COASTLINE CAPITAL FUND MANAGEMENT
Permanent addition to an executed Note. Usually, allonges are added to the note when a note is sold, if the lender does not endorse the note itself to acknowledge the transfer. The allonge becomes a permanent part of the note in the same way that an amendment becomes a permanent part of the U.S. Constitution.
When a note is sold, the seller prepares an Allonge, which is added to the note, and an Assignment of Deed of Trust (or Mortgage), which transfers the Deed of Trust (or Mortgage) when recorded.
After Repaired Value (“ARV”)
Refers to the value of a property when it’s gone a complete and total renovation. This number is absolutely critical for any real estate investor. It tells him or her what they can reasonably expect to sell a property for when it’s completely fixed up. “As is” refers to the current condition of the property without doing any repairs to it.
Assignment of Mortgage
Transfers the Mortgage (or Deed of Trust) to the new buyer of a note. Commonly referred to in the industry as “AOM,” regardless if it actually refers to a Deed of Trust.
This document needs to be recorded to be effective as recordation is assumed to provide notice to everyone of the transfer. Best practice is to record the AOM as soon as you get it.
Before and just after the Financial Crisis of 2008 it was more common for collateral files to contain unrecorded AOMs. Many note holders didn’t want the additional expense and hassle of recording documents if they weren’t going to do active loss mitigation on the loan. Recording the AOMs would be the responsibility of the lender who was going to take action.
By law, an automatic stay against all creditor actions to collect on a debt (including foreclosure) is in effect when a debtor files a bankruptcy petition in U.S. Bankruptcy Court. Violations of the automatic stay may result in actual and punitive damages, attorneys fees, sanctions, and other penalties. It may also affect one’s ability to seek relief further down the line.
A creditor may file a Motion for Relief from the Automatic Stay if it has valid reasons for doing so. If the judge agrees, he or she will issue an Order of Relief from the Automatic Stay, which will allow the creditor to move forward with foreclosure proceedings.
Bankruptcy (Chapter 7)
The process established by U.S. Bankruptcy Laws that allows for a liquidation of assets and extinguishing of debts for individuals and businesses.
For notes, a creditor can be active and file a Motion for Relief so that they can immediately proceed with foreclosure. If a creditor is passive, the average Chapter 7 bankruptcy takes 6 months. The creditor can save money by waiting for the BK to be discharged and then foreclose.
Bankruptcy (Chapter 13)
Provides a Debtor the opportunity to reorganize their finances by restructuring their debts and allowing them up to 60 months to get caught up on what they owe. The Debtor files Chapter 13 bankruptcy by filing a Petition in the appropriate bankruptcy court followed by a Plan, Schedules, and other required documentation. Filing a Petition create an Automatic Stay against all creditors to prevent them from making any collection efforts. Bankruptcy procedures are established by U.S. Bankruptcy laws so they are uniform among the states.
With regards to notes, the Debtor’s Plan will require him to make the regular ongoing loan payments as well as an extra payment to the trustee towards the arrearages (the amount that he is behind on the loan, which is equal to the reinstatement amount).
Cash for Keys
An agreement by which an occupant in possession of a property vacates the property leaving it in broom swept condition after 30-45 days in exchange for a cash payment. We offer almost all occupants (tenants, former owners, and non-paying non-owners) of properties we foreclose on, cash for keys. It reduces the risk of vandalism or property damage, lengthy evictions, and increases the certainty of outcome for both the occupant and us.
Lenders are referred to as “Creditors” in bankruptcy court
Borrowers that file bankruptcy are referred to as “Debtors” in Bankruptcy Court.
Deed in Lieu of Foreclosure
Occurs when a borrower agrees to transfer ownership of the collateralized property to the lender in exchanged for extinguishing the debt. This is for situations in which the borrower is “underwater” i.e. owes more than the property is worth. If the borrower had equity in his or her home, he or she could simply sell the home, payoff the lender, and keep the excess. If the borrower owned a property worth $150,000 and owed $300,000, the lender might accept a Deed in Lieu of Foreclosure. The borrower would avoid having a foreclosure and would be forgiven the entire amount owed.
An agreement by which the lender allows the borrower to make additional payments over a certain time period in order to pay arrears and get current on a loan. For example: if a borrower got behind by $5000 on their payments, the lender and borrower could reach an agreement in which the borrower continued to make his or her ongoing P&I payment and then make an additional $100 payment for 50 months to pay the arrears.
