Foreclosure Glossary

Foreclosure Terms to Know

 

A

Adjustable Rate Mortgage (ARM): A lender may adjust the interest rate during the term of a loan. The rate fluctuates, up or down, based on a specified financial index.

B

Bankruptcy: A legal process in which a debtor declares their inability to pay debts. The debts can be relieved by transferring assets to a trustee. Bankruptcy stays on the borrower's credit history for up to 10 years.

D

Deed of Trust: Secures payment of a note. Used in place of a mortgage. It involves a third party, the trustee, who holds the deed to the property.

 

Default: When a borrower fails to make mortgage payments as agreed in the original promissory note.

 

Deficiency Judgment: A judgment against a borrower for the balance remaining after a property is sold for less than the amount of the loan, or foreclosure of a mortgage.

E

Eviction: A legal procedure depriving a person of land or rental property that they have held or leased for reasons including failure to pay rent or mortgage.

F

Fair Market Value: The amount at which a property would sell for on the open market.

 

Foreclosure: Foreclosure is the process in which a lender repossesses a property after the owner has defaulted on the mortgage, or failed to comply with the terms.

 

Foreclosure Auction: When a repossessed property is sold based on the highest bid, typically the remaining balance on the mortgage loan is the bidding starting price. A house that went through foreclosure auction and failed to attract any bids becomes property of the bank.

 

Foreclosure Sale: The public sale of a mortgaged property to pay the defaulting borrower's debt. Any excess of the sale goes to the mortgagor.

G

Government Foreclosures: Property may be subject to foreclosure by the government due to overdue payments on mortgage, federal, state, and local taxes, or utility bills. The major government agencies selling foreclosed properties include: HUD, VA, IRS, FDIC, and CBP.

H

Housing Bubble: A housing bubble is an economic bubble that occurs in local or global real estate markets. It is characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This, in turn, is followed by decreases in home prices that can result in many owners holding negative equity—a mortgage debt higher than the value of the property. (Wiki)

 

HUD: HUD is the US federal housing agency that is committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation's fair housing laws.

 

HUD HOME: A HUD Home is a single family home or other type of residence that is backed by the Federal Housing Administration / FHA and is now in foreclosure. Once a home backed by the FHA goes into foreclosure, it is deeded back to HUD by the lending mortgage company.

J

Junior Liens: These liens have a lower priority, determined by date filed, in terms of their legal claim on a property and are typically cleared out at public foreclosure sales.

L

Lis Pendens: A notice that a lawsuit is pending, usually filed by the lender to start the foreclosure process under judicial foreclosure.

M

Mortgage: A document that dictates the terms of a loan used to buy a property and gives the lender some claim to the property until the loan has been paid in full.

Mortgage Lien: A legal claim against a mortgaged property. The lien must be paid or assumed when the property is sold.

N

Non-Judicial Foreclosure: Foreclosure on a mortgage without filing a lawsuit or obtaining a court order because of a power of sale clause within a mortgage or deed of trust.

Note: formal document that specifies the existence of a debt and states the terms of the repayment.

Notice of Default (NOD): A reminder letter of default, that may state a grace period and penalties, sent when mortgage payment is late. This is required by State law to initiate a non-judicial foreclosure proceeding involving public sale of property.

Notice of Foreclosure: A notification document to the public of foreclosure proceedings where property is being repossessed by the lender.

O

Opening Bid: Amount set for a starting bid at the public sale of a property. This is based on the remaining loan balance still owed to the lender.

P

Power of Sale: In case of default, the right of a trustee to force the sale of the property without judicial proceedings. The Power of Sale Clause pre-authorizes the sale of the real estate to pay off the debt.

Pre-Foreclosure: If the borrower is able to pay off the amount owed to the lender during a pre-specified grace period (pre-foreclosure), then the loan can be reinstated and everything goes back to how it was before the notice of foreclosure was received.

R

Real Estate Owned (REO): Banks taking back real estate and becoming the real estate owner of the foreclosed property because the borrower has defaulted on the mortgage.

Reinstatement period: Interval in which a default may be reinstated/cured. Time period is from the date the notice of default is recorded until five business days prior to the date of sale.

 

Right of Redemption: The right of the borrower in a foreclosure action to collect funds over-and-above what is owed when the property is sold during foreclosure auction. Also called "Borrower's Right of Redemption."

S

Section 8: A federal housing assistance program in which participants pay a portion of their adjusted gross income for rent and the remainder of the rent is paid by HUD.

Security Agreement: An agreement between a secured party and a debtor in which the secured party assigns title to the equipment, the lease, and rental payments under the lease as security for amounts due to the lenders.

Senior Lien: The first mortgage or deed of trust recorded when the owner bought the property.

Short Sale: If the borrower is able to sell the property to a third party during the pre-foreclosure period at an amount which allows him to pay off the loan (short sale), he can avoid receiving a bad mark on his credit history.

Statutory Right of Redemption: Within a certain period of time, a borrower's right to reacquire property lost due to a foreclosure by paying full amount of debt, interest and costs associated with foreclosure.

T

Tax Lien: Lien placed on property for amount of unpaid taxes.

Title Theory: Theory of mortgage law that puts title in the mortgagee and possession in the mortgagor.

Trustee: A legally empowered neutral party, named in a deed of trust or mortgage, who holds or controls a piece of property for another person. This party advertises the foreclosure property for sale and conducts the auction to sell said property to the highest bidder.

 

 

 

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