Glossary of Foreclosure Terms and Short Sale Terms
Are you facing foreclosure or considering a short sale? This guide helps break down common foreclosure terms and short sale terms into simple definitions anyone can understand. Get to know the terms associated with a foreclosure or short sale.
1099-C
IRS Form 1099-c is issued by those canceling all or part of a debt to the person receiving debt relief.
Note: The canceled debt may not need to be reported as income. For more information regarding a 1099-c contact your tax adviser for advice on how to handle it. If you do not have a tax advisor, contact us today, and we can recommend one to you.
Abandonment
The situation in which a homeowner leaves the house with no intention to return.
Adjustable-Rate Mortgage (ARM)
A loan with an interest rate that can vary up or down at certain intervals (periods) and within certain limits (caps); the loan is secured by the house on which lender will foreclose if the loan is not paid.
Advertising- (or Publishing)
A copy of the Notice of Trustee Sale must be published once a week for three weeks.
Appraisal
An estimate of a property’s value as made by a trained, licensed professional.
As-Is Sale
When a property is sold as-is, its seller does not warrant or guarantee the property is free of defects, and the buyer accepts property in the present condition without modification.
Assignment Deed of Trust
When ownership of a mortgage (Deed of Trust) is transferred or sold from one company (Lender) or individual to another.
Assignment of Rents
A procedure in which borrower gives the lender the right to receive rents collected from a tenant in a house owned by the borrower.
Auction
The process of selling property at public sale to the highest bidder.
Automatic Stay
Court order when bankruptcy is filed that prevents any creditor from attempting to collect any debt from the person who declared bankruptcy; creditors may not undertake foreclosure, repossession, eviction, or seizure, or even call or write the debtor demanding payment, and instead must join all other creditors and go through bankruptcy court to seek any money owed them.
Balance Owed on Loan
The part of the original loan that remains unpaid by the borrower at a given point in time.
Bankruptcy-Chapter 7
Often called a straight bankruptcy-involves the liquidation of all non-exempt by the bankruptcy trustee, who in turn distributes the proceeds to qualified creditors. All dischargeable debts are discharged and the person(s) filing receives a ‘fresh start’.
Bankruptcy-Chapter 13
Often called a debt reorganization. A Chapter 13 Bankruptcy is generally appropriate for those individuals who have non-exempt property they wish to retain and who have enough income to reasonably pay the reorganized debt after covering reasonable living expenses.
Beneficiary
The beneficiary in a foreclosure context is generally the mortgage lender. Frequently referred to as the ‘Benny’. (1) One entitled to the benefit of a trust; (2) one who receives profit from an estate, the title of which is vested in a trustee; (3) lender on a security of a note and deed of trust.
Beneficiary`s Statement
Also known as a “benny statement”, a written statement of conditions and remaining balance on loan secured by a deed of trust.
Bill of Sale
Often referred to as the Purchase Contract. This is the document that passes title to personal property from seller to buyer.
Broker Price Opinion
This is often used by the bank in lieu of a full appraisal. It is a real estate broker’s estimate of the property’s reasonable selling price.
Clear Title
Ownership rights to a piece of real estate that are not diminished by liens, leases, or other encumbrances.
Closing Date
The date on which the buyer takes over the property.
Cloud on the Title
Outstanding claim or encumbrance that, if valid, affects or impairs the owner’s title.
Collections
Activity in which lenders or their agents employ various techniques to pressure borrowers to pay what’s owed.
Conforming Loans
Loans that meet the Federal National Mortgage Association (Fannie Mae) standards.
Conveyance
Process of transferring title or some interest in real estate to a new owner.
Credit Counseling
Under the new bankruptcy law which took effect in October of 2005, those wishing to file bankruptcy must complete an approved credit counseling course within the six (6) months prior to filing.
Cured Default
When borrower’s failure to make payments or meet the terms of a loan is corrected to the lender’s satisfaction.
Current Value
The value of a property at the time of appraisal.
Deed
A legal document commonly used to transfer ownership of real estate from one owner to the next.
Deed in Lieu of Foreclosure
A borrower deeds the property, usually to the lender, instead of waiting for the lender to force sale of the house in foreclosure.
