Definitions
The world of Foreclosures — truly a different world. Sometimes normal words are used in a different manner. Sometimes unusual words are used.
Until we can speak the language, we may be at a disadvantage understanding exactly what is happening.
So we want to give you some definitions of words. This will be a growing list and we welcome your comments and suggestions!
Acceleration — The lender who owns or holds the note informs the homeowner that the entire amount of the note is due at once. Instead of the payments spread out over the life of the loan (15 years, 30 years, etc), the entire amount is “accelerated” and due now.
Alabama Messenger — A newspaper that foreclosures in Jefferson County, Alabama (Birmingham/Bessemer) are advertised in. Normally, only people in the legal and real estate professions read the Alabama Messenger and few foreclosures are advertised in the Birmingham News.
Breach of Contract — When one party fails to do something that it has contracted to do. This could be the borrower failing to pay. It could be the mortgage company failing to apply the mortgage payments in the correct order as required by the contract.
Cancelling a Foreclosure — When a mortgage company has a foreclosure scheduled but stops it — cancels it. This can be done for many reasons but the most common ones are that the company and homeowner are discussing a modification and when the mortgage company realizes it has broken the law in its planned foreclosure.
Cash for Keys — This is where after a foreclosure, a real estate agent offers to pay you cash in exchange for you moving out of your home and releasing any claims you have against the mortgage company. Thus, the name, “Cash for keys” as you give the realtor your keys. We have seen this as low as $500 and as high as $5000.
Circuit Court of Alabama — This is where ejectment lawsuits are to be filed. You can have jury trials in circuit court. This is where car wreck cases, medical malpractice cases, etc. are filed.
Debt Collector — Under the Fair Debt Collection Practices Act (FDCPA), a company that receives a loan when the loan is in default is considered a debt collector. If a mortgage company receives a loan that is not in default, then the mortgage company is not a debt collector. We often see transfers of either ownership or “servicing” rights that occur after a homeowner is in default. The new company will normally be considered a debt collector and, if the other requirements of the FDCPA are met, then you can have the protection and benefits of the FDCPA to fight back against a wrongful foreclosure in Alabama.
Deed in Lieu of Foreclosure — This is where you give the ownership of the property to the mortgage company, instead of the mortgage company going through the foreclosure process. The whole point of the foreclosure process is to get ownership of the property. You can think of a deed in lieu as similar to voluntarily surrendering a vehicle rather than having a repossession. Do be aware there may be tax consequences and credit reporting issues that you may want to know about before doing this.
Default — When one party violates the agreement or contract. In a mortgage and note, the normal way to default is to not make the required payments on time. It can also be failing to keep insurance, etc. One significant point of default is a mortgage company that receives a mortgage loan after default, can be considered a debt collector under the Fair Debt Collection Practices Act (FDCPA).
Ejectment — A lawsuit brought by the alleged new owner of the your property after a foreclosure. It is a lawsuit brought in a Circuit Court of Alabama in the county where your home is located. The lawsuit asks the judge to eject you — evict you — and to rule that you have lost your right of redemption. It normally also asks for money damages for you being in your home which the new alleged owner claims is actually its home. This is normally the best way to bring the issues of a wrongful foreclosure up to a judge by way of counterclaims.
Eviction — This is really a different way of saying an “ejectment” lawsuit. The purpose is to get you out of your house because someone else, normally the mortgage company, claims to own the home.
Fair Debt Collection Act (FDCPA) — A Federal law that restricts certain activities of debt collectors. It sets minimum requirements for what must be done and not done when debt collectors (not the original creditor but someone who received the loan after default) are collecting against consumers on consumer/personal debt.
In the foreclosure context, there are several ways the FDCPA comes into play.
The foreclosure lawyer is typically considered a debt collector so anything the foreclosure lawyer to violate the FDCPA is something to look at.
The servicer and/or the alleged owner of the loan can be a debt collector if they received the loan when the loan was in default. We often see transfers recorded by the foreclosure lawyers right before a foreclosure when the loan is certainly in default.
Fannie Mae — A company that has ties to the federal government that, in essence, insures many of the mortgage loans. The servicers will say they must follow the rules of Fannie Mae when it comes to modifying a loan or stopping or reversing a foreclosure.
Forebearance — When a lender agrees to allow you to postpone your payments, then the lender is forebearing on its right to collect the money right now. There can be issues with the Statute of Frauds which requires certain types of agreements to be in writing to be enforceable under Alabama law but this does not apply to the federal law of the Fair Debt Collection Practices Act (FDCPA).
Foreclosure — When a lender sales your home due to non payment or some other type of default. In Alabama this is done by way, normally, of non judicial foreclosure, which means no court is involved in the foreclosure process.
