The Language Of Foreclosures: Understanding The Most Common Foreclosure Terms

Talking about foreclosure real estate can be difficult enough without even entering the market. The reason is because foreclosures usually have a language of their own, employing lots of obscure words which originate in government housing legislation and real estate law. Without a background in these areas, prospective investors will not be able to decipher even the simplest foreclosure contract. This article lists some of the most common foreclosure related terms as a reference for people who are interested in this lucrative market.

Abandonment: Wherein a property owner gives up ownership rights without coercion, and would not like to retrieve those rights, or give them to someone else.  A situation that involves an unused property does not guarantee abandonment. 

Acceleration Clause: A clause usually written in a mortgage that will allow the lender to demand full re-payment immediately, instead of at the end of the contracted term.  The clause should also detail an occurrence that would put it into effect, like a default on regular payments, sale of the property, or re-assignment of property rights.  Most of the time the debtor must be given reasonable notice, and an opportunity to reverse the occurrence.  The debtor is also immune from acceleration if there no such clause is written into the agreement.   

Chattel: Personal property, containing household items. 

Closing Costs: Expenses not associated with the marketing and selling of the property, such as loan fees and paperwork fees.  Foreclosures may also involve extra legal and escrow fees. 

Deed in Lieu of Foreclosure: Property owners might deed their property to the lender if foreclosure is imminent, rather than going through the entire process.  For the deeding to be official, the lender has to give approval.   

Default: The failure of payments of the borrower as required by the lender.  "Default" might refer to a missed payment without any further repercussion, or a series of missed payments causing a failed mortgage. 

Equity Right of Redemption: The right of the borrower to remove all encumbrances related to the mortgage, in an attempt to avoid foreclosure. 

Federal Housing Administration (FHA): A part of the Federal Housing and Urban Development agency in charge of determining industry standards for mortgage loans by private lenders.  FHA also insures mortgages by private lenders.  Foreclosure investors must periodically deal with this agency.   

Federal National Mortgage Association: also called FNMA, or Fannie Mae.  This federal agency oversees conventional residential mortgages, and will buy out loans that follow its rules.  Certain foreclosure investments will require direct communication with this agency.   

HUD1 Statement: A form that is mandated by the United States Department of Housing and Urban Development that identifies the costs of getting a foreclosed home. 

Loan-To-Value Ratio: A comparison of the total loan amount and the lesser of the property's sale price or appraised value.   

Notice of Rescission: A notice from the lender which lets the borrower know that he or she is again in good standing with the loan, and payment deficiencies have been fixed.   

Short Sale: The sale of a property priced at or below market value, and lower than the mortgage principal amount on the same property.   

Truth-in-Lending Act: A law that requires the lender to give the borrower a full written explanation of the mortgage's terms.