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Foreclosure

Terminology and Definitions

SELECTIVE FORECLOSURE TERMS AND CONCEPTS

Mortgage vs. Note

A mortgage and note are two individual documents although many times in ordinary practice they are lumped together and referred to as the “mortgage”.  In reality, the mortgage is the document which grants a security interest in the property to the lender. The note is a promise to pay the sum due on the loan.  In other words, the mortgage allows the lender to take the property back if you don’t pay on the debt on the note.

Mortgagor vs. Mortgagee

The lender is referred to as the mortgagee and the borrower is referred to as the mortgagor.  This is because the borrower is giving a security interest in the property to the lender, rather than the lender giving the mortgage to the borrower.  It’s often easiest to use borrower and lender to prevent confusion.

Lenders vs. Servicers

Large lenders often contract out the servicing of their loans.  So, while you may have a mortgage out of Bank A, you will be working with the Loss Mitigation Department of Bank B, the servicer.  Sometimes it is confusing when the plaintiff in the foreclosure is listed as Bank A (or even C if the loan has been bought and sold), but they make their payments to Bank B.  Oftentimes, Bank B is the servicer.

Reinstatement

Reinstatement is the borrower’s right to pay everything that is owed to bring the mortgage current and then to resume making scheduled payments. The amount will include all of the arrearages plus any attorney’s fees and costs that have been incurred.  The borrower has 90 days from the date of service to reinstate the loan, and may only be allowed to reinstate once every five years.  However, lenders often accept reinstatement beyond the 90 day period.

Redemption

Redemption is the borrower’s right to pay off the loan in full and prevent the property from being sold through the foreclosure.  The borrower has the right to redeem up to 7 months from the date they are served or 3 months from the date of judgment, whichever is later.  This means that the borrower either sells the home or refinances to pay off the loan completely.

Loss mitigation

Loss mitigation is used to describe the process of negotiation between the borrower and the lender to prevent or resolve the foreclosure.  It can include options where the borrower remains in the home (retention options) and options where the borrower does not remain in the property (non-retention options).

Personal Deficiency Judgment

A personal deficiency judgment is a judgment against the borrower for the amount of the mortgage the lender doesn’t recover after the foreclosure sale (if the property sells for less than what is owed).  In order for the lender to get a personal deficiency judgment, the judge must order it.  This amount may include lender’s attorney’s fees and court costs.

Surplus

A surplus is the opposite of a personal deficiency judgment.  A surplus is the amount of funds left over if the property sells at the foreclosure sale for more than is owed on the mortgage.  It is very uncommon in today’s economic situation.

Second Lienholders

Second lienholders are the lenders holding second mortgages, home equity lines of credit, mechanics lien holders, condominium associations, and they all will be named as defendants in the foreclosure, but they do not always participate in the foreclosure action, i.e. file appearance and answer and attempt to determine their rights and protect their interests.

Loan Modification

This is the most popular and attractive retention option for borrowers to remain on the property.  This option describes when the lender agrees to change one or more of the loan terms: the interest rate, the term of the loan or the amount of principal.

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