Glossary for Mortgage Meltdown, Monetary Policy and Regulation

The Foreclosure Glossary

for Borrowers and Investors in Securitized Investments in “Asset” backed obligations

Acceleration Clause A provision that allows the lender to demand the entire balance of the mortgage loan when the borrower fails to make some installment payments.  THIS DEMAND SHOULD BE MET WITH A TILA AUDIT AND A REPORT, TOGETHER WITH YOUR DEMAND THAT THEY WITHDRAW THE ACCELERATION LETTER BASED UPON FRAUD, MISREPRESENTATION, DECEPTIVE LENDING, NON-DISCLOSURE ETC. The other thing about acceleration is whether the sender of the letter had any authority to do so. See CDO below. It is highly likely that the loan was assigned to a mortgage aggregator who sold a portfolio of perhaps a thousand loans to an investment banking house, that converted the portfolio into an entity that issued securities, and that the securities were wholesaled out to a seller of such securities and that the securities were sold to dozens, hundreds or even thousands of investors. THESE INVESTORS PROBABLY DID GET PAID BY THE ISSUER OF THE SECURITIES, THE INVESTMENT BANKER, OR SOME INSURANCE COMPANY (although they were probably not paid in full). The indenture to most of these securities provides that the issuer can use the proceeds of sale of the securities to pay interest and principal back to the investor. A classic Ponzi scheme but perhaps legal under our convoluted laws. Even if they were not paid, the entity that sent the acceleration letter probably did not perform due diligence to know for sure that the obligation had not been paid by some third party. Thus the acceleration letter can be challenged and should be challenged.  So we have a situation where even if the actual borrower did not make the payments to mortgage servicing company, the actual owner(s) of the the mortgage and note did get paid at least in part. The acceleration letter probably states the amount the borrower allegedly didn’t paid but does not give credit for the amounts actually paid to the investor who purchased the security that was backed by this mortgage and note. This vicarious payment might be a credit to the advantage of the borrower.     Affidavit A written statement, usually given while under oath or in the presence of a notary. Annual Percentage Rate (APR).  The annual interest rate covering the interest and other costs.   The Truth in Lending Act requires announcement of APR by lenders. Appraisal The process by which a licensed person gives an estimate of property value. Appraiser’s usually have Errors and Omissions Insurance policies. It is highly likely that if you have been defrauded by inflated appraisals of “fair market value” you may have a claim against the appraiser as well as the lender who hired the appraiser. In most cases during the Mortgage Meltdown period, the appraiser is given the information ahead of time, so he/she knows what the purchase price is and what the loan amount is. If the appraiser wants continued employment, he/she has economic incentive/coercion to come up with a rationalization for stating the value of the property at an inflated amount in order for the loan to close and borrower to sign the papers at a closing, which is the condition precedent for many of the intermediaries to get paid. Improper behavior by an appraiser could mean civil, criminal and/or administrative sanctions (by filing a complaint with the state licensing board). Appreciation The difference between the increased value of the property and the original value. Assignment The transfer of property to be held in trust or to be used for the benefit of the creditors (lenders). Balloon Payment Large installment payment required at the end of the term of the mortgage note to pay off the entire mortgage balance. Bid The amount for a foreclosed property for sale at auction. CMO: Collateralized Mortgage Obligation. This is a DERIVATIVE security which is normally purchased outside of normal regulatory rules to “qualified” investors consisting of high net worth individuals, corporations, government agencies and money management funds. It promises a return based upon a pool of hundreds of thousands of different mortgages and notes, spreading the risk of loss on defaults over a “diversified” portfolio. Frequently the terms of the security allow the seller of the security to use the proceeds to pay the interest or dividend on the investment. Typically the terms of the security provide for foreclosure of the underlying property in the event of default. The lender or mortgage servicing entity therefore has little or no authority to negotiate a “workout” on the default. The owner of the security is legally a necessary and indispensable party to any action on foreclosure or action contesting the sale, but must usually be named as “John Doe” because the actual owner of the security which is backed by a particular mortgage on a specific piece of property is unknown to the borrower and frequently unknown to the lender or mortgage servicer. Unlike the entities or persons who participated at the loan