When a lender releases an existing mortgage for a payoff that is less or ‘short’ of the total amount due, the transaction is called a ‘short sale.’ Lenders sometimes accept short sales as an alternative to repossession and foreclosure, which can be expensive. Likewise, a short sale avoids foreclosure and credit-rating reductions for the seller. Short sales may be prompted by a seller’s inability to make payments, or the property value dropping below the mortgage balance – ‘underwater’ – or possibly both. Short sales are usually initiated by the homeowner, but lender approval is required to proceed. Buyers typically negotiate short sales with sellers, but lender approval is also required to finalize a short sale. Short sales are more complex and may take longer than conventional purchases.
 

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Deed In Lieu’ is a common short-hand term for this situation: a borrower can’t make loan payments, and hands over their deed to the property instead, so that the lender does not have to take the home. The full phrase is ‘deed in lieu of foreclosure’ — they’re surrendering the deed so both parties can avoid the cost and impact of foreclosure. It is faster, generally less expensive for the lender, and generally less damaging to the borrower’s credit. Deed in lieu must be voluntary for both parties. The lender must agree that the deed value meets the loan amount owed – otherwise, they might have the right to seek additional payments through a deficiency judgement. Deed in lieu is typically a last resort, when losing the property has become inevitable.
 

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A foreclosure is essentially a legally-forced change in possession, where a lender seizes collateralized property – such as a home – when a borrower is unable to pay the loan. While laws vary by state, borrowers typically have a ‘period of redemption’ to pay loan, interest and foreclosure costs to avoid losing the property. After this period, the lender can exercise their right to take over ownership of the property that was used as loan collateral, and sell it to recover their loan. The borrower is still responsible for any balance due if the sale price is less than the loan. Foreclosure is complex and costly, and nearly always involves legal proceedings.
 

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In a foreclosure, a lender takes legal possession of collateralized property from a borrower who has not met the financial conditions of the loan. Foreclosure defense is the term for legal strategies to stall or stop foreclosure. Foreclosure defense strategies may include: Modifying mortgage terms in negotiations with the lender. Challenging ownership records; foreclosure requires ‘perfection’ in the chain of title on the property, and errors or lapses in that chain may affect foreclosure proceedings. Challenging promissory notes when loan servicing has been sold; the note may be owned by someone other than the lender. Owner bankruptcy, which may require additional proof of the lender’s right to foreclose. Legal attack on lender business practices in court. As loans, laws and strategies vary by state, legal advice is the best way to understand how foreclosure defense applies to a particular situation.
 

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What is a power of attorney and how does it work? To keep a board game running while one player takes a break, that player could say to another ‘roll the dice and move for me.’ They are granting the second player power to act fully within the game rules. This is basically what ‘general power of attorney’ means in the rules of the legal system – authorization for one person to act legally on behalf of another person. If the player says ‘roll but don’t move’, that would be called ‘limited power’; limited legal power-of-attorney might cover only healthcare decisions, or only property decisions. While some legal jurisdictions accept spoken power-of-attorney decisions like this game-play example, other jurisdictions, or institutions like banks or hospitals, frequently require written or even notarized documents. The person granting this power must have the mental capacity to understand their decision.
 

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Imagine a board game player telling a friend ‘roll for me, but don’t sell anything’. Would the friend continue to roll when the player returned? Probably not. In game terms, they were granting a limited, temporary power to act on their behalf. These two concepts – range of action and effective period – also apply to legal power-of-attorney arrangements. Limiting the range of action — ‘roll but don’t play’ in the game, or ‘healthcare but not financial decisions’ in the legal system, creates limited or ‘special’ power of attorney. An agent granted the right to make any personal or business decision, by contrast, has general power of attorney – it’s like saying ‘roll, play, sell properties, or anything else’ in a game. Here a few common types of power of attorney: Temporary periods of authorization are called temporary power of attorney. Common power of attorney authorizes the agent until the grantor is incapacitated. Durable power lasts beyond incapacitation — ‘play my turn even if I can’t come back’ — while ‘springing’ power of attorney starts with incapacitation — ‘play my piece if I can’t come back.’ Power of attorney can have great impact, and legal advice may be required.
 

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The legal distribution of assets and property left by someone who has died is called ‘probate.’ It is a process of law, involving government and courts, that ensures proper and legal distribution of their assets. Even if the deceased person had a legal will, probate is frequently required. In general, probate involves these steps: If a will exists, it is proven to be legal and valid, with all required signatures, witnesses and other documents. Someone is appointed — by the will, or, it not, by the probate court – to administer estate distribution. Probate-eligible estate property and assets are identified, inventories and appraised. Debts or taxes owed by the deceased are settled. Finally, remaining assets are distributed — by the will, or if no legal will exists, based on state law. When probate is required, most assets cannot be distributed until the process is complete. In the US, probate laws vary by state, and probate is not always necessary.
 

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A will is a written document that defines how your assets will be distributed after you die. Trusts are legal arrangements that involve a separate legal entity to hold and distribute assets — during your life, after your life, or both. As an alternative to wills, trusts frequently provide additional controls and protections over probate, terms, taxes and other legal processes. In simple terms, a will defines what becomes of your assets after you cease to be a legal, living person. A trust sets up a separate legal entity of some sort, with instructions and rules defined to make that trust do what you want it to do with those assets. The trust may have to become the legal owner of assets or properties – including real estate – to be effective at this function. In general, trusts are more complicated than wills, frequently more expensive, but may be able to improve your control over probate and distribution, and to better protect and direct your assets to the purposes you define.
 

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Bankruptcy is a set of legally-defined ways for individuals or businesses to settle debts without full payment, by following rules that govern their assets and financial actions for a period of time. There are two broad types, liquidation and reorganization. Under liquidation, the party in debt agrees that their eligible properties and assets can be taken and sold to pay back debt. Some types of property are exempted. Under reorganization, the party in debt retains their property, but commits to repay some portion of the debt, typically over time. While it provides relief from debt, bankruptcy has serious and long-term effects, affecting credit ratings, the cost of future borrowing, eligibility for financing and purchases, and more. Bankruptcy decisions in the US are Federal. The US Constitution authorizes Congress to establish ‘uniform Laws on the subject of Bankruptcies throughout the United States’. States are allowed to define exempt and non-exempt properties, but they do not make bankruptcy judgements.
 

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When a person or business concludes that meeting their debts is not realistic, they may file for bankruptcy in Federal Bankruptcy court. A bankruptcy filing places an automatic stay on debt-related actions and judgements, including wage garnishment — court-ordered seizure of part of someone’s wages. This temporary stay of financial actions — before the case is actually settled — is the accurate meaning of ‘bankruptcy protection.’ Bankruptcy protection gives the debtor immediate relief from actions, and protection of their assets while the case is being decided. Owed parties cannot start, enforce or appeal actions. The automatic stay generally continues until the case closes, or the debtor receives a discharge. As bankruptcy is Federally administered, bankruptcy protection is very powerful.
 

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