Foreclosures and Short Sales

Short sales and foreclosures are the current hot topic in real estate with many of these types of transactions coming across the Escrow Officers desk. Foreclosures and short sales are often confused but they are two distinct processed supported by their own individual terminology. Following is a summary of many of the most common terms that a buyer and seller will experience in purchasing/selling either a foreclosure or short sale property.

FORECLOSURES

Pre-foreclosure: The period beginning with initial mortgage default up to when the distressed property is sold.

Notice of Default (NOD): Official notice from the lender that the Borrower has defaulted. The NOD formally starts the foreclosure process and it outlines the reinstatement period.

Reinstatement Period: The time frame stipulated in the NOD that the borrower has to reinstate the loan by making payments and bringing account back to good standing.

Trustee Sale: If after the reinstatement period has expired the loan is still in default the lender can then sell the property as soon as 21 days after the Notice of Trustee Sale is recorded.

Publication Period: It begins once the redemption period has expired and must be at least 21 days prior to the Trustee Sale. A notice is published once a week for three weeks in the local newspaper.

Notice of Trustee Sale (NTS): Recorded document explaining when and where the foreclose sale will be held.

Redemption Period: The time period that the distressed borrower has to redeem the loan after the NOD is recorded. In California, that time period is 90 days. (Not to be confused with statutory right of redemption).

Statutory Right of Redemption: One year after the Trustee Sale, the borrower can make payment of the loan in full plus costs to redeem.

Real Estate Owned (REO): The status of the property when the ownership is transferred involuntarily from the homeowner to the bank.


SHORT SALES

Short Sale: When a lender agrees to accept less than what is owed on the mortgage and release its lien on the property.

The Property is “upside down”: This phrase is commonly used to describe a situation where the amount due on the existing loan is higher than what the property is appraised for or will sell for.

Loss Mitigation Department: The department at the lender that is responsible for reviewing all short sale documentation, ordering a BPO, and approving or denying short sale.

BPO: Brokers Price Opinion (BPO), typically ordered by lender, is a property valuation report to help determine what the property might sell for.