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Foreclosure
When an owner stops making their mortgage payments the lender begins the foreclosure process by trying
to encourage payment (letters, calls). When that doesn’t work, they file a lawsuit in Court seeking to
“foreclose” the owner’s title.
At the time the suit is filed a Lis Pendens (notice of pending legal action) is recorded in the public records.
The lawsuit concludes with the Court issuing a Final Judgment.
Short Sale
When a lender of a property allows the property to be sold for less than the remaining balance on the
mortgage loan instead of pursuing a foreclosure.
Mortgage
The leader’s recorded lien pledging the property as collateral for the loan. When the owner signs a
mortgage they also sign a Promissory Note making the borrower personally liable for the loan. This personal
liability can remain even after the property is sold if the loan is not fully paid.
Final Judgment
A Court order mandating that the property is offered at a Clerk’s Sale. The judgment identifies the total
amount awarded, including all the cost incurred by filing the foreclosure suit.
Loss mitigation
Used to describe a third party helping a homeowner, a division within a bank that mitigates the loss of the
bank, or a firm that handles the process of negotiation between a homeowner and the homeowner's lender. Loss
mitigation works to negotiate mortgage terms for the homeowner that will prevent foreclosure. These new terms
are typically obtained through loan modification, short sale negotiation, short refinance negotiation, deed in
lieu of foreclosure, cash-for-keys negotiation, or a partial claim loan or other loan work-out. All of the options
serve the same purpose, to stabilize the risk of loss the lender (investor) is in danger of realizing. The
different options are available to homeowners to try getting the homeowner to "perform" (pay timely) and cure
the potential loss the lender/investor projects incurring through the foreclosure process and
auction sale of the property.
Clerk’s Sale
The public sale ordered by the Final Judgment.
The property is sold at the courthouse to the highest bidder.
Successful bidder gets title to property.
All lien holders named in the suit are “foreclosed” at the sale.
REO
Real Estate Owned by the lender. The lender acquires title at the public sale (if not out-bid) and now
attempts to recover the amount loaned by offering the property for sale. The property may be listed with a
real estate broker.
Any excess proceeds above the first mortgage are distributed to lien holders based upon rank.
Property taxes and governmental assessment are always paid first.
Encumbrance
Any lien or other financial claims recorded against a real property title. Association (condo or HOA)
fees, IRS liens, and judgment liens from other creditors are all encumbrances.
Any lien holders that are not fully paid from the proceeds of the public sale may later seek a
Deficiency Judgment.
Deficiency Judgment
Used by the lender after the clerk’s sale to recover the balance of the debt remaining unpaid. Can result
in a judgment lien against other real and personal property. May be avoided if the leader accepts, and the
owner agrees to a new promissory note or recording a mortgage against another property.
Pre-Foreclosure
Pre-Foreclosure is an inexact non-legal term that means whatever the user wants it to mean. Most often
used to describe an owner who is having trouble making mortgage payments or may already have missed payments.
Mortgage “Investor” (referred to in this outline as the “lender”)
The party who actually funded the loan. The “end” lender. The “Investor” makes the final decision to
reject the short sale, based largely on the servicing agent’s recommendations.
Mortgage Servicing Agent
Hired by the lender to collect the mortgage payments that are forwarded to the mortgage investor. It is
usually the servicing agent who initiates the foreclosure process on behalf of the mortgage investor.
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