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Important Short Sale Terms – Glossary

Important short sale termsAuthorization Letter

A letter from the homeowner/seller that is dated and signed, authorizing a lender to discuss personal information with a real estate agent. The letter should include the name of the agent, their contact information, the seller’s contact information, loan reference number and the address of the property.

Broker’s Opinion of Value

A valuation of a property that is done by a realtor. In most cases, banks usually request and pay for these appraisals if a property is in default, a short sale is occurring or the mortgage is being refinanced.

Deed in Lieu of Foreclosure

This is a term describing the voluntary surrender of a piece of property by the borrower to the lender. When this occurs, it eliminates the need of the lender to continue with foreclosure action. It is possible for lenders to refuse to accept this option, then filing a Notice of Non Acceptance with a County Recorder.

Defaulted Loan

Indicates that the borrower has failed to make one or more mortgage payments.

Deficiency Judgment

Once a debt is partially settled after a short sale takes place, this is the amount that is stilled owed on that home loan. The borrower is still responsible for paying this amount.

Distressed Property

A distressed property is advertised for sale either by the lienholder or under foreclosure order. These properties usually are purchased for a price far below the property’s market value.

Equity Deficient

A property is called Equity Deficient if the proceeds of a sale will not pay off the entire amount owed on the mortgage.

Hardship Letter

A letter that the borrower must submit to the lender indicating all relevant reasons that they are unable to continue making payments on the home loan.

Junior Liens

A junior lien refers to a lien that is subordinate to the first mortgage, often referred to as the senior lien. Order of recordation usually establishes the lien priority. Junior liens often include second mortgages, home equity loans of credit and other loans taken out along with the primary lien.

Loss Mitigation

Loss mitigation refers to a division within a bank or other lending institutions that works to mitigate the loss of the institution. This department within a lending institution works with borrowers that are not currently meeting their obligations to repay the loan. The goal of this department is to minimize the amount that the lender loses on these loans.

Second Lien

A second lien, also referred to as a second mortgage, is a lien for which property is used to secure a loan where there is already a mortgage on the piece of property. If the borrower does not make payments, the first lien holder would get all the money from a short sale up to the full mortgage amount. The second lienholder gets any other money left up to the value of the second lien.

Underwater Mortgage

An underwater mortgage takes place when the balance of the mortgage loan is larger than the value of the home. This often referred to as an upside down mortgage as well.

Next: Chapter 2: Short sales vs. Foreclosures