Addendum– An addition or change to a contract that is in place.
Adjustable Rate Mortgage (ARM)– A loan with an interest rate that fluctuates based on a specified financial index. Please review your contract for terms.
Amortization– The repayment schedule of a debt in a series of equal periodic amounts until the total debt, including interest, is paid in full.
Appraisal– A statement of value or estimation of the value of a property as of a certain date conducted by a licensed appraiser with qualifications. Generally, value for single family properties is based upon a review of recent market activity using sales of comparable properties as a basis and then making value adjustments based upon the comparison of comparable property to the subject property.
Appreciation– Increase in value or worth. The difference between the increased value of property and past value estimate.
Annual Percentage Rate (APR)– The cost of the loan expressed as a yearly rate on the balance of the loan amount.
Automatic Stay– A bankruptcy case automatically prevents continuation of creditor collection activity. Filing bankruptcy is the only way to get this specific protection. Mortgagees may petition the Court to “lift” the stay and permission to resume collection activity if the terms of the bankruptcy are not met.
Balloon Payment– A lump sum installment payment of a promissory note that is much larger than the regular installment payments.
Bankrupt– A person who is insolvent; one whose total wealth is legally declared insufficient to pay his/her debts.
Bankruptcy– A proceeding in U.S. District Court wherein debtors who can not meet the claims of their creditors may be adjudged bankrupt by the court. There are many different types (and many chapters) of bankruptcy proceedings.
Cancellation Clause– A clause that details the conditions under which each party may terminate the agreement. This should be explained in the agreement.
Charge Off– The process of writing off sums that have been deemed noncollectable. They may forgive the debt but they may still report negatively to the credit bureaus.
Clear Title– A Title that is not encumbered or burdened with defects.
Closing Statement– A document which details the final financial details between a buyer and seller and the costs paid by each party.
Confirmation Hearing (Bankruptcy)– A hearing where the debtor’s proposed bankruptcy plan is reviewed and either approved or denied by the bankruptcy judge.
Contract for Deed– A contract for the sale of real estate wherein the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until the final payment.
Conventional Mortgage– A mortgage loan not insured by outside Governmental agencies. It is subject to conditions established by the lending institution and State statutes.
Conversion (Bankruptcy)– The change to a case under a chapter different that the one originally filed under. The court may convert a case on the request of the debtor or the request of a party in interest.
Credit– Money a lender extends to a buyer for a commitment to repay the loan within a certain time frame.
Credit Bureau– A company that receives information about a consumer’s credit history, and keeps records that are available to others seeking information on that consumer. There are several companies that do this.
Credit History– A record of an individual’s current and past debt payments and indebtedness.
Credit Rating– The degree of credit worthiness assigned to a person based on past credit performance and current financial status.
Credit Report– A report that shows a loan applicant’s history of payments made on all reported debts. Several companies issue credit reports, but the three largest are Trans Union Corp., Equifax and Experian (formerly TRW ).
Cure a Default– With respect to delinquent mortgage payments, all missed payments have been made and loan payments are current.
Debt Collector– The term ‘debt collector’ applies to collection agencies or lawyers that is collecting debt for others.
Deed-in-Lieu of Foreclosure (DIL)– Used by owners to voluntarily convey the title of their property to the mortgagee/beneficiary (lender) to avoid the negative credit consequences of a foreclosure. The title must be free and clear of any other encumbrances and the owners execute an affidavit acknowledging that they are acting volitionally, with informed consent.
Default– Failure to make the proper loan payments as agreed in the promissory note.
Default Judgment– A judgment in a lawsuit against a defendant who did not meet the legal requirements in connection with a debt.
Deficiency– The amount a debtor owes a creditor after the creditor seizes and sells the collateral. A deficiency arises when the collateral is sold for less than the amount of the debt.
Deficiency Judgment– A personal judgment against a debtor for the amount remaining due after a judicial foreclosure of a mortgage.
