Foreclosure 101

Foreclosure Glossary

56 foreclosure, auction, and investing terms defined in plain English. New to foreclosures? Start with How Foreclosures Work for the full process from missed payment to REO, then use this glossary as your reference.

Foreclosure basics

The core legal concepts behind every foreclosure in the United States.

Foreclosure: Foreclosure is the legal process a lender uses to take ownership of a property after the borrower stops making mortgage payments. The lender sells the property, usually at a public auction, to recover the unpaid loan balance. Every U.S. state allows foreclosure, but the exact process and timeline vary by state.How foreclosures work, step by step
Judicial foreclosure: Judicial foreclosure is a foreclosure processed through the state court system. The lender files a lawsuit against the borrower, and a judge must approve the sale. Judicial foreclosures create a public court record (the lis pendens) and typically take longer, from six months to several years in states like New York, New Jersey, and Florida.
Non-judicial foreclosure: Non-judicial foreclosure is a foreclosure completed outside the court system under a power of sale clause in the deed of trust. A trustee, not a judge, conducts the sale. Non-judicial foreclosures move faster, often two to six months, and are the standard process in states like California, Texas, Georgia, and Arizona.
Power of sale clause: A power of sale clause is contract language in a deed of trust that pre-authorizes the trustee to sell the property if the borrower defaults. This clause is what makes non-judicial foreclosure possible, because the lender does not need a court order to foreclose.
Mortgage: A mortgage is a loan secured by real estate, where the property itself serves as collateral. In mortgage states, foreclosure usually goes through the courts because the lender must prove its right to sell the collateral.
Deed of trust: A deed of trust is a three-party security instrument between a borrower, a lender, and a neutral trustee who holds legal title until the loan is repaid. Deed-of-trust states typically use non-judicial foreclosure, because the trustee already has authority to sell on default.
Promissory note: A promissory note is the borrower's written promise to repay the loan, separate from the mortgage or deed of trust that secures it. In foreclosure disputes, the party enforcing the foreclosure generally must show it holds or controls the note.
Default: Default is the borrower's failure to meet the terms of the loan, most commonly by missing payments. Under the federal CFPB mortgage servicing rules, a servicer generally cannot start foreclosure until the borrower is more than 120 days delinquent.

The pre-foreclosure stage

What happens between the first missed payment and the auction. This window is where investors can negotiate directly with owners.

Pre-foreclosure: Pre-foreclosure is the period after the lender records a formal notice of default but before the property is sold at auction. The owner still holds title and can sell, refinance, reinstate the loan, or negotiate with investors. Pre-foreclosure records are public documents filed at the county level.Browse pre-foreclosure listings
Delinquency: Delinquency is the state of being behind on mortgage payments before formal foreclosure begins. Lenders typically report delinquency to credit bureaus after 30 days and send a demand letter (breach letter) around 60 to 90 days.
Notice of default (NOD): A notice of default is the recorded public document that starts a non-judicial foreclosure. It states the amount owed and gives the borrower a deadline to cure the default. The NOD is the first public signal that a property is heading to auction, which makes NOD filings a primary lead source for investors.
Lis pendens: A lis pendens (Latin for "suit pending") is the recorded notice that a lawsuit affecting a property has been filed. In judicial foreclosure states, the lis pendens marks the start of the foreclosure case and puts all future buyers on notice of the pending claim.
Notice of trustee's sale: A notice of trustee's sale announces the date, time, and place of a non-judicial foreclosure auction. It is recorded with the county, posted on the property, and published in a local newspaper, typically 20 to 30 days before the sale.
Reinstatement: Reinstatement is the borrower's right to stop a foreclosure by paying all missed payments, late fees, and foreclosure costs in one lump sum. Most states allow reinstatement up to a deadline shortly before the auction. Investors buying pre-foreclosures should always request the reinstatement figure from the servicer.
Forbearance: Forbearance is a temporary agreement in which the lender pauses or reduces payments while the borrower recovers from a hardship. Forbearance postpones foreclosure but does not erase the missed payments, which must eventually be repaid or restructured.
Loan modification: A loan modification permanently changes the terms of the original loan, such as the interest rate, term length, or principal balance, to make payments affordable. A completed modification typically ends the foreclosure process.
Short sale: A short sale is a sale of the property for less than the outstanding mortgage balance, with the lender's approval. Owners use short sales to avoid a completed foreclosure on their record. For buyers, short sales offer discounts but require lender sign-off, which can take months.
Deed in lieu of foreclosure: A deed in lieu of foreclosure is a voluntary transfer of the property title from the borrower to the lender to settle the debt without an auction. Lenders accept a deed in lieu to save the time and cost of foreclosure, and the property then becomes REO inventory.

The auction stage

Terms you will hear at the courthouse steps, where the property is publicly sold to the highest bidder.

