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Appendix 2

Glossary

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341 meeting

The meeting of creditors required by section 341 of the Bankruptcy Code at which the consumer is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors' meeting.

A

ab initio 

A Latin term generally used to describe how something relates back to its beginning or inception. For instance, a contract may be declared void ab initio, which means that, effectively, the contract never existed because it was void from the time of its formation.

acceleration

In lending terms, acceleration is the process by which a lender declares the entire balance of the loan to be payable immediately. This process is governed by the terms of the loan documents. In general, acceleration can only occur after a default by the borrower. Defaults are defined in the loan documents. One example of a default would be failing to make a scheduled loan payment.

actual damages

Actual damages are damages which directly relate to a tortious act or breach of duty. They are damages that can be readily proven to have occurred. For example, medical bills incurred as a result of another person’s negligence (e.g. in an auto accident) are actual damages.

adversary proceeding

A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court.

adverse possession

A means of obtaining title to real property, even against the record owner. This method is defined by statute. In general, in order to claim title to real property via adverse possession, a person must demonstrate possession of a piece of real property that is actual, visible, open, and notorious. Also referred to as “squatter’s rights.” The period of time required to assert adverse possession varies from state-to-state. In Illinois, an individual must make open and notorious use of a piece of real property for a period of 20 years before asserting a claim for adverse possession.

Affidavit of title

An affidavit of title is given by a seller of property to a buyer of property. The affidavit of title explicitly states the potential legal issues involving the property or the seller. In a real estate transaction, an affidavit of title would state that the seller actually owns the property, is not selling the property to anyone else, that there are no liens against the property, and that the seller is not involved in a bankruptcy.

affirmative defense

An argument advanced by a defendant that seeks to introduce new facts that would mitigate or defeat the plaintiff’s claim against the defendant.

ALTA survey

A land survey drawn to the specifications of the American Land Title Association (ALTA). ALTA specifies the data to be shown on the survey and this includes boundary lines, location of the main building including improvements, location of ancillary buildings, the identification of easements (access rights by service companies such as water, gas, telephone, railways and other utilities).

amortization

The paying off of debt in regular installments over time. The amortization schedule for a mortgage loan will display the monthly payment over the lifetime of the loan and will often display how payments are applied to principal and interest over the lifetime of the loan.

answer

An answer is a legal document submitted in a lawsuit. It is part of the pleadings and is submitted by a defendant in response to a plaintiff’s complaint. In the answer, the defendant either admits or denies the allegations in the plaintiff’s complaint. The defendant also asserts its affirmative defenses in its answer.

appellate court

Although the name of appellate courts may vary from jurisdiction to jurisdiction, they all serve the same function in our judicial system. Appellate courts review the rulings of lower courts and determine whether those rulings should be upheld, overturned, or remanded back to the lower court with instructions regarding the application of the law.

APR

APR stands for annual percentage rate. It represents the interest rate for a whole year as applied to loans, mortgage loans, credit cards, etc. Methods of calculating APR vary. In the United States, the calculation and disclosure of APR is governed by the Truth In Lending Act. In general, APR in the United States is expressed as the periodic interest rate times the number of compounding periods in a year, and also includes fees. The Office of the Comptroller of the Currency has made an APR calculator available at: http://www.occ.gov/tools-forms/tools/compliance-bsa/aprwin-software.html (last visited May 9, 2012).

ARM

Adjustable Rate Mortgage. This type of mortgage begins with a low interest rate (also known as a “teaser rate”). After a period of time (typically 3, 5, or 7 years), the interest rate adjusts to a new interest rate. The method of calculating the adjusted interest rate is defined in the loan documents. In general, the adjusted rate is calculated by adding a fixed percentage to an industry-recognized standard, such as the London Inter-Bank Offer Rate (LIBOR).

arrears

Arrears are the past-due payments on a loan, including late fees and other charges. If a borrower is behind $100 on his loan payments, and there are late fees of $25 also due, the total arrears would be $125.

Article 3

Article 3 of the Uniform Commercial Code is the section of the Code that establishes the law regarding negotiable instruments like promissory notes and personal checks.

