Foreclosure & Short Sale Glossary
Plain-English definitions of the terms you'll see in lender letters, legal notices, and real estate paperwork during an Arizona short sale or foreclosure.
Anti-Deficiency Statute
ARS §33-814 and §33-729 protect Arizona homeowners from deficiency judgments after a non-judicial foreclosure (or, in many cases, a short sale) on a qualifying property: a single one- or two-family dwelling on 2.5 acres or less, used as a residence.
Automatic Stay
A federal protection triggered the moment a bankruptcy petition is filed. It immediately halts most collection actions — including a scheduled foreclosure auction.
Cancellation of Debt Income (CODI)
Forgiven mortgage debt that can be treated as taxable income. IRS Section 108 and related rules offer exclusions (insolvency, qualified principal residence indebtedness when applicable). Always consult a CPA.
Deed in Lieu of Foreclosure
A voluntary transfer of the property's deed from the borrower to the lender to avoid foreclosure. Lenders typically require the home to be listed for sale (often as a short sale) first.
Deficiency Judgment
A court order requiring a borrower to pay the difference between the foreclosure sale price and the loan balance. Arizona's anti-deficiency statute (ARS §33-814) blocks these for most owner-occupied residential properties under 2.5 acres.
Forbearance
A temporary agreement with your lender to pause or reduce mortgage payments for a defined period. Missed payments are repaid later as a lump sum, a repayment plan, or added to the loan balance.
Form 1099-C
The IRS form a lender issues reporting canceled debt of $600 or more. After a short sale, you'll typically receive a 1099-C for the forgiven amount.
Hardship
A documented reason a homeowner can no longer afford the mortgage — job loss, divorce, illness, death, disability, relocation, interest rate reset, reduced income, or similar. Required to qualify for a short sale.
Hardship Letter
A written statement a homeowner submits to their lender as part of a short sale or loan modification request, explaining the financial hardship that makes the current mortgage unaffordable.
HUD-1 / Closing Disclosure
The itemized statement of all the costs, credits, and payouts in a real estate closing. On a short sale, it also shows the shortage (difference between what's owed and what the lender nets).
Loan Modification
A permanent change to the terms of an existing mortgage — typically lower payment, lower interest rate, longer term, or some combination — to help a struggling borrower stay in the home.
Notice of Default
An early-stage lender notice (often sent after 3+ missed payments) declaring the loan in default. In some states this is the first formal foreclosure step; in Arizona, the Notice of Trustee's Sale is the key legal trigger.
Notice of Trustee's Sale
A legal notice recorded by the lender (or trustee) starting the final phase of an Arizona foreclosure. The trustee's sale (auction) must occur at least 90 days after this notice is recorded. In Arizona, this is your main warning that foreclosure is imminent.
Principal Reduction
A lender-approved reduction to the outstanding loan balance. Rare in practice, but occasionally part of a loan modification or investor-owned loan workout.
Reinstatement
Bringing a delinquent mortgage fully current by paying all missed payments, late fees, and lender costs. Stops the foreclosure process if done before the trustee's sale.
REO (Real Estate Owned)
Property owned by a lender after an unsuccessful foreclosure auction. If no one bids enough at the trustee's sale, the home becomes REO and the lender lists it for sale.
Second Mortgage / HELOC
A junior lien on the property. In a short sale, both the first and second lienholders must approve the transaction. I negotiate with both.
Short Sale
A sale of a home for less than the outstanding mortgage balance, with the lender's approval. The lender agrees to accept less than owed and (usually) release the borrower from the remaining debt.
Trustee's Sale
The public auction at which foreclosed Arizona homes are sold. Conducted by a trustee on behalf of the lender under ARS §33-807. The winning bidder takes title. This is what most people mean when they say 'losing the home to foreclosure' in Arizona.
Underwater / Upside Down
When the balance owed on a mortgage is greater than the home's market value. A short sale is usually the best option for underwater homeowners who can no longer afford payments.
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