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Short Sale Terms To Know.
Authorization letter -- A dated and signed letter from borrower/seller to your lender authorizing the lender to discuss personal information with your real estate professional. Letter includes real agent's name and contact information, your property address, loan reference number, your contact information.
Closing/settlement -- The final step in the sale of a home where all required documents are signed, funds are disbursed and keys to the home are transferred to the new owner. In some cases, both the buyer and seller (and their representatives) will meet together, perhaps with an attorney or other settlement official as required by state law. A "split" closing/settlement can occur in some cases, where the buyer and seller complete document signing in separate locations.
Conforming mortgage -- A mortgage loan that meets the lending standards of Fannie Mae and Freddie Mac, the two major entities that buy mortgages on the secondary market, helping ensure that primary lenders having sufficient funding to make new home loans.
Contingency -- A legal requirement in a contract, often with a time limit, which must be fulfilled for the contract to remain valid. Buyers often include contingencies related to appraisal of the property, ability to obtain financing, approval of inspection results, obtaining clear title to the property, and so on.
Defaulted loan -- The status of a loan, as determined by the lender, indicating that the borrower has missed making one or more regular payments.
Equity -- The portion of a home's value that is owned by the homeowner. A homeowner's equity is determined by subtracting the amount of any remaining mortgage(s) owed to lenders from the home's fair market value.
Financial worksheet -- Spreadsheet that indicates all household income less all household expenses. Often savings and other assets are indicated as well. Documents to support the calculations may be required, such as bank statements, savings accounts, investments, cash, or receipts and invoices from copies of late bills, various papers to pawned items.
Foreclosure -- The process through which a lender can sell or repossess (take ownership of) a property in order to recover the amount owed on a defaulted loan secured by the property.
Hardship letter -- A letter submitted to a lender (as part of a short-sale package) indicating the precise reasons why the borrower can no longer afford to make mortgage payments.
Lender-approved short sale -- Conducting a short sale with the lender agreeing to accept the proceeds of the sale and "forgive" the remaining amount of mortgage owed.
Lien -- A legal claim on a property whereby the property serves as collateral for a debt or other obligation owed by the property owner to a creditor, service provider, or other entity.
Loan modification -- Process where original terms of mortgage are changed, such as reduction of interest rate, or how adjustable rate is calculated, principal reduction, reduction of late fees or penalties, change in loan term (usually longer), cap monthly payment as percentage of household income. (See "workout")
Loan term -- The period of time over which a loan must be repaid, e.g., 15, 20 or 30 years.
Loss-mitigation department -- At a lending institution, the department in charge of working with borrowers who are not meeting their repayment obligations, with the goal of minimizing the lender's losses on those loans.
Multiple listing service (MLS) -- A database of information on properties for sale that is accessible to all subscribing real estate brokers and their agents.
Non-performing asset -- An asset that does not produce money for the owner.
Notice of default (NOD) -- Filed in court by a lender to begin foreclosure on a defaulting borrower.
Pre-foreclosure sale -- Selling your home before your lender initiates the foreclosure process.
Preliminary net sheet -- An estimate of net proceeds from sale with expenses, including unpaid loan balances and fees, subtracted from the sales price (See "proceeds")
Principal -- The amount of money borrowed from a lender (does not include interest owed).
Proceeds -- In terms of a home sale, the amount of money left after all other debts and obligations related to the sale have been paid.
Public auction (also, step sale or sheriff's sale) -- In foreclosure proceedings, when a property is sold at auction "on the courthouse steps."
Real Estate Owned (REO) -- A property owned by a lender after foreclosure (also, "bank owned").
Servicer -- A financial institution that manages loans for investors (lenders), including billing, payments, accounting, communications with borrowers, etc. Some investors/lenders act as their own servicers, while others hire outside companies to manage their loan portfolios.
Short payoff -- A lender-approved short sale.
Short sale -- Conducting a pre-foreclosure sale when proceeds from the home sale will be less than the amount of mortgage still owed to the lender.
Short-sale package -- Forms and instructions provided by a lender to a borrower interested in winning the lender's approval for a short sale. Also, the collection of documents -- including financial statements, hardship letter, sales contract, etc. -- submitted to a lender as a request for short-sale approval.
Under water (also, upside down) -- When the mortgage loan balance is greater than the home's value.
Workout or loan modification -- A plan negotiated between a borrower and lender to change the original terms of a loan so that the borrower can afford to continue to make mortgage payments. A workout may involve extending the loan term with smaller payments, a scheduled repayment of missed payments and penalties, reducing the interest rate, refinancing or other approach.
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