Delinquency– A loan payment that is past due. Usually after 90-120 days of delinquency, the lender will initiate foreclosure proceedings against the loan.
Delinquent Mortgage– A mortgage that involves a borrower who is behind on payments.
Demand– The payoff amount necessary to retire a secured debt by the mortgage company.
Discharge– A legal document that ends a debtor’s legally enforceable obligation to pay a debt.
Encumbrance– A legal right, claim or lien upon real property that diminishes the owner’s equity or the land’s value. Typical encumbrances are mortgages, trust deeds, judgments, assessments, mechanic’s liens, easements, etc. They can also be easements that have less financial importance.
Equity– The property’s current value minus the sum of all liens against it.
Eviction– A legal procedure to remove a person (including homeowner) for reasons including failure to pay rent or mortgage.
Fair Debt Collection Practices Act– A federal law passed in 1977 which outlaws debtor harassment and other types of collection practices. The act regulates collection agencies, original creditors who set up a separate office to collect debts, and lawyers hired by the creditor to help collect overdue bills.
FANNIE MAE (FNMA)– Federal National Mortgage Association . . . one of the largest secondary-market investors in residential mortgages in the United States. Provides a constant and orderly market for banks to go to when they need to sell mortgages in order to keep their loan portfolios in balance with government-mandated liquidity ratios.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)– A stockholder-owned corporation chartered by Congress to create a continuous flow of funds to mortgage lenders in support of homeownership. Freddie Mac purchases single-family and multifamily residential mortgages from lenders and packages them into securities that are sold to investors.
FHA (FHA Loan)– Federal Housing Administration (formed in 1934)
Forbearance– A course of action when a lender may agree to delay foreclosure or legal action against a delinquent borrower.
Forbearance Agreement– A formal agreement between a borrower and a lender to postpone an ongoing foreclosure.
Foreclosure– The process by which a lender takes back a property on which the mortgagor has defaulted.
(Tax Consequences 1099-C) File Form 982
Garnishment– A creditor’s seizure, to satisfy a debt, of property belonging to the debtor that is in possession of a third party. An example would be the seizure of money from your bank account, or your wages.
Grace Period– A period during in which a debtor may cure a delinquency without a penalty.
HUD-1 Uniform Settlement Statement- A closing statement or settlement sheet that outlines all closing costs and details on a real estate transaction.
Interest– The cost of using borrowed money.
Judgment– The decision of a court. If a court decides that a person must repay a debt, a lien may be placed against that person’s property.
Judgment Lien– A general lien created by a court ordering a debtor to pay a certain amount of money to the judgment creditor. The lien will bind to the debtor’s real property once an abstract of the judgment is recorded. Thereafter the debtor won’t be able to resell, refinance or buy any other property in the county without paying off the lien.
Judicial Foreclosure– A foreclosure that’s processed via a court action.
Late Charge– A fee imposed on a borrower when a payment is not made on time.
Late Payment– An amount a lender applies after the due date has passed.
Lease Option– A lease that offers the right to purchase the property for a specific price within a certain time frame.
Lien– A claim against real property.
Loan-To-Value (LTV)– The relationship between the dollar amount of the loan and the estimated value of the property.
Modification– This option requires changing the terms of the loan by reducing the interest rate or extending the loan term. A modification may work better than a forbearance or repayment plan for many customers experiencing a financial setback, since the resulting payment may be lower. There is usually a cost involved with initiating a modification, which can often be rolled into the loan. Modifications may be used with conventional and government insured loans. Past due arrears may be added to the balance to cure the default, but late fees and foreclosure fees must be paid another way (usually an out-of-pocket expense to the borrower). The home owner must be able to afford the new payment amount (debt to income ratio in line with the loan product) and with some loans, the modification may need investor approval. Borrowers will also pay processing and title search fees.
Mortgage– A pledge of property that is put up as security for the repayment of a loan. The lender is the mortgagee and the property owner is the mortgagor.
