Common Foreclosure and Mortgage Terminology

Accel­er­ate – An option given to lenders through an “accel­er­a­tion clause” in the mort­gage or deed of trust requir­ing the bor­rower to pay the entire bal­ance of the loan at once if the loan is in default.

Adjustable-Rate Mort­gage (ARM) -  A mort­gage that starts out with one inter­est rate for a period of time and then “resets” to a new inter­est rate.  (What you should know: The start­ing inter­est rate is often entic­ingly low. The new inter­est rate will be higher and the monthly loan pay­ments will get big­ger. That’s called pay­ment shock.)

ARM (2/28) - An adjustable-rate mort­gage that has a fixed inter­est rate for two years, then the inter­est rate begins to float, based on an index plus a mar­gin. Typ­i­cally, these adjust­ments increase inter­est rates every six months, which is why they are often referred to as “Explod­ing ARMs.” What you should know: 2–28 ARMs fall into the cat­e­gory of “cre­ative financ­ing” mort­gages that were typ­i­cally aimed at peo­ple with poor credit rat­ings. The idea was that in two years, these bor­row­ers could fix their poor credit rat­ings and then refi­nance to fixed-rate loans. Often, the new vari­able inter­est rates drive monthly pay­ments higher than bor­row­ers can afford.

Affi­davit – A sworn state­ment in writ­ing usu­ally given while under oath or in the pres­ence of a notary.

Appraisal – The process in which a licensed or autho­rized per­son gives an esti­mate of prop­erty value.

Appre­ci­a­tion – The dif­fer­ence between the increased value of prop­erty and the orig­i­nal value.

Answer – The legal response to a filed civil suit such as a fore­clo­sure, which enables the bor­row­ers to defend the suit and pro­tect the owner’s rights.  An answer is required in judi­cial fore­clo­sures and fail­ure to answer the suit results in a default judg­ment against the homeowner.

Assign­ment – The trans­fer of prop­erty to be held in trust or to be used for the ben­e­fit of the cred­i­tors (lenders).

Bal­loon or Reset Mort­gage — The total of monthly pay­ments does not cover the entire loan bal­ance. At the end of a bal­loon loan, usu­ally three to seven years, the home­owner must either pay off the bal­ance in a lump sum or refi­nance the loan. What you should know: Think of these as tem­po­rary loans. After three or seven years, you need to come up with the bal­ance. Bal­loon loans have higher fore­clo­sure rates than tra­di­tional mort­gages because bor­row­ers often can’t afford to pay off bal­ances when they come due and may be unable to find refinancing.

Bid – The amount offered for a prop­erty for sale at auction.

Cash for Keys – A pro­gram that pays home­own­ers for the deliv­ery and trans­fer of a prop­erty after an inspec­tion by a lender’s rep­re­sen­ta­tive based in part on the phys­i­cal con­di­tion of the prop­erty and an agreed time period for the occu­pants to vacate the property.

Cer­tifi­cate of Sale – A doc­u­ment given to the win­ning bid­der at fore­clo­sure sale stat­ing their rights to the prop­erty once the borrower’s redemp­tion period has expired.

Clear Title – A title that is not bur­dened with defects.

Con­ven­tional Mort­gage — The inter­est rate is locked in and your monthly pay­ments remain the same for the term of the loan. This loan is often called a fixed-rate mortgage.

Credit Bid – A bid made on behalf of the lender at a fore­clo­sure sale.  The bid amount must be less than or equal to the bal­ance of the loan in default.

Decree –  A judi­cial decision.

Deed – A signed doc­u­ment that trans­fers own­er­ship of prop­erty from one party to another.

Deed in Lieu of Fore­clo­sure – An agree­ment wherein a bor­rower vol­un­tar­ily con­veys their rights in a prop­erty to the lender in order to forego the fore­clo­sure process.  Lenders will often accept this option and it is often referred to as “walk­ing away” but doing so in a man­ner that is agree­able to the bank.

Deed of Trust – A three party secu­rity instru­ment which con­veys the legal title to real prop­erty as secu­rity for the repay­ment of a loan.  The three par­ties included in a deed of trust are the bor­rower, the lender, and a trustee.  Such an instru­ment is used in the Non-Judicial fore­clo­sure process.

Default – A mort­gage or deed of trust is said to be in default when the bor­rower fails to make the pay­ments as agreed in the orig­i­nal promis­sory note.  What you should know: the sooner a bor­rower takes steps to find a rem­edy, the more options there are avail­able to them.

Default Judg­ment – A per­sonal judg­ment against the bor­rower (Defen­dant) for fail­ing to answer a fore­clo­sure suit made in favor of the lender (Plain­tiff) by a court.

Defi­ciency – The remain­ing dol­lar amount of a mort­gage owed by a bor­rower to a lender after the sale of a prop­erty used to secure a mort­gage is com­pleted.  The defi­ciency is the dif­fer­ence between the out­stand­ing bal­ance, includ­ing fees and costs, owed by a bor­rower at time of fore­clo­sure and the price for the prop­erty at auc­tion or sale.

Defi­ciency Judg­ment – A per­sonal judg­ment against the bor­rower for the remain­ing bal­ance on the loan after a fore­clo­sure sale.