Default
Failure to fulfill duty or promise, or to discharge an obligation; omission or failure to perform an act. In property foreclosure, usually the failure to pay loan installment repayments when they become due.
Deficiency
Money that a borrower who has lost real estate in foreclosure still owes to the lender because the foreclosure sale failed to generate enough money to pay off the loan. Frequently lenders acquire title to real estate at foreclosures and often only credit fair market value of the property against the balance due on the loan; any unpaid balance on loan after all just credits are applied generally is the amount of deficiency. Many states limit or restrict deficiencies.
Deficiency Judgment
A court judgment that the defaulting borrower owes a deficiency.
Delinquency
The state of affairs when payments on a note or other loan obligations are past due.
Department of Veterans Affairs
The federal government department that guarantees loans and performs other services for veterans; formerly known as Veterans Administration (VA).
Discharge of Indebtedness or Debt
The lender informs the borrower that a loan does not have to be repaid.
Earnest Money
Down payment made by the purchaser of real estate as evidence of good faith.
Eviction
Legal procedure to forcibly remove a tenant from dwelling.
Fair Market Value
The amount a willing and knowledgeable buyer would pay and the seller would accept in a property transaction.
Fannie Mae – Federal National Mortgage Association
Fannie Mae purchases mortgages from lending institutions in an effort to increase affordable lending activity at those institutions. Fannie Mae is not a federal agency. It is a government-sponsored enterprise under the conservatorship of the Federal Housing Finance Agency (FHFA).
Federal Housing Administration (FHA)
The federal agency that regulates many aspects of the real estate industry and insures repayment of certain home loans.
Forbearance
Lender voluntarily accepts lower payments than originally agreed to in loan documents for a specific time period to allow a borrower to recover financially; borrower eventually must repay missing or reduced payments and all other remaining payments on the loan.
Foreclosure
The forced sale of real estate to repay debt.
Freddie Mac – Federal Home Loan Mortgage Corporation
A government-chartered, privately owned entity that buys mortgages from smaller lenders and banks.
Freeze Order
Automatic stay; bankruptcy court order that prevents creditors from attempting to collect a debt from an individual who declared bankruptcy. Creditors may not undertake foreclosure, repossession, eviction or seizure, or even call or write the debtor demanding payment, and instead must join all other creditors and go through bankruptcy court to seek any money owed them.
Grace Period
The additional time allowed to perform any act or make payment before a default occurs.
Homestead
The special legal protection that many states give to an individual’s principal residence.
Housing and Urban Development (HUD)
Department of the federal government that administers housing programs.
Impound Account
An account held by the lender, used to advance payments of certain expenses or charges incidental to property ownership and that may protect the lender’s security.
Incumbrance
Any right to or interest in property interfering with its use or transfer, or subjecting it to an obligation; with foreclosures, incumbrance likely includes mortgages and unpaid tax claims.
Judgment
The final decision of the court.
Judicial Foreclosure
A foreclosure action conducted through the courts instead of through a foreclosure trustee. Judicial Foreclosures are very uncommon in California, particularly on residential properties. Should a lender elect to pursue a deficiency judgment, it would be through a Judicial Foreclosure.
Junior Liens
A lien, usually a mortgage loan, that is subordinate to a Senior Lien, usually a first mortgage. Lien priority is generally established by order the order of recordings.
NOTE: if you refinance the 1st mortgage on a property with a 2nd mortgage already in place the new 1st mortgage holder will require a subordination agreement from Junior Lienholders to legally establish the new mortgage holder as 1st or Senior Position.
Lender-Approval
Lender’s agreement to allow a short sale after review of borrower’s creditworthiness and income; can also apply to the initial loan.
Liability
Obligation to pay a debt.
Lien
Right to force the sale of the property to pay a debt.
Lien Holder
Person or institution that controls a lien.
Loan Modification
Procedure in which a loan’s terms, such as interest rate, monthly payment, or duration, are altered.
Loss Mitigation
Home mortgage lenders look to limit losses on delinquent mortgages by working out solutions with borrowers through their Loss Mitigation Departments. This is the department that processes short sale and loan modification applications.
Mailing
A copy of the Notice of Trustee’s Sale must be mailed (certified and first-class) at least 20 days before the foreclosure sale to the borrower and to anyone who was entitled to receive a copy of the Notice of Default and Secretary of State and IRS, if applicable.
