With all the talk about foreclosures these days, a basic overview of some of the terminology might be helpful.
When a property is in foreclosure, it means that the lender has started legal proceedings to take back the property from the borrower.
A borrower is considered to be in default when he or she misses even one payment, but lenders typically start proceedings after three missed payments. Depending on the state where the property is located, the court system may be involved.
The period of time from when the borrower misses the first payment to when the lender starts the foreclosure proceedings is called the pre-foreclosure period. A number of things can happen at this point. The borrower and the lender can sit down and come up with some type of loan modification agreement, by which the terms of the loan can be altered, at least for a certain period of time, to allow the borrower to get into a better financial position.
If the borrower can find someone who wants to, and is able to, buy the property, he or she can sell. If the amount the person wants to pay is less than the borrower owes and the lender will take that amount, it is called a short sale. Once the foreclosure proceedings have started, however, the lender will be the only one that is able to sell the property.
If the borrower and lender agree that the borrower will turn the property back over to the lender, then walk away – without going through the foreclosure process, a deed in lieu of foreclosure takes place.