Delin­quency – Fail­ure to make pay­ments in com­pli­ance with the terms recorded in a mort­gage.  Delin­quency is com­monly mea­sured in terms of pay­ment peri­ods; 30 days, 60 days, 90 days, etc.

Equi­table Title — The present right to pos­ses­sion with the right to acquire legal title once a pre­ced­ing con­di­tion has been met.

Equity - The value of your home, minus what you owe on it.

Fair Mar­ket Value – The price a prop­erty would sell for on the open market.

Fixed-Rate Mort­gage -  The inter­est rate is locked in and the monthly pay­ments remain the same for the term of the loan.  This loan is also called a con­ven­tional mortgage.

For­bear­ance – A reduc­tion or sus­pen­sion of payment(s) for a defined period of time which allows the bor­rower to “catch up” on late or missed pay­ments. What you should know:  This rem­edy is more likely to be avail­able to bor­row­ers who seek help early; before they fall sev­eral pay­ments behind.

Fore­clo­sure – The forced sale of prop­erty pledged as secu­rity for a debt that is in default.What you should know:  fore­clo­sure is a “worst-case sce­nario” that will most dam­age a borrower’s credit and pro­long their recov­ery period.

Free and Clear –  Own­er­ship of prop­erty free of all indebtedness.

Interest-Only Loans – This loan’s pay­ments, due at inter­vals, go only toward the inter­est on a loan. When the loan is up, usu­ally five to seven years, the full prin­ci­pal is due. What you should know:This is a “cre­ative financ­ing” mort­gage. Interest-only loans might work for peo­ple who are paid big bonuses once or twice a year, or bor­row­ers who expect a big inher­i­tance. For most peo­ple, they are risky business.

Judi­cial Fore­clo­sure –  A fore­clo­sure that is processed by a court action.

Lien – A charge upon real or per­sonal prop­erty for the sat­is­fac­tion of a debt.

Legal Descrip­tion – A for­mal descrip­tion of real prop­erty suf­fi­cient to locate it by ref­er­ence to gov­ern­ment sur­veys or approved, recorded maps.

Lender – A per­son who lends money for tem­po­rary use on con­di­tion of repay­ment with inter­est (i.e. the bank, a mort­gage com­pany, etc.

Lis Pen­dens – A recorded notice of pend­ing lawsuit.

Loan Mod­i­fi­ca­tion –  A process involv­ing the change of the orig­i­nal terms of a mort­gage through one or more meth­ods.  Typ­i­cal terms that are changed are inter­est rates, adjust­ments, and terms.  All mod­i­fi­ca­tions require the approval of the lender in writ­ing.  The sooner a home­owner acts to resolve a delin­quency, the greater the chance that the lender will mod­ify the loan in order to pre­vent foreclosure.

Loss-Mitigation Depart­ment — When con­tact­ing a lender, ask for this depart­ment. This is where you’ll find the peo­ple who can help you find a tem­po­rary rem­edy to your prob­lem or work out a loan mod­i­fi­ca­tion. What you should know: The col­lec­tions depart­ment and the loss-mitigation depart­ment have dif­fer­ent mis­sions, so be sure you know to whom you are talk­ing. Also, when work­ing out a tem­po­rary solu­tion or mod­i­fi­ca­tion, get it in writing.

Mak­ing Home Afford­able — Mak­ing Home Afford­able is part of Pres­i­dent Obama’s com­pre­hen­sive strat­egy to get the hous­ing mar­ket back on track. Through the Mak­ing Home Afford­able Pro­gram, up to 9 mil­lion Amer­i­can fam­i­lies may be eli­gi­ble to refi­nance or mod­ify their loans to a pay­ment that is afford­able now and into the future. More infor­ma­tion is avail­able at www.makinghomeaffordable.gov.

Mort­gage – A writ­ten record of pledged prop­erty that is used as secu­rity for the repay­ment of a loan.

Mort­gage Bro­ker -  Bro­kers are not lenders; they find mort­gage loans for bor­row­ers. Bro­kers are com­pen­sated directly by bor­row­ers, usu­ally a per­cent­age of the total loan, plus other fees. They have no legal oblig­a­tion to work in the best inter­ests of bor­row­ers. Some­times, bro­kers are paid a com­mis­sion by lenders based on the prof­itabil­ity of the loan, which again works against the inter­ests of the bor­rower. What you should know:The major­ity of sub-prime loans were orig­i­nated by mort­gage brokers.

Non-Judicial Fore­clo­sure – The Non-Judicial process of fore­clo­sure is used when a power of sale clause exists in a mort­gage or deed of trust.  A “power of sale” clause is the clause in a deed of trust or mort­gage, in which the bor­rower pre-authorizes the sale of the prop­erty to pay off the bal­ance on a loan in the event of their default.

Notary – A pub­lic offi­cer licensed by the state to attest to and cer­tify the valid­ity of sig­na­tures of oth­ers.  A notary is often referred to as a notary public.

