Legal Terms Glossary

This Legal Terms Glossary provides definitions for a variety of legal terms. Click here to view and scroll through glossary.

In addition to the general terms found in the link above, the following terms are specific to REO/Eviction and Bankruptcy.

REO/Eviction Terms

Addendum 
An agreement or list that is added to a contract, agreement, or other document such as a letter of intent. FHA and VA require that an addendum be added to or incorporated in a sales contract, if it is written prior to the appraisal.


Deed in Lieu 
The voluntary conveyance of the property from the borrower to the lender in lieu of foreclosure. The advantage for the lender is the cost of acquisition is less than a foreclosure and title is gained faster. The advantage for the borrower is he avoids a foreclosure and potential deficiency judgment.


Deed of Trust 
A type of security instrument wherein the borrower conveys title to a third party (trustee) to be held in trust as security for the note.


Disclosure 
Information relevant to specific transactions that is required by law.


Eviction 
The act of forcibly removing an occupant from a property.


Ejectment 
An action to gain possession of real property. An eviction.


Foreclosure 
A legal procedure by which mortgaged property is sold upon default in order to satisfy the debt. Foreclosures are generally governed by state law and vary from state to state. The two most common types of foreclosure are “Judicial” and “Power of Sale.”


Homeowners Warranty Program
An insurance program through which participating builders provide homebuyers with a warranty on the workmanship and materials of a home and warrant against major structural defects.


HUD-1 Uniform Settlement Statement 
Standard form used to disclose costs at closing. All charges imposed in the transaction, including mortgage broker fees, must be disclosed separately.


Inspection Certificate
A document verifying that a property is as described. The inspection is usually performed by a designated agent and may be accepted in place of a survey.


Legal Description
A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.


Mortgage
A conveyance of an interest in real property given as security for the payment of a debt. A two-party agreement between the mortgagor (borrower) and the mortgagee (lender). In some states a mortgage acts as a conveyance of title.


Quiet Title 
A proceeding to establish a plaintiff’s title to land by bringing into court an adverse claimant and compelling him to either establish his claim or be permanently stopped from asserting it. 

Quitclaim Deed
A deed of conveyance used to transfer title in which the grantor gives no warranty to the grantee that its ownership exists or is valid.


Real Estate Owned (REO) 
Property a lender acquires as the result of foreclosure.


Real Estate Settlement Procedures Act (RESPA)
A federal statute and regulation promulgated by HUD governing real estate lending practices and disclosures. Its main features pertain to the provision of a good faith estimate of loan settlement costs and the provision of the HUD settlement booklet within three days of making a loan application.


Redemption Period
The time allowed by law in some states during which a mortgagor may redeem or buy back its property by paying the amount owed on a foreclosed mortgage, including interest, costs and fees.


Rescission
To rescind or cancel or terminate a contract. 

Sales Contract
A written agreement between buyer and seller stating terms and conditions of a sale or exchange of property.


Sheriff’s Deed 
The deed given by the sheriff that transfers ownership to the buyer at the foreclosure sale.


Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims that arose during the period of time title was held by the grantor. In a Special Warranty Deed, the grantor guarantees to the grantee that he or she has done nothing during the time the grantor held title to the property.


Super Lien
A condominium or homeowner’s association lien for unpaid assessments that has priority over the first mortgage. States permitting Super Liens are referred to as Super Lien states.


Title Insurance Policy
A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise.


Title Search
A review of public records to determine the identity of parties having an interest in a property and the existence and nature of claims outstanding against a property.


Trust Deed
(See Deed of Trust Above). 

Trustee
A party who holds title to a property for the benefit of others. In a deed of trust relationship, the trustee holds title for the benefit of the trustor (borrower) and the beneficiary (lender). In the case of a bankruptcy, the trustee is an individual appointed by the bankruptcy court to administer the debtor’s case. The trustee is generally a private citizen. There is a trustee in all Chapter 7, 12, and 13 cases. A trustee is appointed in some Chapter 11 cases.

Bankruptcy Terms

Abandonment:
A notice by the bankruptcy trustee that he/she has no interest in keeping certain property as part of the bankruptcy estate. Once abandonment occurs, ownership of the abandoned property reverts back to the debtor subject to any secured claims against that property.

