You never want to find yourself in the situation of facing foreclosure. Alternatively, you may be interested, in exploring opportunities to secure a deal on a property through a foreclosure auction or short sale. In any case it’s important to familiarize yourself with the foreclosure terminology to understand its implications and plan your steps.
So what is foreclosure?
In terms it occurs when the bank that holds your home loan initiates the process of seizing the property due to missed mortgage payments. As discussions about foreclosure unfold you’ll encounter terms that are crucial to comprehend. Here is a compilation of 7 used definitions, legal jargon and terminology related to foreclosures;
Grasping Foreclosure Terminology
1. Foreclosure;
Defined by experts in U.S. Foreclosure Law as “the enforced sale of property pledged as collateral for a debt.” It’s also essential to grasp the meaning of default which’s another concept in foreclosure proceedings.
2. Default;
This term refers to situations where the borrower fails to meet the agreed upon mortgage payments, on their loan.
When a homeowner misses mortgage payments and the mortgage falls into default the process of foreclosure will initiate.
3. During the foreclosure stage homeowners
typically receive a Notice of Default (NOD) or a Notice of Sale (NOS) signaling the beginning of the foreclosure process before it is finalized.
4. If you’ve been, through the mortgage process to buy a home
you’re likely familiar with some foreclosure terms. A mortgage is essentially a loan agreement for purchasing property with the property serving as collateral for the loan. Should the homeowner fail to meet their loan obligations the lender may proceed with foreclosure.
5. One frequently misunderstood term related to pre foreclosure is ” sale.”
Contrary to belief a short sale does not imply a sale of a foreclosed property by the bank. Instead it refers to selling the property before foreclosure at an amount than what is owed on the mortgagea situation termed “short” due to this discrepancy, in value.In the situation of a sale the bank agrees to accept a payment, than the total owed on the mortgage when selling the property. Looking back at the real estate crash in 2008 many homeowners experienced this as they purchased homes at market prices and later found themselves owing more on their mortgages than their properties were worth.
6. Foreclosure Auction;
When a property falls into default and enters foreclosure proceedings the bank may sell it through a foreclosure auction. These auctions can offer real estate opportunities although information about the property is usually limited. Depending on the state homeowners may have a right of redemption giving them time to repay mortgage payments and reclaim ownership.
7. Lien;
Another crucial term in foreclosure proceedings is a lien indicating a claim on the property, like a mortgage or unpaid HOA dues, utility bills or unresolved permits.
During the process of finalizing a purchase of a foreclosed property, it is common for the property to have existing liens that need to be settled at the time of the transaction. These liens can be cleared either by the owner or, by the buyer.
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