Notice of Default – A writ­ten notice required to be deliv­ered to a bor­rower, by cer­ti­fied mail, by a lender that is invok­ing the accel­er­a­tion clause of the Stan­dard Fed­eral Mort­gage.  (See Acceleration)

Notice of Sale – A notice giv­ing spe­cific infor­ma­tion about the loan in default and the pro­ceed­ings about to take place.  This notice must be recorded with the county where prop­erty is located and adver­tised as stated in the secu­rity doc­u­ment or as dic­tated by state law.

Per­sonal Prop­erty – Prop­erty other than real prop­erty con­sist­ing of things tem­po­rary or moveable.

Post­ing – To pub­lish, announce, or adver­tise by phys­i­cally attach­ing a notice to an object.

Post­pone­ment – Post­pone­ment means to put off to a later time.  In the case of a fore­clo­sure sale, this is gen­er­ally done by announce­ment at the orig­i­nal sale or by post­ing notices estab­lish­ing the new date and time the fore­clo­sure sale will take place.

Preda­tory Lend­ing — Loans that vic­tim­ize bor­row­ers with exces­sive or hid­den fees, high-interest rates, steep pre­pay­ment penal­ties, and other terms that trap bor­row­ers in debt. What you should know: If it sounds too good to be true, it prob­a­bly is. Get a sec­ond opin­ion or con­sult an attor­ney before sign­ing on the bot­tom line.

Pre­pay­ment Penalty - A fee a lender charges if the bor­rower pays off the loan before the agreed upon end of the orig­i­nal loan term. In other word, if you pay off a 20-year loan in 10 years, you must pay what­ever you still owe on the loan (the prin­ci­pal), plus a fee that is spec­i­fied in the loan con­tract. Steep pre­pay­ment penal­ties are com­mon in sub-prime mort­gages with high inter­est rates because bor­row­ers try to pay these loans off as early as possible.

Rein­state­ment – Bring­ing the mort­gage out of default and back to a “cur­rent” status.

Repay­ment Plan — An Agree­ment to pay the over­due pay­ments over a period of time by adding an extra amount to your monthly payment.

Reset – The chang­ing of an inter­est rate at a defined period in time based on an index, which can either increase or decrease the inter­est rate and, sub­se­quently, the monthly payment.

Request for Notice – The recorded doc­u­ment requir­ing a trustee send a copy of a Notice of Default or Notice of Sale con­cern­ing a spe­cific deed of trust in fore­clo­sure to the per­son who filed the document.

Re-write – The action of cre­at­ing a new mort­gage with new terms which will require exe­cut­ing and record­ing new mort­gage doc­u­ments.  Sim­i­lar to a refi­nance with­out com­plete underwriting.

Right of Redemp­tion – A borrower’s right to reac­quire prop­erty lost due to a foreclosure.

Short Sale – The sale of a prop­erty for an amount less than the bal­ance of the mort­gage.  Usu­ally the sale is restricted to a non-related party.What you should know: This may be a good way to avoid fore­clo­sure and pro­tect a borrower’s credit rat­ing. Unfor­tu­nately, the bor­rower does not stay in their home. It is very impor­tant when doing a short sale to have an attor­ney make sure that there will be no defi­ciency judg­ment in which the bor­rower is respon­si­ble for pay­ing the dif­fer­ence between what is owed and what the lender receives for the sale.

Sub­ject To  – The pur­chase of a prop­erty with an exist­ing lien against the title.   This pur­chase in made with­out assum­ing any per­sonal lia­bil­ity for the lien’s payment.

Sub-Prime Mort­gages — The word “sub-prime” is applied to a wide range of mort­gages that have a com­mon char­ac­ter­is­tic; risk.  In gen­eral, sub-prime mort­gages are aimed at bor­row­ers with less than per­fect credit his­to­ries.  Such loans may offer “cre­ative” financ­ing approaches includ­ing adjustable rates, bal­loons, interest-only, no down pay­ments, or lit­tle required doc­u­men­ta­tion.  Don’t be con­fused.  The word sub-prime does not refer to the inter­est rate of the loan, but to the borrower’s credit qual­ity. In fact, the inter­est rates on these loans are almost always higher than the over­all mar­ket rates.

Title – The instru­ment that is evi­dence of a person’s right in real prop­erty (e.g., a deed).

Trial Mod­i­fi­ca­tion – A pro­gram gen­er­ally used for the Mak­ing Home Afford­able Mod­i­fi­ca­tion Plan in which the home­owner agrees to make three months of a mod­i­fied pay­ment before it is mod­i­fied on a per­ma­nent basis.  There is no grace period for these payments.

Trustee – A neu­tral party who adver­tises the fore­clo­sure prop­erty for sale and con­ducts the auc­tion to sell said prop­erty to the high­est bidder. 

Trustee Sale – An auc­tion of real prop­erty con­ducted by a trustee.  Also know as a Sherriff’s Sale.

Upset Bid – A recorded bid placed after a fore­clo­sure sale has ended that is higher than the high­est bid received at the actual fore­clo­sure sale.

Writ – An order or manda­tory process in writ­ing issued in the name of a court or judi­cial offi­cer com­mand­ing the per­son to whom it is directed to per­form or refrain from per­form­ing a spec­i­fied act.

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