Talking about foreclosed real estate can be quite difficult without even getting into the market. That’s because foreclosures tend to have their own language, employing many obscure words that originate from government housing legislation and real estate law. Without experience in these areas, potential investors will not be able to decipher even the simplest foreclosure contract. This article lists some of the most common terms related to foreclosures as a reference for those interested in this lucrative market.
Abandonment: where a property owner has relinquished property rights without coercion and does not want to take those rights back or pass them on to someone else. A situation involving unused property does not warrant abandonment.
Acceleration Clause: A clause commonly written in a mortgage that allows the lender to demand full repayment immediately, rather than at the end of the contracted term. The clause must also detail an occurrence that would make it effective, such as a failure to make regular payments, sale of the property, or reallocation of property rights. In most cases, the debtor should be given reasonable notice and an opportunity to reverse the occurrence. The debtor is also immune from acceleration if there is no such clause in writing in the agreement.
Personal Property: Personal property, including household items.
Closing Costs: Expenses not related to the marketing and sale of the property, insurance such as loan fees and paperwork fees. Foreclosures can also incur additional escrow and legal fees.
Deed-in-Lieu of Foreclosure: Homeowners can deed their property to the lender if foreclosure is imminent, instead of going through the entire process. For the deed to be official, the lender must give its approval.
Default: Failure of the borrower to make the payments required by the lender. “Default” can refer to a late payment without further challenge, or a series of late payments that result in a failed mortgage.
Equity Right of Redemption: The right of the borrower to remove all liens associated with the mortgage, in order to avoid foreclosure.
Federal Housing Administration (FHA): A part of the federal Housing and Urban Development agency responsible for determining industry standards for mortgage lending by private lenders. The FHA also insures mortgages from private lenders. Investors in foreclosures must occasionally deal with this agency.
Federal National Mortgage Association: Also known as FNMA, or Fannie Mae, this federal agency oversees conventional residential mortgages and will buy loans that follow its rules. Some foreclosure investments require direct communication with this agency.
HUD1 Statement: A form required by the US Department of Housing and Urban Development that specifies the costs of acquiring a foreclosed home.
Loan-to-Value Ratio: A comparison of the total loan amount and the property’s sales price or appraised value, whichever is less.
Rescission Notice: A notice from the lender notifying the borrower that he or she is back in good standing on the loan and that payment deficiencies have been corrected.
Short Sale: Sale of a property priced at or below market value and less than the amount of a mortgage on the same property.
Truth in Lending Act: A law that requires the lender to provide the borrower with a full written explanation of the terms of the mortgage.
