Real Estate Loans, Foreclosure and Financing — Glossary of Terms.
Acceleration Clause - This is a provision normally in the promissory note and deed of trust which allows your lender to require you to pay the entire balance if you default on the loan. In California there are special laws preventing your lender from being able to enforce this clause until five days before a foreclosure sale.
Affidavit - This is a document that you sign under penalty of perjury. Some loan documents contain an affidavit where, under certain circumstances, your lender will require you to sign one concerning your financial status prior to restructuring your debt or allowing a forbearance on amounts owed.
Amortization - Amortization is the process by which a lender takes the total amount of money owed plus interest on the loan and determines how much per month must be paid on the loan. A fully amortized loan has equal payments from the first month to the last. Most residential loans in California are amortized over a 30 year period.
Appraisal - An appraisal is the process by which your lender determines the fair market value of your property. In California this is done by a licensed residential appraiser. The appraiser looks at past sales of similar properties in your general area to determine the fair market value of your property as of a certain date.
Appreciation - This is the process by which an asset gains value over its original value over time. In real estate, appreciation is generally the difference between what you paid for your property and what it is worth (if it is worth more than what you paid for it). If it is worth less than what you bought it for it has depreciated.
Assignment - Sometimes when a lender makes a residential loan after the loan process is complete the lender sells the loan to a third party. This is standard practice in the United States financial markets. The promissory note and deed of trust is then assigned to the buyer of the loan by way of a special document which is recorded with the county recorder. The term "assignment" is also sometimes used for situations where a borrower transfers the property he was using as collateral for his loan to his lender in exchange for a forgiveness of the debt.
Balloon Payment - The balloon payment is usually the large installment paid at the end of the term of the mortgage to pay off the remaining balance. A balloon payment exists where the loan is not fully amortized, that is, equal monthly payments are not made for the entire life of the loan.
Bid - This is the amount which is offered by a prospective purchaser at the trustee’s sale for the property being foreclosed on. The successful bid is the highest amount offered by any bidder at the trustee’s sale.
Collateral - Collateral is property that a borrower pledges to a lender to secure a loan. When you obtain a loan from a bank to purchase a car the bank will have an interest in the car to make sure that you make your payments. If you do not make the payments, the bank will repossess the car. The car is collateral for the loan much in the same way that your house is the collateral for your mortgage loan from your lender.
Credit Bid - A credit bid is the amount offered by a lender at a foreclosure sale. It is normally the remaining loan balance amount, although it does not have to be, as some lenders do not bid the entire amount owed by the borrower.
Debt/Debtor - A debt is an amount of money owed to a third party. When you borrow money from a lender to purchase a property, you are a debtor, or someone that owes a debt.
Deed - A deed is a document that is normally recorded with the county recorder and transfers real property from one person (or entity) to another.
Deed in Lieu of Foreclosure - A deed in lieu of foreclosure is a deed given by a borrower to their lender whereby the lender is not required to foreclose on the debt and instead takes title the property in exchange for forgiveness of the debt.
Deed of Trust (or Trust Deed) - A deed of trust (or trust deed) is the document which is security for the promissory note. It is a document that is recorded with the county recorder which gives your lender the right to foreclose on your property when you default in making your payments.
Default - A default is when you fail to make payments or do some other act such as maintaining your property as you promised to do in the promissory note you signed when you obtained your loan.
Deficiency Judgments (or Deficiency) - A deficiency judgment (or deficiency) is an amount owed to a lender after a foreclosure has occurred. In many instances under California law, deficiencies are not permitted. Under certain circumstances, however, a lender can sue you in court for a deficiency even though your house has been taken by foreclosure.
Depreciation - Depreciation of an asset occurs when the asset is worth less than it was when it was first purchased. The value of your house has depreciated when it is worth less than what you paid for it. Depreciation is also a term used in tax law relating to rental and commercial property.
Encumbrance - An encumbrance is the same thing as a lien on property. A deed of trust is an encumbrance on your property, which gives your lender the right to foreclose on your property if you do not make your payments in a timely fashion.
Equity - Your equity in your property is the difference between what it's worth and what you owe your lender. If your property is worth $500,000 and you owe $475,000 to your lender, your equity is $25,000.
Fair Market Value - The fair market value of a property is the value that a willing buyer would pay a willing seller on the open market for the property. It is not the amount that the seller may think the property is worth.
