Foreclosure Glossary · 27 terms

Foreclosure, translated

Foreclosure comes with its own dialect, and the lender is already fluent. Every term in the letters, the notices and the auction, in the order you will meet them, explained in plain English.

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Stage 1 of 4

The Paperwork Behind the Loan

Every foreclosure is already written into the papers signed at closing, so this phase reads the fine print before the fine print reads you.

  1. Deed of Trust The recorded document that pledges a home as security for a loan and hands a neutral third party the right to sell it if the borrower defaults.
  2. Power of Sale The clause in a deed of trust that lets the trustee sell the property at auction after a default, without filing a lawsuit.
  3. Trustee The neutral third party named in a deed of trust who holds title and conducts the sale if the borrower defaults.
  4. Default A breach of the loan terms, most often a missed payment, that gives the lender the right to act.
  5. Acceleration The lender's decision to declare the entire loan balance due at once because of a default.
  6. Reinstatement Paying the missed payments plus fees to bring a defaulted loan current and stop the foreclosure.
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Stage 2 of 4

The Notices and the Clock

Once payments stop, the lender has to announce it in public and then wait out a legal timetable, and knowing which notice starts which clock tells you how much time is really left.

  1. Foreclosure The legal process by which a lender forces the sale of a property to recover what it is owed after a default.
  2. Pre-foreclosure The period after a default becomes public but before the property is sold at auction.
  3. Notice of Default (NOD) The recorded document that formally announces a borrower is in default and starts the nonjudicial foreclosure clock.
  4. Lis Pendens A recorded notice that a lawsuit affecting title to the property is pending.
  5. Notice of Trustee's Sale (NOTS) The recorded and published notice that sets the date, time and place of the auction.
  6. Judicial Foreclosure Foreclosure carried out through a lawsuit, with a judge ordering and confirming the sale.
  7. Nonjudicial Foreclosure Foreclosure carried out by a trustee under a power of sale clause, with no lawsuit.
  8. Redemption Period A window set by state law in which a former owner may buy the property back after the sale.
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Stage 3 of 4

Ways Out Before the Auction

The auction is the default ending, not the only one, and every exit in this phase narrows a little more each week the calendar keeps turning.

  1. Loss Mitigation The servicer's set of alternatives to foreclosure, offered to a borrower who asks for help.
  2. Forbearance A temporary agreement to pause or reduce payments while a borrower recovers from a short term hardship.
  3. Loan Modification A permanent change to the loan terms, such as the rate, the length or the balance, to make payments affordable.
  4. Short Sale A sale of the home for less than the loan balance, agreed to by the lender in place of foreclosing.
  5. Deed in Lieu Handing the property title to the lender voluntarily in exchange for cancelling the debt.
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Stage 4 of 4

The Sale and What Follows

The gavel falls in minutes, but the money, the move and even the tax bill keep arriving long after, so this phase covers what the sale leaves behind.

  1. Trustee's Sale The public auction conducted by the trustee under a deed of trust to sell the property to the highest bidder.
  2. Foreclosure Auction The public sale where a foreclosed property is sold to the highest qualified bidder.
  3. Junior Lien A debt secured by the property that was recorded after the loan being foreclosed.
  4. REO Real estate owned: a property that failed to sell at auction and is now held by the lender.
  5. Surplus Funds Money left over when a foreclosure sale brings more than the debt and costs owed.
  6. Deficiency Judgment A court order making a borrower personally liable for the balance still owed after the sale falls short.
  7. Cash for Keys A payment offered to an occupant to leave voluntarily and in good condition, instead of being evicted.
  8. 1099-C The tax form a lender files when it cancels debt, reporting the forgiven amount to the borrower and the IRS.

Learning the words is step one. Beating the date is step two.

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