Useful Terms for Short Sales
Abstract of Title: documents recording ownership of property throughout time.
Acceleration: The right of the lender to demand payment on the outstanding balance of the loan. Typically a default would trigger an acceleration clause.
Acceptance: The written approval of the buyer’s offer by the seller. In the case of counteroffers – it would be when the last person signs off on the other party’s last counter. In Georgia real estate contracts also known as the Binding Agreement Date.
Affidavit: a signed, sworn statement made by the buyer or the seller regarding the truth of the information provided. Document is legally binding.
Appraisal: a document from a professional appraiser – licensed in the state of Georgia- that gives a statement on the property’s fair market value based on the sale of comparable homes in the area that are similar to the subject property.
As-is Condition: the purchase or the sale of property in its existing condition without repairs. Seller’s still are required in to disclose any known defects of the property.
Assessed Value: the value that a public official has placed on an asset for the purposes of determining tax. It is used to determine property taxes in Georgia.
Balance sheet: a financial statement that shows the assets, liabilities and net worth of an individual or company.
Bankruptcy: a federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay.
Certificate of Title: a document provided by a qualified source, such as a title company (in Georgia title work is completed by an attorney), that shows the property legally belongs to the current owner; before the title is transferred at closing, it should be clear and free of all liens or other claims.
Chapter 7 Bankruptcy: a bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.
Chapter 13 Bankruptcy: this type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court’s terms within a 3 to 5 year period.
Clear Title: a property title that has no defects. Properties with clear titles are marketable for sale.
Closing: the final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent (in Georgia an attorney must be present), and real estate agents.
Closing Costs: fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes.
Cloud On The Title: any condition which affects the clear title to real property. Also referred to as a title defect.
Contingency: a clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. In a short sale purchase & sale agreement, there is a contingency on the lender(s) approving the terms of the contract and accepting less than the outstanding loan amount.
Deed: a document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner’s signature.
Deed-in-Lieu of Foreclosure: a deed is given to the lender to fulfill the obligation to repay the debt; this process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure. Lender must agree with the process. Also known as a “friendly foreclosure”.
Default: the inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings. Georgia is a non-judicial foreclosure statement; pay to stay.
Delinquency: failure of a borrower to make timely mortgage payments under a loan agreement. Generally after fifteen days a late fee may be assessed.
Disclosures: the release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. Federal law requires disclosure warning of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties. Even if a home is being sold “as is” a seller is still obligated by the law to disclose known defects or problems.
Equity: an owner’s financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s) from the fair market value of the property.
Fair Housing Act: a law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
First Mortgage: the mortgage with first priority if the loan is not paid.
Forbearance: a lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date. Lender must agree to the payment plans.
Foreclosure: a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Georgia is a non-judicial foreclosure state.
Gross Income: money earned before taxes and other deductions. It may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.
Home Equity Line of Credit: a mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.
Home Equity Loan: a loan backed by the value of a home.
HUD-1 Statement: also known as the “settlement sheet,” or “closing statement” it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts. HUD-1 Statements are used when short sale packages are submitted to the lender(s) for their approval.
Judgment: a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor’s claim by providing a collateral source.
Liabilities: a person’s financial obligations such as long-term and short-term debt, and other financial obligations to be paid.
Lien: a legal claim against property that must be satisfied when the property is sold.
Liquid Asset: a cash asset or an asset that is easily converted into cash.
Loan Acceleration: an acceleration clause in a loan document gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.
Loan Servicer: the company that collects monthly mortgage payments and disperses property taxes and insurance payments. In many cases the loan services is not the investor who put the money up for the loan. You have the right to know who the investor of your loan is.
Loss Mitigation: a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.
Market Value: the amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.
Modification: when a lender agrees to modify the terms of a mortgage without refinancing the loan.
Mortgage: a lien on the property that secures the promise to repay a loan. A security agreement between the lender and the borrower in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.
Mortgage Acceleration Clause: a clause allowing a lender, under certain circumstances, demand the entire balance of a loan is repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced or the borrower defaults on a scheduled payment.
Mortgage Insurance: a policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price. May be referred to as Private Mortgage Insurance (PMI). In a short sale, many times the Mortage Insurance will have to approve the terms as well as the investor.
Mortgage Modification: an option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgagee: the lender in a mortgage agreement.
Mortgagor: the borrower in a mortgage agreement
Notice of Default: a formal written notice to a borrower that there is a default on a loan and that legal action is possible.
Offer: indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.
Partial Payment: a payment that is less than the total amount owed on a monthly mortgage payment. Many lenders do not accept partial payments – call your lender to find out if they do.
Pre-foreclosure Sale: a procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure. Short Sales are sometimes referred to as pre-foreclosure sales.
Quitclaim Deed: a deed transferring ownership of a property but does not make any guarantee of clear title.
Reinstatement Period: a phase of the foreclosure process where the homeowner has an opportunity to stop the foreclosure by paying money that is owed to the lender.
Second Mortgage: an additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.
Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
Subordinate: to place in a rank of lesser importance or to make one claim secondary to another.
Title: a legal document establishing the right of ownership and is recorded to make it part of the public record. Also known as a Deed.
Title Defect: an outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.
Title Search: a check of public records to be sure that the seller is the recognized owner of the real estate and that there are no unsettled liens or other claims against the property.
Warranty Deed: a legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.