Foreclosure Deed — After a foreclosure, a deed is prepared that sets forth the location of your property, the date of the foreclosure, and the amount of the foreclosure. This is filed in probate court and tells the world, in effect, that the new owner of the property (normally your mortgage company) is the now the new owner.
Foreclosure Lawfirm — This is a lawfirm that is handling the foreclosure proceedings against you. We identify some of the ones that are prominent in Alabama here.
Foreclosure — The process of removing you as the owner of the property and substituting in whoever is the high bidder at the foreclosure sale or auction. You borrow money (the note) and you give security (the mortgage) in exchange. If you default, the mortgage gives the right to the mortgage company to foreclose. Here in Alabama this is a “non judicial” foreclosure which means a court is not involved in it. Because of this it also opens up the process to massive abuse by mortgage companies.
Fraud — The simple definition is lying to someone and harm is done when that person believes the lie. The more formal definition is there are four elements required:
- Misrepresentation — this is the lie.
- Material fact — the lie has to be about something important.
- Proper reliance — the lie has to be believed, and the belief must be reasonable and justifiable.
- Damages — the lie that the consumer properly believed must have caused harm to the consumer.
Mortgage company tells consumer in Alabama that the foreclosure sale has been cancelled or rescheduled. It has not. This is the lie.
It is important as it involves our biggest asset — our home. This is not a minor detail but, instead, is a material or important fact.
We believe the lie. The mortgage company says you should never believe what the mortgage company says. But, as we point out in our lawsuits, who would know better than the mortgage company whether the sale has been cancelled or postponed. This is not a bum on the street — this is a very sophisticated, powerful, wealthy bank — you should be able to believe them on whether the foreclosure is going forward or not.
The damages are simple — you now have a foreclosure on your record. On your credit report. You could have stopped it by filing bankruptcy, reinstating the loan, etc. But now it is too late to file bankruptcy, etc. You were tricked into taking no action and now your position has been greatly harmed.
This is the very common pattern of facts that we see routinely in Alabama.
Freddie Mac – A company that stands behind many of the mortgage loans today. Sometimes referred to (correctly or incorrectly) as the “investor”. In Alabama we sue ejectment lawsuits filed by Freddie Mac, but not as many as filed by Fannie Mae.
Judicial Foreclosure — When a foreclosure is accomplished through the judicial system by filing a lawsuit in a court against the homeowner. The mortgage company sues and asks the court to declare that the property/loan is due to be foreclosed and then, after winning the case, the mortgage company gets to conduct the sale or the auction. This is the process in Florida but is NOT the process in Alabama.
Loan Modification — When you and your mortgage company agree to change, or modify, your loan. It may be to lower the interest rate. It may be to extend the period of payments (maybe from 30 years to 40 years). It may be to put missed payments at the back of the loan.
The whole concept of loan modification is the primary means that a mortgage company will offer to help you avoid a foreclosure.
When we sue mortgage companies (either before or after foreclosures), this is one of the central items we are looking for if the mortgage company wants to settle the case.
Mortgage — This is what makes the mortgage loan not an unsecured loan. Instead it is a secured loan. It is secured by the property — your home and the land.
The mortgage ties the debt (the note) to the dirt (the land and the house).
If you default on the loan, then the mortgage gives the legal authority to foreclose. Assuming all of the legal requirements are met, which these days in Alabama is a big assumption…..
Non Judicial Foreclosure — This is the process used almost exclusively in Alabama when foreclosing on residential property. The mortgage company does not need to sue you in court to get a foreclosure, as mortgage companies must do in judicial foreclosure states (such as Florida) — instead the foreclosure happens without the court being involved.
Here is the basic process in Alabama:
- Mortgage company sends you an acceleration letter saying all of the loan is due;
- You can’t pay off the whole loan;
- A foreclosure sale is set;
- The sale is advertised in a paper in your county for 3 weeks;
- On the day of the sale the auctioneer goes to the courthouse steps during legal hours and conducts the sale;
- Normally the mortgage company is the high bidder;
- The foreclosure deed is recorded which shows who bought the property and for how much;
- You are sent a letter telling you to vacate the home; and
- If you don’t vacate the home, you are sued for ejectment.
Note — This is the debt that you owe for the money you received to buy your house. You borrowed $100,000 for 30 years at 6% interest. What makes the loan a secured loan is the mortgage. Just like a car loan is secured by the car, and the car can be repossessed, your home loan is secured by the home/property and can be foreclosed.