closing, “lender liability” for refunds of points, closing costs and interest paid and damages is unlikely to be awarded against the security owner who is more than likely a victim of the mortgage meltdown scheme, which was based upon false appraisals of value, safety and security from rating agencies and false assurances of insurance against losses. A CLAIM AGAINST THE TRUSTEE WHO POSTS NOTICE OF SALE OR “LENDER” WHO FILES FOR JUDICIAL FORECLOSURE COULD INCLUDE THE ALLEGATION THAT THE TRUSTEE OR LENDER (A) HAS NO INTEREST LEFT IN THE PROPERTY AND THEREFORE LACKS LEGAL STANDING AND (B) HAS NO INDEPENDENT INFORMATION ON PAYMENTS, NOR DID THE PERSON WHO SIGNED THE NON-PAYMENT AFFIDAVIT OR CORRESPONDENCE HAVE ACTUAL KNOWLEDGE OF THE BORROWER’S  PAYMENT HISTORY. CDO’S (collateralized debt obligations) and CLO’s (collateralized loan obligations) are terms sometimes used interchangeable but actually refer to larger categories of securities whose value derived from underlying credit card debt, school loans, auto loans etc.  Certificate of Sale A document issued to the winning bidder at a foreclosure sale stating their rights to the property once the borrowers redemption period has expired. Clear Title A title that is not burdened with defects. Credit Bid A bid on behalf of the lender at a foreclosure sale. The bid amount must be less than or equal to the balance of the loan in default. Decree A judicial decision. Deed A signed document that shows ownership in property and allows the transfer ownership of property from one party to another. Deed-in-lieu of Foreclosure A voluntary transfer of title by the borrower to the mortgage company to avoid foreclosure action. Deed of Trust An instrument signed by a borrower, lender and trustee that conveys the legal title to real property as security for the repayment of a loan. The written instrument in place of mortgage in some states. Default A mortgage is in default when the borrower fails to make the payments as agreed to in the original promissory note. Deficiency Judgment A judgment against the borrower for the balance remaining after the property is sold at auction or foreclosure sale. DERIVATIVE SECURITY: A security which has no intrinsic value of its own, deriving its value instead by reference to an index (futures market), asset (assigned pool of loans, mortgages, notes etc.), or another derivative security. Derivative securities can be either simple or highly complex, with various levels of risk included at multiple levels, all of which are included in the total “value” or “price” of the security. In one case the number of levels (tranches, as they are called in the finance world) was 125. It took a modern computer with high capacity and memory, running for a full weekend to compute a price for that derivative security. Since a computer performed the work, and the computer operated according to algorythms programmed by technical programmers, many times, without documentation in the source code, and many times without the source code being available there is no method by which the resulting “value” or “price” can be verified or audited. Notwithstanding the impossibility of verification or auditing, Moody’s, Fitch and other rating agencies pretended to perform due diligence and rate the securities, regardless of their complexity. Analysis and due diligence was replaced by negotiations, and fishing junkets where the analysts were treated to vacations and other perks from the “client” (the issuer of the security), while at the same time being pressured by management from the top to satisfy the needs of the “client” in order to build “market share” for the rating agency and thus increase profits for the rating agency. See Wall Street Journal and Bloomberg for details. Derivative securities directly affect the actual supply of “money” in the marketplace and therefore are a principal source of money supply. To date the amount of “money” represented by derivative securities exceeds five hundred ($500,000,000,000) trillion dollars which is more than all government (fiat) currencies printed by all of the governments of the world. Thus the ability of central bankers has therefore been diminished to the point of being virtually irrelevant., as can be seen when the federal reserve decreases the over night ending rate between banks and interest rates in the marketplace go up. This unprecedented scenario is directly tied to the fact that the Federal reserve, The U.S. treasury and the Bureau of Engraving and Printing have only a minority share of the money supply in the country since the introduction of derivatives in 1983, and that minority share is decreasing each month.  