Notice of Default (NOD)– This is required by State Law to initiate a non-judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust, the trustee under the deed of trust records a Notice of Default and Election to Sell (“NOD”) the real property collateral in the public records.
Personal Property– Property that is not “real property,” i.e. securities, furniture, cars, promissory notes, clothing, intangibles, etc.
Postponement– An agreement, made in lieu of a scheduled sheriff’s or trustee’s sale, that reschedules the pending sale.
Prepayment Penalty– A fee charged by a lender if a loan is paid off earlier than outlined in the loan documents.
Pre-Sale– A foreclosure pre-sale allows the home owner to sell the home for an amount less than the balance due on a conventional loan. The private mortgage insurance will often subsidize the sale, especially when the house is in a negative equity situation. The seller must sell the home for a price high enough to pay most of the mortgage amount and fees, and the insurer will pick up the remaining balance, sometimes releasing the seller from liability. Borrowers must have experienced a permanent involuntary loss of income and no other alternatives exist to cure the default. Lenders/Servicers agree to this option when the pre-sale will bring in a higher return than the foreclosure will.
Private Mortgage Insurance (PMI)– Insurance against a loss by a lender, due to a default in payments from a borrower. This is often required when a buyer is paying a small down payment (less than 20% of the appraised value of the secured property).
Promissory Note– An instrument of indebtedness between borrower and lender (containing all of the terms of the loan) that is commonly secured by a mortgage (mortgage note) or deed of trust.
Quiet Title– An action at law to remove an adverse claim or cloud from the title of property.
Quit Claim Deed– A form of deed containing no warranties as to the quality or validity of the title being transferred.
Reaffirmation– An agreement in a bankruptcy process to pay back a debt that would otherwise be discharged.
Redemption Period– A period of time established by state law during in which a property owner has the right to redeem the property from a forced, public foreclosure sale.
Reinstatement– The process of remedying a default so that they lender will treat you as if you had never fallen behind. This brings the loan current immediately.
Relief from Automatic Stay– An order from the bankruptcy court allowing a lender to proceed with his default remedies against a debtor.
Repayment Plan- This is when a borrower experiences a temporary financial problem and a workout plan is developed to reinstate the mortgage by adding additional partial payments to the current payment. The borrower must be able to afford the higher payment for the period determined by the lender, and counselors should push for repayment periods to be extended when the payment is unaffordable. Many servicers will resist agreeing to extension but are often able to do so without permission from the lender or investor.
When a borrower falls behind in mortgage payments, many lenders will negotiate a repayment plan rather than go to initiate foreclosure proceedings.
Repossession– When property is repossessed, it is taken back by the lender holding the mortgage.
Rescission– The cancellation of a contract. You generally have the right to cancel the transaction within three business days. This is called your “right of rescission,” and it is guaranteed by the Federal Truth in Lending Act.
Short Sale- The lender will agree to share some or all of the loss if the seller has a buyer that offers close to the principal balance amount due. If the sale will result in less than the total due on the first or subsequent mortgages, approval from either the investor or the second mortgage holder is usually required. (Tax Consequences 1099-C) File Form 982
Straight Sale- One way to avoid foreclosure is to put the home up for sale. Important in considering this option is how far behind the payments are and how much equity there is in the home. Many people are reluctant to go this route because they are afraid that the foreclosure will go through before the property is transferred to the new buyer. The home owner must be willing to sell the home at a price that will facilitate a quick sale. If a real estate professional is involved, he/she must be willing to accept less than the typical 7% total commission (buyer and seller agents combined). The counselor will have to negotiate for an extension or delay in the foreclosure process, and will usually be able to be awarded extra time if he/she can prove the home is listed with a real estate professional.
Temporary Injunction- This is a court order that will stop the foreclosure process. This is recommended only when the foreclosure has proceeded past any hope of modification, forbearance or other workout plan and when it can be proved that the home owner’s financial situation has improved to the point of being able to make payments and catch up arrears. An attorney is required to initiate the court proceedings and request the injunction.
-Definitions courtesy of Beyond Housing