still work out payment arrangements.
Lenders must follow strict rules too. They can't just change the locks and throw out your belongings. They must:
Follow proper legal procedures
Give adequate notice before any action
Respect your property rights until the process ends
The Foreclosure Sale Process
The sale process follows strict guidelines. The property goes to auction, but before that happens, public notices must be posted. During the auction, the highest bidder wins, but the funds get distributed in a specific order:
Auction costs and fees
The primary mortgage
Other lienholders
The property owner (if any money remains)
After the Decree
Once the decree is issued, several things happen. The property transfer process begins, and you might face a deficiency judgment if the sale doesn't cover the full debt. Your credit score will take a hit, and tax implications might arise from forgiven debt.
Common Misconceptions
I often hear people say, "Once the decree is issued, I have to leave immediately." That's not true. Other myths include thinking you can't make any more payments after the decree or that the bank owns the property right away. These misconceptions can lead to poor decisions during the process.
Prevention and Alternatives
Before reaching the decree stage, consider these options:
Loan modifications to adjust your payment terms
Short sales if you owe more than the home's worth
Deed in lieu of foreclosure to transfer property ownership directly to the lender
Bankruptcy protection if you need time to reorganize your finances
Impact on Real Estate Market
Foreclosures affect more than just the property owner. They can influence nearby property values and create investment opportunities. The number of foreclosures in an area can signal market trends that buyers and sellers should watch.
Working with Real Estate Professionals
If you're facing foreclosure or interested in purchasing foreclosed properties, don't go it alone. A real estate attorney can protect your rights and explain your options. Real estate agents who understand foreclosures can guide you through the complexities of these transactions.
Bellhaven Real Estate specializes in helping clients navigate foreclosure situations. Whether you're trying to avoid foreclosure or looking to purchase foreclosed properties, our team provides expert guidance and representation. Contact us to discuss your situation and explore your options.