Adequate Protection Order:
A court order requiring the debtor to make payments to the secured creditor, while the case is pending confirmation, to assure that the creditor’s equity position is not worsened.

Automatic Stay:
Upon filing the bankruptcy petition Section 362(a) of the United States Bankruptcy Code imposes an immediate and automatic stay of all collection activities against either the debtor or the debtor’s property. Since the stay is automatic it does not matter whether an action was taken against the debtor or the debtor’s property without knowledge of the bankruptcy. Any properties taken or monies collected while the automatic stay was in effect must be returned to the debtor and all collection activities commenced while the stay was in effect would be considered void.

Chapter 7:
Chapter 7 is a liquidation, not a re-organization chapter. It allows a debtor to get a quick discharge from his personal debt liability. However, once a debtor receives a discharge under either Chapter 7, 11, 12 or 13 that debtor will not be eligible for a Chapter 7 discharge for another six years. If sufficient equity exists after the debtor’s exemption in any property, the Chapter 7 Trustee will endeavor to sell the property to pay all the unsecured claims. Of all the chapters, Chapter 7 is the easiest to obtain relief from the automatic stay.

Chapter 11:
Chapter 11 is a reorganization chapter. Chapter 11 bankruptcies are typically filed by corporations because corporations cannot file a Chapter 13 to reorganize. Chapter 11 may also be filed by an individual, especially one who does not meet the debt limitations imposed upon the Chapter 13 debtor under Section 109(e) of the Bankruptcy Code. However, rarely does an individual wage earner file Chapter 11 because it is very expensive. The Chapter 11 plan usually pays each unsecured or under secured creditor more than it would receive under a Chapter 7 liquidation. There is no statutory limit on how long the repayment period can be. Further, the debtor receives its discharge upon confirmation of the plan. Prior to confirmation, the creditors submit written ballots to the debtor’s attorney indicating whether the creditor either accepts or rejects the plan. The creditors can decide on how to cast their ballots after reviewing the disclosure statement prepared by the debtor. The Disclosure Statement provides the creditors with sufficient information about the debtor’s business and financial affairs to make an informed decision as to how to vote on the plan.

Chapter 12:
Chapter 12 is a reorganization chapter. Chapter 12 provides relief for family farmers whose debt limitations exceed those for a Chapter 13 filing. The code defines a family farmer as “an individual, or individual and spouse, engaged in a farming operation whose aggregate debts do not exceed $1,500,000.00, and not less than 80% of whose debts arise out of a farming operation. Such individual or individual and spouse must also receive more than 50% of his or their gross income from farming operation.” The Chapter 12 allows the family farmer to repay his debts through a plan not to exceed five years. With the exception of the debt limitations and income requirements the Chapter 12 is similar to a Chapter 13.

Chapter 13:
The Chapter 13 is usually known as a wage earner reorganization. Under a Chapter 13 plan of reorganization the debtor must pay all allowed secured claims, priority claims and use his best efforts to pay a dividend to unsecured creditors. The Chapter 13 allows a wage earner to repay his debts through a plan not to exceed five years. Usually, the Chapter 13 plan operates to cure a mortgage default and decelerate any accelerated loan. It acts as a type of forbearance agreement. The debtor’s arrears are re-paid through the plan for a period up to five years. At the same time the debtor is required to make regular monthly mortgage payments. If the debtor makes all payments, then at the end of the plan the debtor should be contractually current. If the debtor completes all payments under the plan, then he will be discharged of all secured debts set forth in the plan and all pre-petition unsecured debts. The debtor will not be liable for any discharged debts. Chapter 13 plan will be confirmed if it is feasible and if it is the debtor’s best efforts in paying his unsecured debts.

Confirmation Hearing:
The hearing where the debtor’s proposed Chapter 11, 12 or 13 plan is reviewed and either approved or denied by the bankruptcy judge. In a Chapter 12 or 13 the plan will usually be confirmed if the Chapter 12 or 13 trustee recommends confirmation. In a Chapter 11 the plan will usually be confirmed if there are enough ballots from the creditors accepting said plan. However, in a Chapter 11 the plan can still be confirmed even if many creditors reject the plan if the court finds that the plan is in the best interests of the creditors.