Foreclosure auction: A foreclosure auction is the public sale where a foreclosed property goes to the highest bidder. Auctions are typically held at the county courthouse or online, require cash or certified funds, and sell properties as-is with no inspections or warranties.Auction due diligence checklist
Sheriff's sale: A sheriff's sale is a foreclosure auction conducted by the county sheriff under a court order, which makes it the standard sale format in judicial foreclosure states. The winning bidder receives a sheriff's deed after the court confirms the sale.
Trustee's sale: A trustee's sale is the auction in a non-judicial foreclosure, conducted by the trustee named in the deed of trust. Trustee's sales do not require court confirmation in most states, so the winning bidder can receive the trustee's deed within days.
Opening bid: The opening bid is the minimum starting price at a foreclosure auction, usually set by the foreclosing lender. It typically equals the loan balance plus fees and foreclosure costs, though lenders sometimes open below the debt to attract third-party bidders.
Credit bid: A credit bid is the foreclosing lender bidding the debt it is owed instead of cash. If no third party outbids the lender's credit bid, the lender wins the property and it becomes REO.
Upset bid: An upset bid is a higher offer submitted after the auction during a state-mandated waiting period, which reopens the bidding. North Carolina is the best-known upset bid state: each new upset bid restarts a 10-day window before the sale becomes final.
Confirmation of sale: Confirmation of sale is the court's formal approval of a foreclosure auction result, required in many judicial states. Until the court confirms, the sale is not final and the winning bidder does not receive the deed.
Right of redemption: The right of redemption lets a foreclosed owner reclaim the property by paying the full sale price plus costs within a statutory window after the auction. Redemption periods range from none at all to 12 months depending on the state, and they directly affect when an auction buyer can safely take possession or renovate.
Surplus funds: Surplus funds are auction proceeds left over after the foreclosing lender and junior lienholders are paid. The surplus legally belongs to the former owner, who must claim it from the court or trustee.
Cash for keys: Cash for keys is an agreement in which the new owner pays the occupant of a foreclosed property to move out voluntarily by a set date. Investors use cash for keys because it is usually faster and cheaper than a formal eviction.

After the sale: REO

What happens when a property does not sell at auction and goes back to the lender.

REO (real estate owned): REO, short for real estate owned, is a property that failed to sell at the foreclosure auction and reverted to the lender. Banks sell REO inventory through listing agents, usually with clear title and normal closing procedures, which makes REO the lowest-risk entry point for newer foreclosure investors.
Bank-owned property: A bank-owned property is another name for an REO: a home owned by the lender after an unsuccessful foreclosure auction. Bank-owned listings are sold as-is, but buyers can typically inspect the property and use financing, unlike at auction.
HUD home: A HUD home is a foreclosed property owned by the U.S. Department of Housing and Urban Development after the failure of an FHA-insured loan. HUD homes are sold through an online bidding system with an initial priority period for owner-occupant buyers before investors can bid.
Broker price opinion (BPO): A broker price opinion is a real estate agent's estimate of a property's value, ordered by lenders as a cheaper alternative to a full appraisal. Banks use BPOs to price REO listings and evaluate short sale offers.
Asset manager: An asset manager is the person or company that manages a lender's REO portfolio, deciding list prices, repairs, and which offers to accept. Building relationships with asset managers and REO listing agents is a common way investors get early access to bank-owned deals.
Eviction (post-foreclosure): A post-foreclosure eviction is the legal process of removing occupants who remain in the property after the foreclosure sale. Timelines vary widely by state and by occupant type: former owners can often be removed faster than bona fide tenants, who may have lease protections under state and federal law.

Liens and title

Foreclosure is ultimately a fight over lien priority. These terms decide what debts survive the sale and attach to the new owner.

Lien: A lien is a legal claim against a property that secures a debt. Mortgages, unpaid taxes, HOA dues, contractor bills, and court judgments can all create liens. Liens are recorded in county land records and must be resolved before or through a foreclosure sale.
Lien priority: Lien priority is the order in which liens get paid from a foreclosure sale, generally set by recording date under the "first in time, first in right" rule. A foreclosure by a senior lien wipes out junior liens, but a foreclosure by a junior lien leaves senior liens in place and attached to the property.
Senior lien: A senior lien, usually the first mortgage, is the highest-priority claim on a property and gets paid first from sale proceeds. Property tax liens are a major exception: they jump ahead of even the first mortgage in nearly every state.
Junior lien: A junior lien is any claim recorded after the senior lien, such as a second mortgage, HELOC, judgment lien, or HOA lien. Junior liens are extinguished when a senior lien forecloses, but the underlying debt can sometimes still be pursued against the borrower personally.
Tax lien: A tax lien is a government claim for unpaid property taxes or income taxes. Property tax liens hold super-priority over mortgages, and IRS liens carry a 120-day federal redemption right after a foreclosure sale, both of which auction buyers must check before bidding.
HOA lien: An HOA lien secures unpaid homeowners association dues and assessments. In more than 20 states, part of an HOA lien has super-priority ahead of the first mortgage, and in some states an HOA can foreclose on its own lien, so unpaid dues are a real diligence item, not a footnote.
Mechanic's lien: A mechanic's lien is a claim filed by contractors or suppliers who worked on the property and were not paid. In many states, a mechanic's lien's priority relates back to when the work started, which can put it ahead of liens recorded later.
Deficiency judgment: A deficiency judgment is a court judgment against the borrower for the gap between the foreclosure sale price and the remaining loan balance. Some states, including California for standard purchase loans, prohibit deficiency judgments after non-judicial foreclosures.
Title search: A title search is a review of county records to find every lien, easement, and ownership transfer affecting a property. Investors run a title search before every auction bid, because auction properties are sold without title insurance and surviving liens become the buyer's problem.Foreclosure due diligence checklist
Clouded title: A clouded title is ownership with unresolved defects, such as a missed heir, a broken chain of assignments, or an improperly conducted foreclosure. Clearing a cloud often requires a quiet title action, a lawsuit asking the court to declare the true owner.

