foreclosure glossary

Foreclosure Glossary

ARM (Adjustable-Rate Mortgage)
A mortgage with a variable interest rate that may change periodically, often increasing the borrower’s risk of default if payments rise unexpectedly.

Auction Sale
A public sale, often at a courthouse or online, where foreclosed properties are sold to the highest bidder, usually requiring cash or certified funds.

Bankruptcy
A court proceeding in which a judge and court trustee examine the assets and liabilities of individuals and businesses who can’t pay their bills. The court decides whether to discharge the debts and those who are no longer legally required to pay them.

Bankruptcy Discharged
When a court grants a discharge order, it cancels your obligation to repay the discharged debt. As a result, your credit card bills, medical bills and other types of debt included in your bankruptcy filing may be eliminated.

Bankruptcy Dismissed
If the court enters a dismissal order, it ends a bankruptcy case without discharging the debt. This also ends the automatic stay, allowing creditors to resume collection efforts.

Capitalization Rate (Cap Rate)
A metric used to evaluate the return on a real estate investment, calculated by dividing the property’s net operating income (NOI) by its purchase price or market value.

Deed in Lieu of Foreclosure
A voluntary transfer of property ownership from the borrower to the lender to avoid foreclosure proceedings.

Default
The failure to meet the legal obligations of a loan, such as missing payments, which can trigger foreclosure.

Distressed Property
Real estate owned by an individual or entity facing financial hardship, often sold below market value due to foreclosure, tax liens, divorce, or bankruptcy.

Do Not Call (DNC)
A registry provided by the Federal Trade Commission where individuals can opt out of receiving unsolicited calls from telemarketers.

Do Not Call Scrubbing or Do Not Call Flagging
The process of identifying which phone numbers are listed on the DNC registry. Tools like PropStream use this data to help investors avoid calling protected numbers.

Due Diligence
The process of thoroughly investigating a property before acquisition to identify legal, structural, financial, or environmental risks.

Environmental Assessment
An evaluation to determine the presence of environmental hazards such as mold, asbestos, lead-based paint, underground tanks, or soil contamination.

Equity
The difference between a property's market value and the total amount still owed on liens or mortgages.

Escalation Clause
A contract clause that lets buyers automatically increase their offer by a predetermined amount if competing bids are received.

Escrow
A financial arrangement where a neutral third party holds funds or documents until both buyer and seller meet agreed-upon conditions.

Escrow Holder
The third party in an escrow transaction responsible for safeguarding and releasing funds and documents once conditions are met.

Foreclosure
The legal process where a lender reclaims a property after a borrower fails to make payments.

Foreclosure Sale
The sale of a property at auction after foreclosure proceedings, often conducted by a court or sheriff depending on the jurisdiction.

Free & Clear
A property with no existing liens or mortgages fully owned by the titleholder.

Hard Money Loan
A short-term loan secured by real estate, typically with higher interest rates and faster approval timelines.

Lien
A legal claim against a property used as collateral for debt. Common types include tax liens, mortgage liens, and judgment liens.

Lien Released
A document filed to remove a previously recorded lien from public records.

Lis Pendens
A public notice filed in the land records indicating a pending lawsuit involving the property’s title or ownership.

Notice of Default (NOD)
A formal notice filed by the lender indicating that the borrower is behind on mortgage payments and foreclosure may follow.

Notice of Foreclosure Sale
Notification that a lender intends to auction a property due to default. In nonjudicial states, this may occur without court involvement.

Notice of Trustee Sale
A notice issued in nonjudicial foreclosures indicating the date and location of the public auction of the property.

Opening Bid
The minimum price set by the lender at a foreclosure auction, usually based on the loan balance, accrued interest, and legal fees.

Pre-Foreclosure
The period after a borrower defaults but before the property is auctioned. This phase offers opportunities for workouts or sales.

Quiet Title Action
A lawsuit filed to clear any disputes or claims against a property’s title, ensuring clear ownership.

REO (Real Estate Owned)
A property that has gone through the foreclosure process and is now owned by a lender or bank.

Redemption Period
A time frame after foreclosure during which the original owner can reclaim the property by repaying all owed amounts.

Short Sale
A transaction where the lender agrees to accept less than the mortgage balance, allowing the homeowner to sell and avoid foreclosure.

Subject-To
A creative financing method where the buyer takes over the seller’s existing mortgage payments without formally assuming the loan.

Title Search
A review of public records to confirm legal ownership of a property and identify any existing liens or claims.

Wraparound Mortgage
A financing strategy where the seller creates a new loan that includes the existing mortgage plus additional financing.