Glossary of Short Sale Terms


Repayment of a mortgage loan through monthly installments of principal and interest; the monthly payment amount is based on a schedule that will allow you to own your home at the end of a specific time period (for example, 15 or 30 years).


A legal alternative that allows the borrower to clear any debt obligations by restructuring the payment terms. A bankruptcy stops the foreclosure process until the bankruptcy process is completed or the court allows the lender to resume the foreclosure.


Occurs when the borrower does not meet its legal obligations according to the loan terms.

Deed in Lieu

Voluntary conveyance of title in exchange for a discharge of debt. The house must be free of other liens and must have clear title. The borrower agrees to transfer title of the property to the lender, who accepts the property in exchange for the total debt.

DTI (Debt-to-income ratio)

A comparison of gross income to housing and non-housing expenses.

Fair Market Value

The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.


A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.


Under a forbearance agreement, the lender agrees to stop the foreclosure process and determines payment terms that, at a certain time, will bring the borrower current.


A legal claim on a property by a lender or other entity (called the lien holder) against the property owner that owes the money.

LisPendens (LIS)

A publicly recorded notice of a pending lawsuit against a property owner that may affect the ownership of a property. This process is required in a few states to begin the foreclosure process if a borrower is in default.

Loan Modification

A transaction in which a lender agrees to modify any or some of the terms of the mortgage. This is a process where an existing note is modified, but not canceled. Changes may include: extending the term of the loan, changing the monthly payments, changing the interest rate, reduction of reduction of principal, etc.

Principal Balance Reduction

When a lender forgives a portion of your principal balance as part of a loan modification. The mortgage payment due for this note is based off the new loan amount.


Occurs when the property owner pays off the amount in default to bring the loan payments current in order to stop the foreclosure process and return to the original terms of the loan.

REO (Real Estate Owned)

A class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction.

Short Sale

A property sale negotiated with a lender in which they agree to less than the total amount due.