The New Normal in Real Estate
Glossary of Foreclosure and Short Sale Terms
Acceleration Clause: The section of a mortgage document that allows the lender to speed up the payment date in the event of a default, making the entire principal amount due.
Bankruptcy: A provision of Federal Law whereby a debtor surrenders his assets to the Bankruptcy Court and is relieved of the future obligation to repay his unsecured debts. A Trustee in Bankruptcy administers the assets, selling them to pay as much of the debt as possible. If your seller is in bankruptcy, the Trustee in Bankruptcy owns the property and is the party to sign the contract and make decisions. After bankruptcy, the debtor is discharged and his unsecured creditors may not pursue further collection efforts against him. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor.
Certificate of Satisfaction: A document signed by the Note holder and recorded in the land records evidencing release of a deed of trust, mortgage or other lien on the property.
Cloud on Title: Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.
Deed: A legal document which affects the transfer of ownership of real estate from the seller to the buyer.
Deed-in-Lieu of Foreclosure: A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a "voluntary conveyance."
Deed of Trust: Document used in place of a mortgage to secure the payment of a note.
Default: Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.
Deficiency Judgment: A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan.
Delinquency: Failure to make required payments on time as agreed in the loan agreement.
First-Time Homebuyer Credit: A new law that went into effect Nov. 6, 2009 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers. The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase. The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase. But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence. For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
Forbearance: The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.
Foreclosure: A legal procedure in which real estate is sold by the lender to pay a defaulting borrower's debt.
Home Affordable Foreclosure Alternatives (HAFA) Program: Offers homeowners, their mortgage servicers, and investors an incentive for completing a short sale or deed-in-lieu of foreclosure.
Judicial Foreclosure: A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.
Jugment Lien: A lien on the property of a debtor resulting from the decree of a court.
Lien: A legal claim by one party against the property of another as security for a debt. Must be paid off when property is sold. A mortgage or a first trust deed is a lien.
Lis Pendens: The lis pendens is a notice that a lawsuit is pending, the outcome of which affects title. A lis pendens is usually filed by the lender to start the foreclosure process under judicial foreclosure (just as a notice of default begins the foreclosure process under non-judicial foreclosure).
Making Home Affordable Program: The program includes opportunities to modify or refinance your mortgage to make your monthly payments more affordable. It also includes the Home Affordable Foreclosure Alternatives Program for homeowners who are interested in a short sale or deed-in-lieu of foreclosure. Many homeowners are struggling to make their monthly mortgage payments, perhaps because their interest rate has increased or they have less income. A Home Affordable Modification will provide them with mortgage payments they can afford. Other homeowners pay their mortgages on time but are not able to refinance to take advantage of today’s lower mortgage rates perhaps due to a decrease in the value of their home. A Home Affordable Refinance will help borrowers whose loans are held by Fannie Mae or Freddie Mac refinance into a more affordable mortgage.
Modification: Any change to the original terms of a mortgage.
Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.
Notice of Default: A notice of homeowner’s failure to perform his/her obligations as to the payment of assessments under the Declaration of Covenants, Conditions, and Restrictions (CC&Rs). When recorded, it is the initial step in a Trustee’s Sale Proceeding.
Portfolio Loan: Loans held as an investment by a bank, savings and loan or a credit union.
Reinstatement: Paying up all delinquent mortgage payments and late charges.
REO: Short for Real Estate Owned. When a mortgage lender acquires a property, typically through foreclosure, it becomes real estate owned – or REO.
Short Sale: The sale of a home which 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.
Tax Lien: Lien for nonpayment of taxes.
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