The act of enforcing a lender’s right to recover debts owed under a Note and Deed of Trust or Mortgage by selling or transferring the property that collateralizes the loan. The culmination of the foreclosure is the Trustee, Sheriff’s, or Foreclosure sale when a public auction is held for the property. The property is either sold to a third party bidder or transferred to the lender. The debt is satisfied by the funds of the third party bidder or by the transfer of the property to the lender. In some instances, the lender may pursue the borrower for additional amounts owed (deficiency) that it was unable to collect from the sale of the property.
A court approved or approved by law action in which a collateralized property is sold at auction in order for a lender to recover what it can for a debt tied to the borrower’s note that is in default. “Foreclosure Sale” is a general term. Each state has its own specific name for this act. In judicial foreclosure states, this can also be called a “Sheriff’s Sale” or a “Judicial Sale.” In non-judicial foreclosure states, this can be referred to as a “Trustee Sale.”
Home Equity Line of Credit (“HELOC”)
A Line of Credit offered by banks and private money institutions using the equity in a borrower’s home as collateralized. The HELOC is typically in 1st position, although not always. In the typical scenario, the owner will have a pre-existing mortgage or deed of trust and the HELOC will be based on the difference between the balance on the 1st and the market value of the home.
For example, if a person owes $110,000 on a mortgage and their property is worth $200,000, a lender might offer them a HELOC for $50,000, which would be covered by the $90,000 in equity that the borrower has on their home. At $160,000 in combined debt, the lender of the HELOC would be covered by the final 20% in equity on the house.
A court approved sale of a property pursuant to a judge’s order of foreclosure conducted by a court approved entity other than a Sheriff. In Cook County, Illinois, foreclosure sales are carried out by the Judicial Sales Corporation and not a Sheriff’s Office. Same as “Foreclosure Sale”
Any activity by a loan servicer or a lender to recover capital or revenue from a Non-Performing Note. The most common loss mitigation options are: Temporary or Trial Loan Modification, Permanent Loan Modification, Forbearance Agreement, Foreclosure, Short Sale or Short Payoff, and Deed in Lieu of Foreclosure.
Motion for Relief
A lender will file a Motion for Relief from the Automatic stay in an attempt to proceed with a foreclosure sale. When a borrower files a Chapter 7 or Chapter 13 Bankruptcy Petition, an automatic stay from any debt collection activities is created. There are serious consequences including fines and penalties for lenders that violate the automatic stay. Lenders may file a Motion for Relief, which will be heard in front of the bankruptcy judge presiding over the case. If the judge agrees that there is reason to lift the stay, he or she will issue an Order of Relief, which will allow the lender/creditor to proceed with foreclosure.
Non-Performing Note (“NPN”)
A loan that is currently in default due to the borrower’s failure to make timely payments. For our purposes, an NPN refers to a loan secured by a Deed of Trust or a Mortgage collateralized by residential real estate. After the borrower is 120 days late on a payment, a lender may foreclose on the property to recover any amounts owed on the loan.
Notice of Default
In some non-judicial foreclosure states, the foreclosure is initiated once the trustee records this instrument. The NOD provides public notice of the default, the amount to cure it, and the consequences if the borrower fails to do so within a specified period of time. In some states, the trustee will be required to record a Notice of Sale before going through with the foreclosure sale. In California, the Notice of Sale must be recorded at least 90 days after the Notice of Default was recorded.
“Public Access To Court Electronic Records”. This is a site maintained by the Administrative Office of the U.S. Courts. This is a critical resource for a non performing note investor. If a borrower files a bankruptcy petition, the first thing the investor should do is look up the case in PACER. There, he or she will have access to the court docket, documents, and all publicly available filings. A person needs to register with PACER first before using it.
Principal and interest. This refers to the portion of a borrower’s payment that is amortized and is solely the part that pays the interest and principal due on the loan. It does not include the amount due for escrow payment.
The dollar amount for the entire debt owed. When a borrower requests a payoff, the lender or the note servicer tallies up everything that is owed that the borrower needs to pay in order for the obligations of the note to be fulfilled and for the lender to release its lien on the property. For a performing loan, the payoff is simple and includes the UPB and a short list of charges. For a NPN, the payoff also includes foreclosure costs, attorney fees, accrued interest, late charges, lender advances for property taxes, and insurance, and any other fees or charges that the lender incurred to proceed with foreclosure or that the borrower was obligated to pay but did not.
Permanent Loan Modification
New loan terms applied to existing loan. Generally, the new loan terms will benefit the borrower by lowering their monthly loan payment. Most permanent loan modifications involve lowering the interest rate temporarily over the course of several years or for the life of the loan. The arrears may or may not be capitalized into the new loan balance. Sometimes, the outstanding balance is broken up into an interest bearing UPB and a deferred balance. The deferred balance does not accrue any interest and must be paid back at the end of the loan.
