Last week, I began deciphering acronyms and vocabulary commonly used in real estate transactions. Here are a few more that can be helpful, especially if things go sideways and a foreclosure is involved.
Notice to Perform – This is the document used when the buyer and seller have a signed purchase and sale agreement (PSA) and one party wants the other party to comply with a contract requirement. For example, the seller may serve the buyer with a notice to perform to demand that the buyer remove contingencies in the time frame called for in the agreement.
Demand to Close – This is the document used when either party to the PSA, buyer or seller, demands that the escrow be closed.
Deed of Trust – This document is the instrument that secures a loan to the property. A deed of trust has three parties: trustor (borrower), beneficiary (lender), and trustee (the one who holds bare legal title).
Bare Legal Title – Bare legal title occurs when someone has a purely legal, but not equitable, ownership interest in an asset; ostensibly, a neutral third party.
Trustee – In the context of a deed of trust, the trustee has the authority to foreclose on a property for nonperformance of a loan. When a borrower defaults on the loan by skipping payments, avoiding taxes, allowing insurance to lapse, committing waste (e.g., dumping a 50-gallon drum of oil in the backyard), or any number of other offenses, the lender informs the trustee, and the trustee begins foreclosure proceedings. Sometimes a lender and a trustee are one and the same, but if a foreclosure needs to happen, it is best to have a third-party trustee.
Deed – This document conveys ownership of the property.
Notice of default – If a borrower commits a breach of the note or deed of trust, the trustee can record a notice of default. This puts the world on notice that the borrower did not hold up his end of the deal. A notice of default kicks off a 90-day redemption period, when the buyer has an opportunity to make things right by curing the default (for example, by paying what he owes).
Note – A note is a short- to medium-term debt instrument (loan). The most common examples include Treasury notes, promissory notes, and mortgage notes. Promissory notes are backed by the property’s deed of trust—so if a borrower defaults, the lender can foreclose and force the sale of the property.
Notice of Sale – After the notice of default is issued, if 90 days go by without curing the default, then a notice of sale is published in a local newspaper and posted on the property. The notice of sale announces a public auction where the property will go to the highest bidder. The notice must be published three times, each a week apart. Even now the buyer can cure the default within five days of the public sale date.
Crying of the Sale – This term comes from an outdated use of the word “crying”—as in a town crier. In this context, the crier holds the auction and verifies bidders’ funds.
Be aware that new regulations allow low-income housing corporations or owner-occupants to acquire the single-family homes, duplexes, tri-plexes and four-plexes sold at auction for the same price as the successful bidder as long as they notify the trustee within 15 days of the sale and close the escrow within 45 days of the sale. Basically, they can swoop in and get the property as though they were the high bidder. If you’re scratching your head because this doesn’t make any sense, then you’ve perfectly understood me.
Trustee’s Deed – The high bidder at the auction becomes the buyer and receives a trustee’s deed (as opposed to a grant deed signed by the owner). The deed is legally valid and proves ownership.
Reconveyance – After a loan has been paid off, a reconveyance takes the deed of trust off the property.
If at any point you hear a term you don’t understand, ask your Realtor to explain it.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.