NOD
Short for Notice Of Default.
Note
A legal document specifying terms of a loan (including rate, duration, provisions dealing with failure to pay in a timely manner).
Notice of Default
An official notice filed and recorded by a designated trustee at the request of a lender indicating lender has commenced foreclosure action.
Notice Of Rescission
A document that cancels notice of default.
Notice of Trustee Sale
An official notice that is posted, mailed, published/advertised, and recorded by the trustee at the direction of a lender indicating the lender’s intention to sell the property at public auction. The notice includes a specific date, time, and location.
One Action Rule
Rule of law, used heavily in California, forcing the lender to bring only one court action or proceeding against a borrower in foreclosure; hampers the lender’s ability to obtain a deficiency judgment.
Owner-Occupied
Home used by the borrower as his/her primary residence.
Posting
Placing legal notice of foreclosure sale on public display as legally specified.
Power Of Attorney
Document signed and executed by the owner of a property that authorizes an agent to act on his/her behalf.
Preforeclosure
The status of a property which is in the early stages of being repossessed due to the property owner’s inability to pay an outstanding mortgage obligation. Reaching pre-foreclosure status begins when the lender files a default notice on the property, which informs the property owner that the lender will proceed with pursuing legal action if the debt is not taken care of. At this point, the property owner has the opportunity to pay off the outstanding debt or sell the property before it is foreclosed.
Postponement
Trustee Sales may be postponed by the lender that filed initiated the foreclosure and filed the Notice of Trustee’s Sale. Notice may be given in advance or at the time and location specified for the intended sale/auction.
Private Mortgage Insurance (PMI)
A policy of insurance paid for by the borrower to protect the lender in the event the borrower defaults on the mortgage. Typically PMI is required by the mortgage holder when the down payment is less than 20% of the purchase price.
Purchase Money Mortgage
A mortgage that was originally used to purchase a property (not a refinance).
Qualifying Funds
In order to bid at a Trustee, Sale bidder must have qualifying funds available at the sale. Qualifying funds are cash or a cashiers check(s) drawn by a State or National Bank, a check(s) drawn by a State or Federal Credit Union or check drawn by a State or Federal Savings and Loan Association, savings association or savings bank specified in section 5102 or the Financial Code and authorized to do business in the State of California.
Real Estate Owned – REO
Short for Real Estate Owned. When a mortgage lender acquires a property, typically through foreclosure, it becomes real estate owned – or REO.
Recasting
Restructuring a loan with a new interest rate and term. Typically, this happens with adjustable-rate mortgages or loan modifications.
Recourse Loan
The lender has a right to make a claim against the prior owner of a property after foreclosure. After a foreclosure, the lender may pursue the borrower for the remaining balance owed on the loan.
Reinstatement
To bring the loan current, the borrower may reinstate up to five (5) business days before the foreclosure sale.
Repayment Plan
Plan for repaying missed payments over time.
Second Mortgage
A mortgage made by a home buyer in addition to existing first mortgage. Often times a HELOC.
Short Sale
The sale of a home is completed through negotiation with the existing lender(s) in which the lender(s) agrees to accept less than the full amount owed to satisfy the debt allowing the debt to be ‘paid off’, short.
Title Report
Document indicating the current state of title, including easements, covenants, liens, and any other defects; does not describe the chain of title.
Title Search
Examination of public records to determine ownership and encumbrances affecting real property.
Trust Deed
A type of mortgage that gives the lender the power to foreclose and take the title away from borrower.
Trustee
A person named in the deed of trust or another mortgage document that has the authority to conduct any foreclosure proceedings and sell the property to pay off the mortgage loan balance.
Trustee`s Deed
The deed given to the highest bidder at auction or the foreclosing lender upon completion of the foreclosure.
Trustee`s Sale
Non-judicial action in which trustee may auction and sell property secured by a deed of trust subsequent to default in terms and conditions of the loan.
Upside-Down Home
A house worth less than what is owed on the mortgage(s)
Veterans Administration (VA)
The federal government department that guarantees loans and performs other services for veterans; formerly known as Veterans Administration (VA)
Wrongful Foreclosure
A foreclosure that was legally improper and caused the borrower to suffer damages.