Cramdown:
A cramdown, also known as lien stripping, is a procedure frequently utilized by debtors to bifurcate a creditor’s claim into a secured and unsecured portion. Thereafter, the debtor will file a plan which seeks to repay only the secured portion of the creditor’s claim. Once the secured portion of the claim is paid the debtor will be discharged from having to pay the unsecured portion. Cramdowns are generally allowed unless the debt owed to the creditor is secured solely by property that is the debtor’s principal residence. If the debtor is allowed to cramdown the creditor’s mortgage, the debtor will commence the procedure by filing a Section 506 motion also known as a Motion to Determine Secured Status. Through this motion the court will determine the fair market value of the property and will thereafter find how much of the creditor’s claim is secured and how much is unsecured. A cramdown can occur in either Chapter 11, 12, or 13, the reorganization chapters, but cannot occur in a Chapter 7.

Discharge:
An official act of the bankruptcy court which absolves the debtor of personal liability for any pre-petition debt (except certain debts such as taxes, alimony, child support, fines, penalties and student loans). Any unsecured debts will not be collectible from the debtor after the discharge order. Any secured debts may only be enforced against the collateral after the discharge.

Dismissal with Prejudice:
A dismissal with prejudice means that the bankruptcy case is dismissed with an order preventing the debtor from refiling bankruptcy for a period of time (usually 180 days). Bankruptcy cases dismissed with prejudice are usually done so under Section 109(g) (1) or (2) of the Bankruptcy Code. It is usually the several bankruptcy filers that have their cases dismissed with prejudice to prevent a future filing within 180 days so that the creditor can finish a foreclosure or some other collection activity. It is rare that a good faith filing will be dismissed with prejudice. The serial filings can be evidence of bad faith, and the debtor will be prevented from abusing the bankruptcy process for at least 180 days.

ECF:
Electronic Case Filing.

Lien Stripping:
See Cramdown.

Meeting of Creditors:
Often referred to as the “341 meeting” that is conducted under Bankruptcy Code section 341. In this meeting, the trustee and creditors question the debtor about assets, liabilities, intentions regarding secured property, as well as other related bankruptcy issues. The debtor’s responses are given under oath.

Motion Requesting Relief from the Automatic Stay:
A pleading filed in a bankruptcy case under Section 362(d) of the Bankruptcy Code wherein the creditor requests that the automatic stay provided under 362(a) of the Bankruptcy Code be terminated, annulled or otherwise modified so that the creditor can commence or continue pursuing its rights in the collateral securing the creditor’s loan. Relief from the automatic stay in a Chapter 7 would usually be granted if the total of the liens attaching to the collateral exceed the fair market value of the collateral. In a Chapter 12 or 13 relief from the automatic stay may be obtained usually if the debtor is not making the post-petition monthly mortgage payments to the creditor.

Proof of Claim:
A proof of claim is an official signed statement filed in bankruptcy court by a creditor which sets forth the amount of the arrearages and total debt owed to the creditor as of the date the bankruptcy was filed. In order to ensure that the creditor would receive payment on its claim in a Chapter 11, 12 or 13, it must file a Proof of Claim with the bankruptcy court prior to the expiration of the bar date, or deadline, to file such proof with the court. Unless the bankruptcy court holds otherwise, once filed the Proof of Claim is deemed to be allowed by the court. If the debt is secured by collateral, it would be deemed an allowed secured claim, and if the claim is unsecured, it would be deemed an allowed unsecured claim. In Chapters 12 and 13, usually the arrearage portion of the Proof of Claim would be paid through the plan, and the balance would be paid in accordance with the terms of the note and mortgage. In a Chapter 11 the debtor could elect to pay the arrears through the plan and the balance outside the plan in accordance with the Promissory Note or pay the entire indebtedness over a period of time through the Chapter 11 plan. Usually in a Chapter 7, Proofs of Claim are not to be filed unless directed by the court to do so. In a Chapter 7 case where there are assets, a Proof of Claim would be required. And in that case, the Chapter 7 trustee would liquidate the assets and distribute the proceeds.

Reaffirmation:
A binding agreement between the debtor and creditor, which, if filed with the bankruptcy court prior to the debtor’s discharge, will make the creditor’s claim survive the discharge. Thus, the debtor will remain personally liable for the obligation to the creditor notwithstanding the discharge (unless the debtor rescinds the Reaffirmation Agreement within 60 days after discharge enters or the date the Reaffirmation Agreement is filed with the Court).