Short Sale Definitions
Appraisal - The bank may have an appraisal done or you can request that your appraisal be considered by the bank. The licensed appraiser would do an onsite evaluation of the property to determine its value.
Assignment – When the buyer adds “and/or assigns” after their name on the purchase and sale agreement, it means they can assign their rights to purchase your prohttp://en.wikipedia.org/wiki/Assignment_(law)perty to another buyer, usually for a fee that is worked out between the two buyers. This is called “assigning the contract” or an “assignment.”
BPO - Abbreviation for Broker's Price Opinion. This is an abbreviation the banks will typically use when they say they are going to have an internal BPO, external BPO, or inhouse BPO done. The internal BPO means an agent (not an appraiser) will go to the property and do a walk through to evaluate the property so they can give an estimated value. The external BPO is typically a drive by. And the inhouse BPO is done by the bank from their remote location by pulling comparables.
The Budget – An important part of determining your next steps, whether you are deciding whether to do a short sale or after you have closed on the short sale, is doing a realistic budget for yourself and/or your family. Tally up all of your expenses and your income and the projected amounts of each and figure out what you can afford.
Comparables – Your realtor can help you pull comparable to determine the value and thereby the asking price for your property. You may also have the opportunity to present the comparables you think are the most appropriate to give your lender an idea of the value of your property that justifies the buyer’s offer.
Closing – This takes place after signing at escrow. It is when the lender for the buyer or the buyer themselves provide funds to escrow so your lender can be paid off and escrow gets recording numbers. This confirms the closing of the transaction.
Collections department – If you are late or delinquent on your payments, and get a call from your lender, it is likely the collections department. The collections department likely is unaware of any negotiations in process with your short sale. It is unlikely that you can get anywhere in progressing your short sale if you are communicating with the short sale department.
Contract price – This is the amount of your buyer’s offer. During the short sale process, your lender’s processor will be referring to the offer, not the net to them. They may however look into the items on the HUD and refer to the net to them amount in the final stage of the short sale. You know you’re getting close when the lender is pointing out items on the HUD.
Customer service department – If your loan is not in default, you will likely start with the customer service department. They can instruct you as to your next steps when you inform them you are looking to do a short sale on your property.
Deed in Lieu of Foreclosure – A passing of ownership to forego the foreclosure of your property by deeding it over to your lender. A deed in lieu program is only available when there is a 1st mortgage only and no other liens.
Deficiency – When there is a difference between what the bank is owed and the net they receive in the sale, it is considered a deficiency in that debt.
Deficiency judgment – A deficiency judgment is when the bank holds the seller liable for the deficiency they lost at the sale or auction. Whether your property is lost through a foreclosure, you do a deed in lieu of foreclosure, or you short sale your property, the lender may still reserve the right to pursue a deficiency judgment for the full loss or a percentage of the amount unpaid on the balance.
Escrow – Some states call this Title as well. It is the licensed company that will be facilitating the hand-off between title to the property, holding funds from the buyer and paying off the items and entities on the HUD. Therefore Escrow will be providing the preliminary HUD settlement statements during the short sale. Ask your agent or the escrow officer to explain to you what the items are on the HUD so that when you eventually discuss them with your lender, you’ll know what you’re talking about.
Forbearance – The Special Forbearance is a written agreement between the mortgagee and a mortgagor that consist of a plan enabling the mortgagor to reinstate their loan. This can be a short term solution if you can get the bank to postpone payments for 3 months or so and then make up those payments in 12 – 18 months. If the short sale goes through, that repayment would not be expected. Many forbearance plans fail as most homeowners do not have the extra money to make the larger payments.
Foreclosure auction – Foreclosure sales take place at various court houses at specified times depending on the county and state. Typically the foreclosure process takes 90 days from the day you receive a notice of trustee sale. Once your property is sold at auction to the highest bidder, you are given a specified amount of time to vacate the property.
Foreclosure department – Some lenders have a separate department set up for handling the issues or opportunities that arise when the loan has progressed toward the final stages of the foreclosure process, setting the minimum bid and preparing for the foreclosure auction.
Garnishing Wages - In the case of a foreclosure, deed in lieu or a short sale, the lender may turn the deficiency judgement over to a collections company. That company will likely threaten to garnish your wages, which means they get a court order to pull money from your paycheck without your permission. In order for the lender or the collections company to get the court to garnish wages, there must first be a judgement against the homeowner for a specific dollar amount. If the property is sold through a short sale and there has never been a final judgment amount entered by the court as an order, then the lender is unable to garnish wages because there is no court order as the legal basis for seeking the courts permission to garnish wages. It is up to the wage earner to convince the court that their money is exempt from garnishment.
Hard Money – In the context of a short sale, Hard Money loans are short term, high interest loans to investors who are purchasing a distressed property. The investors need to close quickly and the Hard Money loans can be arranged relatively quickly. Then the investor refinances the short term loan with a more conventional, long term loan with a better interest rate. Typically the Hard Money lender has requirements that insure repayment is very likely, even if the loan goes into default.