Permanent loan modifications are typically recorded in the county where the Deed of Trust or Mortgage is recorded.
Proof of Claim
A document that the creditor should file in a Chapter 13 bankruptcy. It gives notice to the world of what the creditor claims that the debtor owes to it. There is a deadline file the POC. If the creditor does not file a timely POC, the debtor may file one on its behalf so that the debt is included in their bankruptcy plan. If the POC is not filed, the debt is not extinguished but it is not included in the plan and the creditor can take no action to collect on it until the bankruptcy case is dismissed or discharged.
Quiet Title Action
Legal procedure used to clear title. Commonly used when previous lienholders have been paid debts owed to them but did not clear or release their liens on the property. A property owner or a lender can file a lawsuit against previous lienholders and request that the judge order that the paid off liens be wiped off of the property. If the liens have already been paid, defendants will be very unlikely to spend money defending themselves in a lawsuit and will be more motivated to cooperate with the plaintiff to execute necessary documents. QTAs generally cost $5,000 to $15,000.
The instrument by which a lender releases its lien against a property once the borrower has paid the loan off in full. In the past, some lenders would send an unrecorded Reconveyance to a borrower who had paid off his or her loan. Some homeowners didn’t realize that they needed to take the extra step to record the document, which cause title issues down the road. Also called, “Release of Lien.”
The amount of money required to bring a loan current. Once a loan becomes delinquent for non-payment of P&I payments, the borrower reinstates the loan by paying all the missed payments, late fees, and other charges. If foreclosure has started, the borrower must pay any costs incurred by the lender to conduct the foreclosure including attorney and trustee fees. Any advances that the lender has made on the borrower’s behalf for unpaid property taxes and insurance premiums are included in this as well.
A note that was 120+ days delinquent on a payment but is now current with a borrower that continues to make on time payment.
“Real Estate Owned”. Commonly used in the real estate industry to describe properties specifically acquired through a transfer due to foreclosure. Many people refer to REOs as “bank owned.” A better description actually is “lender owned” since notes or loans are owned by a lot of people and entities that are not banks.
Short Sale (Same As Short Payoff)
A situation in which the lender accepts less than the total amount that’s owed in satisfaction of the debt. Generally, a lender will accept a short payoff because it will allow it to recover a large portion of the debt owed without the added risks, costs, and time required to foreclose. The borrower doesn’t get the same damage to their credit as a foreclosure will do and they have a way to resolve their situation and move on with their life. Short Sale and Short Payoff is the same thing.
Short Sale is more commonly used because a distressed borrower typically will not qualify for a refinance or have the ability to come up with the funds for a short payoff. That borrower’s only option is to sell the property to come up with the cash necessary for the payoff.
A sale of property conducted by the Sheriff’s Office of the County in which the subject property is located. The Sheriff will conduct the sale only after a judge has ordered the foreclosure of a property as a remedy to the lender whose note is in default. Same as “Foreclosure Sale”
A note in which the borrower is making inconsistent loan payments. The payments are made 30 or more days passed the due date. When the borrower shows an inconsistent payment history with multiple late payments (over 30 days late), it hurts the value of the note and not buyers will expect a discount because the sub-performing borrower is at greater risk of defaulting.
Same as a payoff.
Trial Loan Modification
Some lenders require or offer borrowers a trial loan modification, which is generally a pre-cursor to a permanent loan modification. The trial will consist of three monthly loan payments that should be the same or less than the borrower’s last contracted regular payment. Upon successful completion of the trial, the lender will offer a permanent loan modification. Each trial modification is different and borrowers need to look at the documents they receive very carefully to see the exact terms for their particular loan. Also known as “Temporary Loan Modification,” “Trial Payment Plan,” “Trial Payment Period,” and other names.
The sale of a property by auction in a public place as a result of the lender’s efforts to recover what is owed to them. This is the culmination of the foreclosure process in non-judicial states. The trustee is a neutral, third party that is bound to operate according to the laws of the state and helps avoid the potential issues that could occur in a a direct lender to borrower relationship. Same as “Foreclosure Sale”
Unpaid principal balance. This is the number that most people associate with their “loan balance,” which can be significantly less than the total debt owed or a payoff for a NPN.
A new loan created by the seller of a property between himself and the buyer without paying off an existing loan on the property. The buyer makes the loan payment directly to the seller. The seller makes the payment on the existing loan and pockets the difference between the buyer’s payment to him and the existing loan payment.
The existing mortgage or deed of trust remain until the loan is paid off in full, which is on a different schedule than the new wraparound loan. Sellers do this to help buyers that can’t or don’t want to get traditional financing so that they can buy the seller’s property.