Encumbrance Mortgage, lien, tax, or any restriction on the use of land. Equitable Title The present right to possession with the right to acquire legal title once a preceding condition has been met. Equity The value of real estate less the outstanding mortgages and debts pledged against the property. Fair Market Value The price a property would sell for on the open market. Fee Simple  Common term used to indicate complete legal ownership of a property. FHA Federal Housing Administration under U.S. Department of Housing and Urban Development (HUD). Foreclosure The forced sale of property pledged as security for a debt that is in default. Free & Clear Ownership of property free of all indebtedness. Grace Period Period between the due and the overdue date during which no late payment penalty applies to the mortgage payment. Hazard Insurance Insurance against the destruction of the property. Judicial Foreclosure A foreclosure that is processed by a court action. Lien A charge upon real or personal property for the satisfaction of a debt. Legal Description A formal description of real property so that one can locate it by reference to government surveys or approved recorded maps. Lender A person who lends money for temporary use on condition of repayment with interest (i.e., the bank, mortgage company, etc.). Lis Pendens A recorded notice of pending lawsuit. Mortgage A written pledge of property that is used as security for the repayment of a loan. MORTGAGE MELTDOWN: An series of events (stemming from the 1983 introduction of derivative securities) created by a tacit cartel of investment bankers and other financial institutions in which borrowers were (approved) “loaned” money on purchase money mortgages based upon false appraisals in the context of contemporaneous securitized transactions where the investment capital was procured by fraud in unregulated security offerings to “qualified” investors, based upon false assurance, false ratings, false insurance backing, and false appraisals of underlying property, income of borrowers and many other factors. The logistics of this scam were revealed in pieces and have threatened the very existence of many financial institutions and the financial markets themselves. Indexes, such as LIBOR, were indirectly manipulated by U.S. financial institutions to hide the true facts. Despite a brief period in which certain arcane “auction markets” froze up (in places and events unknown to the public, business has resumed as usual. The lack of regulation from a responsible, accountable agency or group of agencies has spawned hundreds of lawsuits and millions of foreclosures, many producing counterclaims for far more than the original mortgage and note. No immediate fundamental change is in process in the regulatory scheme, hence it may be expected that the mortgage meltdown will replay in one form or another shortly.  Non-judicial Foreclosure Non-judicial foreclosure is when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. Notary A public officer licensed by the state to attest to and certify the validity of signatures of others. A notary is often referred to as a notary public. Notice of Sale A notice giving specific information about the loan in default and the proceedings about to take place. This notice must be recorded with the county where property is located and advertised as stated in the security document or as dictated by state law. Personal Property Property other than real property consisting of things temporary or movable. Posting To publish, announce or advertise by physically attaching a notice to an object. Postponement Postponement means to put off to a later time. In the case of a foreclosure sale, this is generally done by announcement at the original sale or by posting notices establishing the new date and time the foreclosure sale will take place. Refinance Paying off one mortgage loan by obtaining a new mortgage loan. Right of Redemption A borrower’s right to reacquire property lost due to a foreclosure. This right allows the owner to recover property lost to a foreclosure judgment, or sold after a foreclosure sale, within a certain period of time. The redemption period varies among the states. Request for Notice A recorded document requiring a trustee send a copy of a Notice of Default or Notice of Sale concerning a specific deed of trust in foreclosure to the person who filed the document. Short Sale A sale where the lender will agree to accept less than the full amount of the mortgage. This allows you to sell the house to an investor or other buyer for a good price, while the lender recovers the bulk of the amount due without having to pursue foreclosure proceedings. Subject To The purchase of a property with an existing lien against the title without assuming any personal liability for the liens payment. Title The instrument that is evidence of a person’s right in real property (i.e., a deed). Trustee A neutral party who advertises the foreclosure property for sale and conducts the auction to sell said property to the highest bidder. Trustee Sale (Sheriff Sale) An auction of real property conducted by a trustee. Also known as a Sheriff’s Sale. Upset Bid A recorded bid placed after a foreclosure sale has ended that is higher than the highest bid received at the actual foreclosure sale. Writ An order or mandatory process in writing issued in the name of a court or judicial officer commanding the person to whom it is directed to perform or refrain from performing a specified act.