As the real estate market has shifted over the past several years, the use of the term "Foreclosure" by the mainstream media has increased substantially, but unfortunately, the details of what construes an actual "foreclosure" are rarely given any detailed explanation. We have developed this page in an effort to de-mystify the foreclosure process for our visitors and hopefully bring some clarity to this often overlooked portion of the real estate market. First we have a chronological summary of the more prominent terms involved in the foreclosure process followed by a glossary of other common terms.

Forbearance: Forbearance may occur when a bank or lending company makes arrangements with a borrower who is in default to temporarily reduce or suspend payments in exchange for a promise to make regular payments in the future. This option is most commonly used when the borrower has recently lost a job, source of income or had an unexpected increase in living expenses.

Short Sale: A short sale is the sale of property in which the proceeds are insufficient to pay off all encumbrances and to cover the expenses of the sale. Many lenders will accept the proceeds of a short sale and forgive to balance owed if they are convinced the borrower is unable to continue to make mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.

Foreclosure: Foreclosure occurs when a bank or lending agency sells or repossesses property due to the borrower's failure to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Typically the violation of the mortgage occurs when a borrower/owner defaults on loan payments and the lender files the necessary documentation to begin a foreclosure proceeding.

R.E.O. (Real Estate Owned): An R.E.O. is any property acquired by a lending agency, commonly a bank, which has failed to sell at a foreclosure auction. This often happens if the properties up for sale at these auctions are worth less than the total amount owed to the lending agency (bank). At such a foreclosure auction, the minimum bid is typically equal to the amount of the outstanding loan, as well as the accrued interest and any fees associated with the foreclosure sale.
If the foreclosure property does not sell at the auction, the bank then begins the process of trying to sell the property on its own. The bank will try to remove some of the liens and address any apparent problems in an effort to make the property more attractive to buyers. Often if banks don't have any interest in maintaining and marketing the foreclosed upon properties, real estate investors will buy them for a discount compared to similar non-foreclosed properties.

Glossary of Other Common Foreclosure Terms

Bankruptcy: Bankruptcy is the legal process that allows a person or business to clear any debt obligations by reorganizing the payment amount and payment schedule of those debt obligations. A bankruptcy stalls the foreclosure process, not allowing a bank or lending company to proceed with a foreclosure until the bankruptcy proceedings are completed or the court in charge of the bankruptcy permits the lender to move forward with the foreclosure.

Deed of Trust: A legal document that dictates the terms of a loan used to buy a property and transfers the ownership of the property to a third party (trustee) until the loan has been paid in full. It is used in some loan transactions in place of a mortgage. If the borrower violates the terms of the loan, the trustee can sell the property to recover the remaining loan balance for the lender.

Foreclosure Sale: The actual forced sale of real property at a public auction to recover a debt owed by the owner of the property. Depending on state law, the sale can be officiated by a trustee, an attorney or a local government official.

Junior Liens: any lien that is subordinate or subsequent to the claims of a prior lien and consequently having a lower priority in terms of their legal claim on a property. The priority is typically determined by the date on which the lien was filed. The first lien against a property is usually the first mortgage or deed of trust recorded when the owner bought the property. Often, junior liens are cleared at a public foreclosure sale, but the purchaser may be responsible to pay off higher priority or senior liens.

Lien: A legal claim on a property by a lending company, bank or other entity that is owed money by the owner of the property. When an entity files such a claim they are called the lien holder. If the owner does not satisfy the debt owed, the lien holder can take steps to repossess or sell the property through foreclosure.

Lis Pendens (LIS): Lis pendens is Latin for "suit pending." It is a publicly recorded notice of a pending lawsuit against the owner of a property that may affect the ownership of said property. If a borrower is in default on loan payments, some states require lenders to file a lis pendens to begin the foreclosure process.

Mortgage: A mortgage is a method of using property as security for the payment of a debt. Typically it is a document that dictates the terms of a loan used to buy a property and gives the lender some claim to the property, commonly in the form of a lien, until the debt has been paid in full.

Notice of Default (NOD): A notice of default is a publicly recorded notice given to a borrower stating that he or she has not made their scheduled payments by the predetermined deadline. It dictates that if the money owed is not paid in a given time, the lender may choose to foreclose the borrower's property. Any other entities whom may be affected by the forclosure may also receive a copy of the notification. Some states require lenders to record a notice of default to begin the foreclosure process.

Notice of Sale (NTS or NFS): A Notice of Sale is an announcement of the public sale of real property to recover a debt owed by the owner of the property. Typically, the notice of sale is mailed to the parties affected by the sale of the property, recorded in public records and advertised in local publications. It provides the date, time and location of the sale among other information.

Postponement: An announcement, typically occurring at the time and place of the originally scheduled foreclosure sale, which establishes a new time and date for the sale.

Reinstatement: Reinstatement is the stopping of foreclosure proceedings and the returning of the original terms of a loan that occurs when the borrower pays off the amount in default on the loan and brings the loan payments current. In most states, the borrower's chance to reinstate ends before the public foreclosure sale.

Right of Redemption: The right of a property owner to redeem a property from foreclosure or tax sale by paying off the outstanding principal and interest due, plus the lender's costs in foreclosure. The state of Nevada has no redemption on foreclosures.