In this business we tend to throw around industry lingo and that can make it hard for our clients to follow certain conversations. So, some time ago I prepared a "glossary" of sorts for my sellers who were considering a short sale. These are terms specific to short sales, and the terms are defined in the most common use as it relates to short sales. In case you're feeling a little lost in the lingo, I hope this will help.
Debt Forgiveness: This is what it sounds like - the idea of the lien holder forgiving any remaining deficit (balance stiill due after the sale is completed). When they "forgive" the debt, they agree to mark it as satisfied and never to try to collect the balance from you in the future. The key take away here is that the lien holder may or may not provide debt forgiveness for the deficit after the sale. In some non-recourse states this may not be a concern. Here in VA, however, you always want to try to get debt forgiveness.
In general, we're hearing that lien holders are requiring a payment equal to 10% of the deficit. My personal experience is that lien holders will generally accept much less - usually an amount equal to one month's mortgage payment - in exchange for debt forgiveness.
Default: Failing to adhere to a contract is default. As it relates to short sales, we’re usually talking about a property owner who has not been making their payments, thereby defaulting on their loan and risking foreclosure.
Deficit: The difference between the sale proceeds received by the lien holder and the balance due on the lien.
Foreclosure: When the bank/lender/mortgage company takes ownership of the property because of default or other breach. In Virginia this is done at an auction held at the courthouse steps.
Lien: When real property (real estate, homes, land) is used to secure a debt we call this a lien. Generally, we’re referring to mortgages, but there can be other liens as well.
Lienholder: When we’re talking about short sales, the lien holder is usually the mortgage company.
Mortgagee: The entity to which the debt of a mortgage is owed (also called the sellers lender or bank).
Servicer: The company to which mortgage payments are made is the servicer. The servicer may or may not be the actual mortgagee. This means sometimes we must negotiate through the servicer with the mortgagee.
Short Sale: Short sales are done when an owner needs to sell their property and the proceeds from the sale are not enough to pay off the liens against the property, so the owner must negotiate with the lien holders to release the liens to allow the sale. This gets complicated when there are multiple lien holders with whom one needs to negotiate. (The “second” or “jr.” lienholders are those that are generally owed the lower amount, and their liens are secondary to the primary lienholder.) (We also refer to short sales as one type of "distress sale" and/or "pre-foreclosure."')
Have I missed any? If you have heard terms thrown around and you're not entirely sure what they mean, please don't hesitate to contact me.
DISCLOSURES: Please note I am a licensed REALTOR (R) in the state of Virginia, I can not provide legal counsel and I cannot provide real estate advice regarding properties outside the state of Virginia. Further, my service area is limited to Northern Virginia. So if you have an individual question and own a property in Northern Virginia, please feel free to contact me. If your question pertains to a property outside of my service area, please contact a competent REALTOR(R) or attorney that services your area. What the federal government thinks you should know about hiring someone to negotiate a short sale for you.
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