HUD– Also called the Settlement Statement, your lender will require seeing a preliminary version with the submittal of each offer. Hopefully you will only need one offer to close the short sale.
Investor – This term has two meanings in the context of a short sale. 1) The investor is who the bank processor refers to as the person(s) who own your note. You may not know who this investor is and the bank processor may not tell you even if you asked. 2) It is not abnormal for a real estate investor to put in an offer to purchase a property that is a short sale. Their hope is that the bank will take the needed fixes with the property into consideration and place a realistic "As Is" value on the property so that when the short is completed and the investor buys the property, they can fix it up and make a return on their investment.
Liquidation value – This is the amount a property would sell for in a desperate situation. If you are in foreclosure and have to find a buyer immediately, the amount you can expect to get for your property would be the liquidation value, as opposed to the market value.
Loan modification – A Loan Modification is a permanent change in one or more of the terms of a mortgagor's loan that allows the loan to be reinstated and results in a payment the mortgagor can afford.
Loss mitigation department – This department is usually who handles the majority of the short sale process. Usually people within this department are authorized to negotiate, order BPOs or appraisals, and help push the short sale forward.
Market value – The amount a ready, willing and able buyer can and will pay for your property.
Minimum bid – This is the amount the lender sets as the minimal amount they would accept if the property went to the foreclosure auction. Typically the lender doesn’t set this amount until just prior to the auction date. It is good to know what that amount is if you are cutting it close to the sale date. This minimum bid can be found out by calling the trustee handling the foreclosure.
Note – In the context of a short sale, the subordinate lender can issue a Note to be paid outside of escrow that requires payment before closing, at closing or on a payment schedule after closing so that they get the total amount they agreed to on the short sale. Your existing loan is a note.
Payoff - The dollar amount your lender requires to satisfy the loan so that the lien can be released from the property.
Processor – Also referred to as a Negotiator, this is the person who will be evaluating your short sale prior to sending the file to management for review or to the investor who will ultimately decide if they are going to accept the short sale.
Refinance – When you facilitate through another lender or mortgage company (or the same lender), the payoff of the original debts through another loan under separate terms. Currently most lenders require you to have a cash reserve, stability on the job and a 680 or above credit score to refinance.
REO department – Any time the bank takes back the property at a foreclosure sale because no one met the minimum bid requirement, or another lien holder bid on the property to win it at auction to protect their interest, it becomes an REO, a bank term for Real Estate Owned. The bank then owns the property and they are tasked with selling it. The price they can get varies from 60% of “value” to close to the “value”, depending on their circumstances. Either way it is usually less than what they would have gotten had they approved a legitimate and justified short sale offer.
Renting the property – If you can find a way to get high enough rent to cover the debt and mortgage insurance, and taxes, it could be an option for you if you have time. If you are a renter, and the house you’re renting is in foreclosure, some lenders will pay renters to leave if it helps with the close. Unless it is in the lease contract, the landlord had no legal obligation to tell the renter he/she is in foreclosure.
Repayment plan – Also called a “Workout plan”, when the amount of the arrears (balance to bring the loan current) is spread out over a term of monthly payments.
Representative – On the first level of communication with your lender, you will speak with a representative who pulls your account up on their computer and views the notes and makes new notes based on each conversation with you. Rarely will you speak with the same representative any two times. You may speak with various representatives during the process, before and during the time the file is assigned to a processor or negotiator.
Short Sale – A real estate transaction that requires the Seller’s lender to take a discounted payoff for the sale to close, because the property’s “value” and thereby sale price is not high enough to cover the debts and closing costs and the Seller can’t afford to make up the deficiency at closing.
Short sale approval letter – This is what you are seeking through the short sale process. The approval letter is the banks written acceptance of the terms of the short sale. Once you have the letter, you have to conform to the stipulations on the letter as the transaction is closed at escrow with you and your buyer.
Short sale department – Like the Loss mitigation department, your file may be handled primarily by this department, depending on the system and departments within the bank.
Simultaneous close – In some cases, the buyer of your property may turn around and immediately sell the property to another buyer simultaneously. In this case, the funds from the final buyer’s purchase will pay off your sale. This transaction should be disclosed to the seller, buyer and lender for the buyer.
Subordinate lien holder – The lien holders behind the Sr. Lien holder or the 1st, are in subordinate position(s) and are down the line in collecting their due and more likely to lose if the property goes to foreclosure sale.
Sr. Lien holder – Otherwise known as the “1st”, this lender is first in line for reimbursement in the short sale or the foreclosure sale. It is more difficult to convince the Sr. Lien Holder to take a short sale because they feel that if the property went to foreclosure sale, they would get their due.
Title – A title company provides a list of recorded encumbrances against your property. When the property is transferred to another buyer, title insurance is purchased at closing so that the buyer will know that they own the property free and clear.
Trustee – The attorney in charge of facilitating the foreclosure auction on behalf of the foreclosing lender. This is the one who would be sending and/or posting a notice of trustee sale on your property if it were in default long enough to justify a notice.