Postponing a Foreclosure — It is fairly common for mortgage companies to schedule a foreclosure, and then postpone it. Perhaps you are challenging the right of the mortgage company to foreclose. Perhaps you are working on a modification. Or it may be an internal reason known only to the mortgage company. But whatever the reason, the mortgage company postpones, cancels or reschedules the foreclosure sale date.
Redeem — The ability to buy back your home after a foreclosure. Commonly referred to as the “right of redemption.”
Rescheduling a Foreclosure — The same or similar to cancelling or postponing a foreclosure sale. The mortgage company must advertise the sale at least one more time in the newspaper and give you notice of the new sale date. Normally you will receive a letter from the foreclosure lawfirm informing you of the new sale date, but this does not always happen.
Rescission — This is to set aside or undo something that has happened. You refinance most types of home loans and you will have a three day right of rescission to change your mind. In the foreclosure context, we speak of rescission in relation to setting aside (voiding) a foreclosure.
So when we discuss settlement with a mortgage company after a foreclosure, we insist on the foreclosure deed and the foreclosure sale being declared (by the judge) to be void, of no legal effect and rescinded. This means it is as if the foreclosure never happened.
Mortgage companies will tell you that they can’t ever rescind a foreclosure. This is not true. We have orders from all sorts of judges declaring foreclosures to be void.
It is not a matter of a mortgage company being unable to rescind a loan. It is that the mortgage company is unwilling to agree to do this.
When the mortgage company has violated the law to obtain a wrongful foreclosure, then the mortgage company just needs some encouragement to do the right thing. We find that suing the mortgage company with a legitimate, well based lawsuit is the ideal encouragement….
Right of Redemption — This is your ability, under Alabama law, to buy back the property after a foreclosure. You can redeem the property. Several requirements — normally you have to leave the foreclosed property within 10 days of the foreclosure. And you must redeem the property within 1 year of the foreclosure.
For most folks, this is not terribly practical as few can obtain financing to buy a house back with a foreclosure on their record.
But it is a right you have after foreclosure if you carefully follow the law.
Most ejectment lawsuits seek to have the court say you have lost your right of redemption. Cash for keys deals normally contain a provision that you are giving up your right of redemption. The idea is that the property becomes more marketable if there is no chance that you, as the former owner, can come back within a year and redeem the property.
Securitization — This is a rather complicated process but we can generally summarize it as loans are made, they are immediately sold to another company, the loans are gathered together (bundled) and then sold to a trust, usually in New York. Investors then put money up for some part of the loans. The importance for us is many times the transfer process is not handled appropriately and the trust does not actually own the loans. It is amazing to see lawyers and companies say to judges “We can’t figure out who owns the loans — things were done in a sloppy manner but trust us that my client either owns the loan or should own the loan.”
Servicer — This is a mortgage company that does not own the loan. It is hired by the company that owns the loan (or supposedly owns the loan) to service the loan by collecting payments, handling escrow, starting foreclosures, etc. One way to think of a servicer is that the owner of the loan has out sourced the servicing of the loan to the servicer so the owner does not have to do this.
This can be the same company who made the loan to you — often the loans are immediately sold but the company you got the loan from will keep the servicing rights.
If the servicer gets the loan after it is in default, then the servicer normally will be a debt collector under the Fair Debt Collection Practices Act (FDCPA).
Short Sale — This is where you sell your home for less than what is owed on the first mortgage. It comes up “short” of paying off the first loan. So you owe $250,000 and you can get a buyer to buy the house for $200,000 after real estate commissions. That’s $50,000 short. You have to get the mortgage company to agree to this and also be aware of potential deficiency issues (will you still owe the $50,00?) and tax consequences (if you don’t owe the $50,000 will you be taxed on it as debt forgiveness?).
Short sales are typically difficult to do and they have lots of consequences that you need to be aware of before going down this path. Make sure you get good advice before you start the process and certainly get good advice before you finalize a short sale.
Sub Prime Lending — Lending for homes or cars for borrowers with credit scores below prime. The actual number changes as to what qualifies but the general idea is lending money, especially for home loans, to consumers who really could not afford the homes. These loans were destined to fail. They generally did.
The sub prime lenders did not care as the loans were sold off immediately and so the risk of default was not the concern of the lender. Since the loans were bundled in large numbers and securitized, Wall Street valued these “destined to fail loans” as the ultimate in safety. This, not surprisingly, played a role in our economic problems when the house of cards came crashing down.
Vacate Letter — Normally after a foreclosure in Alabama you will receive a letter from the foreclosure lawfirm saying you must leave, or “vacate” the premises. You will be given 10 days to do this. If you do not leave, you can lose your right of redemption and normally you will be sued for ejectment in circuit court.
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