Foreclosures Cheat Sheet

Foreclosure is a complicated, multi-faceted process, including both borrowers and lenders. The below terms will help you to familiarize yourself with some of the important terms required to get through any foreclosure hearing.

Foreclosure Terminology:

An option offered to lenders through an "acceleration" clause in the mortgage or deed of trust making sure the borrower pays the entire balance of the loan all at once if their loan is currently in default
The transfer of property to be held in trust or to be used for the benefit of the lenders
Backup Contract
Often asked for when a property is in a short sale or foreclosure to be sure that, if a lender declines the offer, there will be a secondary contract to send to a lender; can also be put into place if the seller feels the prospective buyer may not be able to obtain financing within the time period or the contract could not be consummated
A remedy to relieve a person of any financial inabilities to pay debts when due; the person seeks relief through court actions that may eliminate debts, usually with negative credit ramifications lasting at least 5-7 years:
- Chapter 7: Liquidation of all assets in exchange for the cancellation of all debts; this is the chosen chapter for most individual debtors
- Chapter 11: Reorganization of a corporation or a partnership (this does not apply to individuals); the debtor usually proposes a plan to reorganize to keep the business afloat and to pay the creditors
- Chapter 13: Demands a payment plan between the borrower and the creditor and is monitored by the courts; the homeowner can keep the home but must make payments according to the court's terms (usually within 3-5 years)
Credit Bid
A bid on behalf of the bank/lender at a foreclosure sale; the bid amount must be less than or equal to the balance of the loan in default
Deed in Lieu/Friendly Foreclosure
A nonjudicial procedure which does not involve a lawsuit; the borrower voluntarily gives the deed/title to the lender/bank, and the lender takes the title to the property subject to all existing liens; this does not always eliminate the promissory note and its monetary obligations for the borrower
Deed of Trust
A three party (borrower, lender, trustee) security instrument conveying the legal title to real property as security for the repayment of a loan
A mortgage or deed of trust enters default when the borrower fails to make the payments as agreed to in the original promissory note
Deficiency Judgement
A court order saying that the borrower still owes money to the lender-- the proceeds from a mortgage foreclosure sale did not satisfy the defaulted loan
The borrower has failed to pay his/her mortgage payments as described in the original contract
- The lender will normally go after the property as its first source of repayment
- If the money from the property is not sufficient to pay off the mortgage, the lender can go after the borrower's personal assets
Liquidation Value
The likely price that a property would bring in a forced sale (foreclosure or tax sale). Used when a sale must occur with limited exposure time to the market or with restrictive conditions of sale.
Lis Pendens
A recorded notice of the filing of a lawsuit, which may or may not affect the title to a certain property
Loan Modification
The adjustment of terms of a mortgage; often done to help avoid foreclosure; must be mutually accepted by the lender and the borrower; the lender makes a concession to the borrower, like:
- Lender may allow the borrower to skip a payment, but interest is added to the loan balance in its place
- Lender may lower the interest rate for a certain time period so that the payment is a less burdensome
- Lender may lower the balance and interest rate (borrower must show real hardships)
Short Sale
Arrangement between borrower and lender through which the property is sold below what is owed; the lender must be apprised of and agree to the intention to do a short sale; in many cases, the IRS will tax the borrower on the difference between what is owed and what the lender collects
Real Estate Owned (REO)
A property owned by a lender; the lender has foreclosed on the property and often has received the certificate of title from the court already; the former owner no longer has any interest or rights to the property but may not be free of liability

Related Foreclosure Material:

2015 Consumer Reviews

Other Home Buying Cheat Sheets: