Foreclosure Definitions

Foreclosure - The legal process that banks and mortgage companies use to force the sale of your home to repay a debt; usually the mortgage on your home. Even if one payment is missed the lending institution can take the property back and then sell it to repay the money owed them.

Short Sale - Your lender agrees to accept less than the total owed in exchange for releasing the mortgage as a lien on the property. There is a specific process that you must go through to be eligible for a short sale and the lender is not always amenable. There may also be tax consequences for short sale (the difference between the sale amount and the loan amount must be reported as taxable income), but this has been temporarily removed. Contact your accountant for your exact circumstance.

REO – An acronym for Real Estate Owned which refers to property which is in the possession of a lender as a result of foreclosure or forfeiture.

Deficiency – The difference between what is owed on the loan and what the house sells for.

Junior Lien Holders - these are second and third mortgages such as the equity lines so commonly used in 100% financing over the last few years. If the sale of the property does not cover all the debts, the junior liens become merged debts.

Merged Debts - This applies only if you have a second, third, or more mortgages. If the lender holding your first mortgage forecloses then the second, third and so forth lenders no longer hold any right or title to your home. Once foreclosed on, they have no security interest in the home nor any right to foreclose on the home.