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Glossary of Common Foreclosure Terms

Acceleration. Requiring a borrower to immediately pay off the balance of a loan. Under a provision commonly found in promissory notes, if the borrower misses some payments, the lender can demand that the total balance of the loan be paid immediately. The loan must be accelerated before the lender can foreclose. In many states, the borrower gets a chance to reinstate the loan (and cancel the acceleration) by paying the arrears, plus costs and interest.

Adjustable-rate mortgage (ARM). A mortgage or deed of trust providing that the interest rate on the underlying promissory note can be adjusted up or down at specified intervals tracking the movement of a federal interest rate or other index.

Administrative expenses. In a Chapter 13 bankruptcy repayment plan, the trustee’s fee, the debtor’s attorney fee, and other costs that a debtor must pay in full. Administrative costs are typically 10% of total payments under the plan.

Amortization. Paying off a loan with regular payments over a set period. Part of each payment is applied to principal and to interest.

Amount financed. The amount of money you are getting in a loan, calculated under rules required by the federal law. This is the amount of money you are borrowing after certain financing costs and fees are deducted. The amount financed is far less than the total amount you pay back, because the total amount of the loan includes the interest on the amount financed. 

Annual percentage rate (APR). The interest rate on a loan expressed under rules required by federal law. To determine the true cost of a loan, it is more accurate to look at the APR than the stated interest rate.

Appraisal. An expert’s evaluation of what a particular item of property is worth in the marketplace. Colloquially, the term is used to describe any opinion about the value of property. For instance, real estate agents and brokers often informally appraise property, even though they aren’t expert appraisers.

Arrears. Overdue payments on a loan. With a mortgage, this may include any missed payments, interest on the missed payments, and the costs incurred by the lender in trying to collect the debt. 

Assignee liability. Liability of an assignee (an entity that has been assigned ownership of a mortgage or deed of trust) for unlawful or abusive acts of the original lender or mortgage originator.

Assignee liability can be important in lawsuits against a foreclosing party for violations of federal or state laws prohibiting predatory lending practices. In most cases, assignees are off the hook for those practices if they conducted a reasonable investigation into the history of the loan.

Assignment. A document showing that ownership of a mortgage or deed of trust (and the underlying promissory note) has been transferred (assigned) from the original owner to a new owner (assignee). In recent times, mortgages have been the subject of many assignments as they have been “securitized” and sold as investments worldwide. In some cases, the assignments have been made electronically, without anything on paper. When it comes time to enforce the mortgage or deed of trust in a foreclosure, the absence of documentation can sometimes defeat the foreclosure, because there is no documentary proof of current ownership.

Attachment. A legal process that allows a creditor to attach a lien to property that you own because of a contract you signed (a car note, for example), a money judgment you owe, or a special statute that authorizes the lien, as in the case of a tax lien. If the lien is on your house, it can be enforced by foreclosure. 

Automatic stay. An injunction automatically issued by the bank­ruptcy court when someone files for bankruptcy. The automatic stay prohibits most creditor collection activities, such as filing or continuing lawsuits, making written requests for payment, or notifying credit reporting bureaus of an unpaid debt.

Balloon payment. A large lump-sum payment due as the last payment on a loan. For instance, if you borrow $10,000, your note might require you to pay $5,000 of the loan over a three-year period, plus one balloon payment for the rest at the end of that period. 

Bankruptcy code. The federal law that governs the operation of the bankruptcy courts and establishes bankruptcy procedures. It’s in Title 11 of the United States Code.

Bankruptcy petition preparer. Any nonlawyer who helps someone with bankruptcy. Bankruptcy petition preparers (BPPs) are regulated by the U.S. Trustee. Because they are not lawyers, BPPs can’t represent anyone in bankruptcy court or provide legal advice.

Capitalization. Treating items owed on a loan as part of a new principal balance. For example, when missed payments on a mortgage are added to the mortgage principal, to be paid off over time, they are capitalized. If missed payments are capitalized and the loan is reamortized, the lender will recalculate the monthly payment using the existing interest rate and new principal balance. 

Chapter 7 bankruptcy. A liquidation bankruptcy, in which the trustee sells the debtor’s nonexempt property and distributes the proceeds to the debtor’s creditors. At the end of the case, the debtor receives a discharge of all remaining debts, except those that cannot legally be discharged.

Chapter 12 bankruptcy. A type of bankruptcy designed to help small farmers reorganize their debts.

Chapter 13 bankruptcy. A type of consumer bankruptcy designed to help individuals reorganize their debts and pay all or a portion of them over three to five years. 

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