Annual Percentage Rate (APR)
The APR is the cost of a loan expressed as a yearly interest rate and includes the interest, points, mortgage insurance, and other fees associated with the loan. Consumers can use the APR to compare the cost of different loans that have different terms.
Adjustable Rate Mortgage (ARM)
A loan subject whose interest rate changes under various conditions stated in the loan. The intervals for changes can be monthly, semi-annually, annually, or frozen for a period of time. The borrower of an ARM where the interest rate is frozen must be careful to understand if they are liable for the full interest rate change but simply not required to pay for the full change until a later point in time. The amount of any one change is calculated based on a formula in the loan terms, and the overall interest rate from the beginning of the loan until it is fully repaid can also change. The change in interest rate may be capped for interval adjustments or over the life of the loan.
A mortgage that typically offers a low interest rate for a short period of time (usually 5, 7, or 10 years); after that time elapses, the balance is due. Most borrowers will pay the balance due with a new loan, assuming they will be in a financial position to get a new loan at the then current interest rates and that their home has retained sufficient value to borrow against it.
A federal law whereby a person’s assets are turned over to a trustee and used to pay off outstanding debts. There is a legal procedure where the person must prove to a court that they no longer have or can anticipate an ability to repay.
When a deed, the ownership of the home, is given to the lender to fulfill the obligation to repay the debt in-lieu or instead of the lender foreclosing. The bank will generally not allow the borrower to remain in the home. This process is less costly and takes less time than foreclosure. The lender must agree to accept a deed-in-lieu.
Deed of Trust
A legal document that dictates the terms of a loan used to buy a property and transfers the ownership of the property to a third party, called a trustee, until the loan has been paid in full. The trustee can sell the property to recover the remaining loan balance for the lender if the borrower violates the terms of the loan (i.e. does not make monthly payments).
When the borrower does not fulfill a loan requirement, such as when the borrower has missed a scheduled loan payment.
Failure of borrower to make timely mortgage payments under a loan agreement.
The amount remaining when the amount owed to lenders (i.e. principal plus deferred interest, fees, or costs, if any) and all other amounts owed to government (i.e. taxes and annual assessments) is subtracted from the fair market value of the property.
Fixed Rate Mortgage
A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
A postponement of loan payments, granted by a lender, for a temporary period of time. This happens when a lender refrains from enforcing a debt when it falls due by agreeing to a revised mortgage loan payment plan, such as a temporary reduction or a suspension of mortgage loan payments. Forbearance does relieve the borrower for paying the missed payment or the difference in payment due at a designated future time.
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower / owner defaults on loan payments (usually mortgage payments), and the lender files a public default notice, called a Notice of Default or Lis Pendens.
A public sale of a property to recover a debt owed by the owner of the property. The sale can be officiated by a trustee, an attorney, or a local government official, depending on state law.
There are several different standard measurements (e.g. LIBOR), used by lenders to determine what change to the interest rate will be charged on an adjustable rate mortgage.
A percentage amount of the outstanding loan principal that is charged by a lender bases.
Liens that have a lower priority in terms of their legal claim on a property. The priority is usually determined by the date when the lien was filed. The first lien, or senior lien, against a property is usually the first mortgage or deed of trust recorded when the owner bought the property. Junior liens are typically cleared out in a public foreclosure sale, but the purchaser at the sale may be responsible to pay off senior or higher priority liens.
A legal claim on a property by a lender or other entity that is owed money by the owner of the property. The entity that files the legal claim is called the lien holder. If the owner does not pay off the loan or debt that is owed, the lien holder can take steps to sell or repossess the property to recover the debt owed (foreclosure).
Lis Pendens (LIS)
A publicly recorded notice of a pending lawsuit against a property owner that may affect the ownership of a property. Some states require lenders to file a Lis Pendens to begin the foreclosure process if a borrower is in default on loan payments.
This is a general term to describe a variety of processes to avoid foreclosure. Basically, the lender works out a deal with the borrower. Borrowers are encouraged to use only HUD-Certified Counseling Agencies to assist them in negotiating a loss mitigation solution.
An amount the lender adds to an Index (see definition, above) to determine the interest rate on an adjustable rate mortgage.
A document that dictates the terms of a loan used to buy a property and gives the lender some claim to the property (either ownership or a lien) until the loan has been paid in full. The lender can take steps to have the property sold to recover the remaining loan balance of the property.
A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. This type of insurance is primarily required for borrowers with a down payment of less than 20% of the homes’ fair market value or purchase price, whichever is less.
Any of a number of loan term changes, like reduced interest rate, the interest rate adjustment interval, or the term of the loan extended with the same institution, such that the monthly payment is reduced.
Notice of Default (NOD)
A publicly-recorded notice that a property owner has missed scheduled loan payments for a loan secured by a property. Some states require lenders to record a notice of default to begin the foreclosure process.
Notice of Sale (NTS or NFS)
A document announcing the public sale of a property to recover a debt owed by the owner of the property. The notice is mailed to parties affected by the sale of a property, advertised in local publications and recorded in public records. Among other information, it provides the date, time and location of the sale.
Real Estate Owned (REO)
Real Estate Owned by the lender is a status that indicates the property is now owned by the lender or bank as a result of a foreclosure.
The entity that receives and monitors the loan payments. Sometimes lenders use their own staff, but often lenders contract out this function to another company on their behalf.
A short sale is when a bank agrees to have the borrower sell their home for less than what is owed. This is done to avoid foreclosure.
These definitions were derived from realtytrac.com, the West Contra Costa Association of Realtors®, various other websites, and the City of Richmond.