Foreclosure Course Key Terms

What are Key Terms?

Before you start looking for and purchasing a home it's helpful and important to understand the terminology you'll hear during the process.  Key terms in the course are highlighted in red and appear on the right side of the page.

Foreclosure: the repossession of your home after you default on the loan agreement

Strict foreclosure: only allowed in a few states; if a borrower defaults, property goes directly to lender

Judicial foreclosure: allowed in every state; requires lender to take borrower to court before seizing property

Power of sale foreclosure: also called non-judicial foreclosure; does not require court action before lender can initiate foreclosure

Notice of default: the official document you receive that signals a foreclosure action has started

Lis pendens: another name for notice of foreclosure; Latin for "a suit pending"

Trustee: a neutral third party typically identified in advance by reference in a contract or legal document

Redeem: to reclaim property after auction due to the sale price being less than two-thirds of the appraised value of the property

Redemption period: a set amount of time the homeowner may redeem his property after it has been sold through a foreclosure auction

Recourse loan: gives lender the right to take not just the collateral but other assets to satisfy the loan obligation

Non-recourse loan: the lender cannot collect anything but the collateral to satisfy the loan obligation

Collateral: the security you pledge for the payment of a loan; with a mortgage loan, the collateral is your home

Deficiency judgment: a legal order requiring the borrower to pay the difference between the amount he owed on the home loan and the amount the lender recovered by selling the property at auction

Income: in this context, income refers to money you did not have to pay toward your debt

Cancellation of debt: the tax term used to describe foreclosure's effect on the amount of money you owe on your home loan; when debt is cancelled, this is considered income because you are financially better off than you would have been if you'd had to pay the full amount owed

Insolvent: this describes a situation where a person's debts exceed his assets; he owes more than the value of the things he owns

Fair market value: the value of your home based on what a buyer is currently willing to pay for it in the open market

Basis: the purchase price of your home plus the cost of any improvements you've made, for example a new roof, appliances or other changes that increase the value

Gain: the amount you make from buying something at one price and later selling it at a higher price

Nondeductible loss: a loss that cannot be deducted from the amount of income you calculate for your taxes