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Foreclosure Terms Explained

The paperwork in this process is full of intimidating words. Most of them are simpler than they sound. Here are the ones you're most likely to see.

Notice of default. A formal letter from your lender saying you've fallen behind. It starts the clock on the process, but it isn't the same as losing your home.

Pre-foreclosure. The window after you've fallen behind but before the home is sold. This is when you have the most options, including a short sale.

Short sale. Selling your home for less than you owe, with your lender's approval, to avoid foreclosure.

Foreclosure. The legal process where the lender takes back the home and sells it because the loan wasn't paid.

Deed in lieu of foreclosure. Handing the home back to the lender voluntarily instead of going through a full foreclosure.

Loan modification. A permanent change to your loan terms, like the rate or length, to lower your monthly payment so you can stay.

Forbearance. A temporary pause or reduction in payments. The paused amount comes due later, so it's a bridge, not an eraser.

Loss mitigation. The lender's department that handles alternatives to foreclosure. This is who we negotiate with on your behalf.

Deficiency. The gap between what you owed and what the home sold for. In a short sale, getting this waived in writing is a key goal.

Deficiency judgment. A court order making you pay that gap. Whether it's even possible depends on your state and how the sale is handled.

Hardship letter. Your written explanation of why you fell behind. One of the most important documents in the whole process.

1099-C. A tax form you may receive when debt is cancelled, since the IRS can treat forgiven debt as income. A tax professional can tell you how it applies to you.

Run into a word that isn't here? Ask us. There's no such thing as a dumb question in this.