Investor terms

The working vocabulary of foreclosure and distressed-property investing.

Equity: Equity is the difference between a property's market value and the total debt against it. Equity determines whether a pre-foreclosure deal is workable: an owner with equity can sell to an investor and walk away with cash, while an owner without equity usually needs a short sale.
Underwater mortgage: An underwater mortgage (negative equity) means the owner owes more than the property is worth. Underwater properties cannot be bought at a discount through a normal purchase, so investors pursue short sales or subject-to structures instead.
ARV (after repair value): ARV, or after repair value, is the estimated market value of a property after renovations are complete. ARV anchors every flip calculation: investors work backward from ARV to set a maximum purchase price.Free ARV calculator
Maximum allowable offer (70% rule): The maximum allowable offer is the most an investor can pay and still hit a target profit. The classic 70% rule says: pay no more than 70% of ARV minus repair costs. The rule is a screening shortcut, not underwriting; competitive markets often require sharper math.Foreclosure offer calculator
Comps (comparable sales): Comps are recently sold properties similar in size, condition, and location, used to estimate what a subject property is worth. Reliable comps come from the same neighborhood, sold within the last three to six months.
Distressed property: A distressed property is any property under financial or physical pressure: facing foreclosure, carrying tax debt, in probate, or in serious disrepair. Distressed properties trade below market value because the owner's need for speed outweighs price.
Skip tracing: Skip tracing is the process of finding a property owner's current phone number, email, or mailing address from public records and data providers. Foreclosure investors skip trace pre-foreclosure lists to contact owners before the auction date.One-click owner lookup
Driving for dollars: Driving for dollars is physically driving neighborhoods to spot visibly distressed houses, then researching the owners and mailing or calling them. It pairs naturally with foreclosure data: a distressed-looking house that also has a notice of default is a far stronger lead.
Wholesaling: Wholesaling is putting a property under contract below market value and assigning that contract to another buyer for a fee, without ever owning the property. Wholesalers rely on motivated-seller lists, and pre-foreclosure filings are among the most time-sensitive lists available.
BRRRR strategy: BRRRR stands for buy, rehab, rent, refinance, repeat: an investor buys a distressed property, renovates it, rents it out, then refinances at the new value to pull capital back out for the next deal. Foreclosures and REOs are common BRRRR acquisitions because they are priced below stabilized value.BRRRR strategy calculator
Hard money loan: A hard money loan is short-term financing from a private lender, secured by the property rather than the borrower's credit. Hard money funds fast, often within days, which is why auction and pre-foreclosure buyers use it, at rates typically between 9% and 14% plus points.Hard money loan calculator
Holding costs: Holding costs are the monthly expenses of owning a property before resale: loan interest, taxes, insurance, utilities, and maintenance. Every extra month of holding, whether from a redemption period, an eviction, or a slow rehab, comes straight out of profit.

FAQ

Common questions about foreclosure terms

What is the difference between pre-foreclosure and foreclosure?

Pre-foreclosure is the window after the lender records a default notice but before the auction, while the owner still holds title and can sell or cure the default. Foreclosure is completed only when the property is sold at auction or reverts to the lender as REO.

What is the difference between a foreclosure auction and an REO?

An auction property is sold publicly to the highest bidder, as-is, usually for cash and without inspections or title insurance. An REO is a property that failed to sell at auction and is now owned by the bank, which resells it through an agent with normal inspections, financing, and title insurance.

Do liens survive a foreclosure sale?

It depends on priority: a foreclosure by the senior lien wipes out junior liens, but senior liens, property tax liens, and some HOA super-priority liens survive and transfer to the new owner. This is why investors run a title search before bidding.

What is a lis pendens in simple terms?

A lis pendens is a recorded public notice that a lawsuit affecting a property has been filed. In judicial foreclosure states it is the first public signal that a foreclosure has started, which makes new lis pendens filings a primary source of early investor leads.

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