Foreclosure Basics, Part 1

If you are interested in foreclosures, then we must start with some basic terms which provide a framework for our discussion. A solid understanding of these terms will help us navigate the foreclosure waters and will help me to better help you.

Below are some of the most important real estate terms relating to foreclosures (taken from the Chicago Title Real Estate Dictionary). I have included some explanatory notes. 

Lien-Theory State - A lien-theory state is a state in which a lien is placed on a property to secure a debt. The borrower takes title to the property. By contrast, title-theory states are those states where the lender becomes the title owner and the borrower only takes title to the property once the debt (loan) is paid off.

Florida is a lien-theory state.

Promissory Note - An unconditional written promise, signed by maker, to pay, absolutely, a sum certain in money, either to the bearer or to a person therein designated or his/her order.

The note will contain the initial principal amount of the loan (the amount borrowed) along with the term (length) of the loan (typically 15 or 30 years), the interest rate, whether or not there is a pre-payment penalty associated with the loan, and some other legal basics.

Mortgage - A two party security instrument pledging land as security for the performance of an obligation.

When purchasing real estate in Florida, the buyer/borrower gives a mortgage to the lender. The buyer is called the mortgagor and the lender is the mortgagee (the -or ending denotes giving, the -ee ending denotes receiving). The mortgage creates a lien against the real property (land and improvements, if any) and pledges the real property as collateral for the loan. The mortgage outlines the terms under which the mortgagee may rightly foreclosure.

The most common reason for foreclosure is for non-payment or payment not in keeping with the terms of the promissory note, although not maintaining insurance or letting the property become dilapidated are also reasons why a lender might rightly foreclosure (not common at all).

Check back tomorrow for more important real estate terms relating to foreclosures.