Fee Simple - Fee simple is a legal term which means that the subject property is owned completely by the person holding title. Someone who owns a house on which there is a ground lease for a certain number of years does not hold fee simple title to their property.
FHA - The FHA is the Federal Housing Administration, a part of the Department of Housing and Urban Development. The FHA guarantees residential loans of certain amounts under certain conditions.
Foreclosure - See the heading entitled "What is Foreclosure?"
Free & Clear - When someone says they own their property “free and clear” they mean that they have no liens or encumbrances on their property. This is often the case with people that have owned the property for decades and have paid their loans off.
Grace Period - This is an additional period of time that a borrower is allowed to make a payment to the lender in excess of the time set forth in the promissory note. In California there is a 10 day grace period for mortgage payments.
Homeowners Insurance - Homeowners insurance is insurance for fire and other damages or claims that most lenders require borrowers to obtain on their property. If a borrower does not obtain insurance, or fails to make payments on insurance, the lender will pay the premiums and charge them to the borrower.
Judicial Foreclosure - See the heading entitled "What is Foreclosure?")
Lien - Usually a charge on real property securing a debt to a third party. It can also be for unpaid property taxes, unpaid income taxes to the IRS, unpaid homeowners association dues, or other amounts owed to third parties which may or may not relate to the property.
Legal Description - A description of real property which refers to parcel maps or survey maps which have already been recorded with the county recorder. A legal description is normally attached to a deed to describe the property being transferred.
Lis Pendens - A lis pendens is a notice served on a property owner and recorded with the county recorder which notifies the property owner and any third parties that there is a lawsuit pending which relates to the property.
Mortgage - As used in common terminology a mortgage is any loan that is secured by real property or for which real property is the collateral. In California, deeds of trust are customarily used as opposed to contracts called mortgages, but in California the word mortgage is usually used to mean a loan secured by real property.
Non-judicial Foreclosure - See the heading entitled "What is Foreclosure?"
Notary Public - A notary public is a person authorized to verify signatures on legal documents. In California real estate all documents that are to be recorded with the county recorder, like deeds of trust, must be notarized by a notary public.
Notice of Default - See the heading entitled "What is Foreclosure?"
Posting - In foreclosures in California the notice of default and notice of trustee sale must also be posted on the property being foreclosed upon. See the heading entitled "What is Foreclosure?"
Postponement - A postponement occurs when a borrower obtains the agreement of the lender to hold off on the trustee sale in a foreclosure for a certain amount of time. Lenders will often postpone trustee's sales to give the borrower opportunity to obtain the funds to cure the default, to sell the property, or to obtain a replacement loan.
Promissory Note - A promissory note says that you promise to make payments of a certain amount over a period of time in the certain day of each month. The promissory note is the contract between you and the lender where you promise to make the payments.
Redemption Period/Right - Under California law, a residence which is foreclosed upon under judicial foreclosure gives the borrower the right to live in the residence for a one-year period after the completion of the judicial foreclosure. During that one year, the borrower may "redeem" the property by paying the amount owed. This is why lenders virtually never use the judicial foreclosure process for residences in California.
Request for Notice - A request for notice is a document recorded with the county recorder which requires the agent of the lender in the foreclosure (known as the "trustee in foreclosure") to send a copy of the notice of default and notice of trustee sale to whomever requests it in the request for notice.
Short Sale - A short sale is when you ask your lender for permission to sell your home for less than the amount you owe on the mortgage. For example, if you owe $500,000 on your mortgage, and your house is with $490,000, your lender may allow you to sell the house for the lower price and your lender will accept the net proceeds from the sale as if you had paid off the loan. There are tax implications which can be complicated relating to short sales.
"Subject to" - A "subject to" sale is one where by the buyer takes the property with all existing liens and encumbrances, in other words “subject to” those liens. This would occur if you were to sell your property to someone without paying off your loans on the property. The buyer's name would not be on the loans but if the buyer wanted to sell or refinance a property they would be required to pay off the loans you obtained when you owned the property.
Title - When you owned a property by way of the deed which is recorded with the county recorder, "title" is in your name. Title to property gives you all the rights of ownership of the property.
Trustee - Under California real estate law a trustee or trustee in foreclosure is the person or company that processes the foreclosure sale for a lender if you default in your payments. The trustee is the one who sends and records the notice of default and notice of trustee sale and conducts the trustee sale at the end of the foreclosure. See also heading entitled "What is Foreclosure?"
Trustee’s Sale - See heading entitled "What is Foreclosure?"