Article 9

Article 9 of the Uniform Commercial Code is the section of the Code that establishes the law regarding the sale of security interests.

attorney-client privilege

Attorney-client privilege is a fundamental legal concept that allows clients to communicate with their lawyers without fear that their statements will later be used against them. This privilege generally only applies if the communication between the attorney and client is truly private. A statement made by the client to the attorney in a closed room with nobody else present is covered by the privilege. A statement made by the client to the attorney in a crowded train station is likely not covered by the privilege.

assignment

A legal document that transfers an interest in a right or property from one to another.

automatic stay

An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the consumer the moment a bankruptcy petition is filed.

B

balloon payment

A balloon payment is a large final payment due on a loan. This payment tends to be much larger than the monthly loan payment. Many modern loan modifications include a balloon payment at the end of the loan. This is because the past-due payments (arrears) are tacked on to the end of the modified loan’s payment schedule.

bankruptcy

A legal procedure for dealing with debt problems of individuals and businesses.

Bankruptcy Code

The informal name for title 11 of the United States Code, the federal bankruptcy law.

bankruptcy court

The bankruptcy judges in regular active service in each district; a unit of the district court.

bankruptcy estate

All legal or equitable interests of the consumer in property at the time of the bankruptcy filing. (The estate includes all property in which the consumer has an interest, even if it is owned or held by another person.)

bankruptcy fraud

Bankruptcy fraud is a federal crime. The most common type of bankruptcy fraud is the concealment of assets. When a consumer files a bankruptcy petition, he certifies that the information in the petition is accurate and complete. Concealment of assets occurs when the consumer knowingly omits assets from his petition to avoid their inclusion in the bankruptcy estate.

bankruptcy judge

A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.

bankruptcy petition

The document filed by the individual that begins the bankruptcy case.

binding authority/precedent

Legal precedent is binding when the court issuing a written ruling is “superior” to another court. For example, rulings issued by the United States Supreme Court are binding authority nationwide. However, a ruling issued by the Illinois Appellate Court is only binding on courts in the issuing court’s district and is not binding on the Illinois Supreme Court.

blank indorsement

A blank indorsement is an indorsement on a negotiable instrument that does not specify an individual or entity to who the instrument is being transferred. In a foreclosure context, foreclosing lenders will frequently present blank indorsed promissory notes to demonstrate that they are the proper owner of the debt. An individual or entity in possession of a blank indorsed instrument is known as a “holder.”

bundle of rights

A term used to help explain the complexity of real property ownership. A person who owns a piece of real property is described as having a bundle of rights or a “bundle of sticks.” This concept is designed to demonstrate that there are many rights which attach to real property. It is also used to illustrate the idea that a specific action against a piece of real property may only involve some of the rights in the bundle. For example, if a land owner leases his land to another person, the lessee has been granted specific rights from the bundle (e.g. the right to be in possession of the property), but not all of the rights (e.g. the right to sell or otherwise encumber the property). 

C

certified mail

Certified mail is a service offered by the United States Postal Service. It requires that the recipient sign a green card that acknowledges receipt of the letter or package. Certified mail generally cannot be delivered to a post office box.

chancery

In Illinois, courts of equity are part of the Chancery Division of Illinois’s Circuit Courts. Mortgage foreclosures, mechanic’s lien foreclosures, and other cases that invoke the court’s equitable powers are heard in the Chancery Division.

chapter 7

The chapter of the Bankruptcy Code providing for "liquidation,"(i.e., the sale of a consumer's nonexempt property and the distribution of the proceeds to creditors.)

chapter 13

The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a consumer to keep property and pay debts over time, usually three to five years.)

chain of title

In a real property context, chain of title is a fundamental concept that makes our system of real property ownership work. Quite simply, it describes the succession of ownership to a specific piece of real property. In the context of negotiable instruments, chain of title is often used to refer to each individual or entity that has held a possessory interest in the negotiable instrument.

claim

A creditor's assertion of a right to payment from the consumer or the consumer’s property.

closing

In real estate terms, a closing is the last step in a real estate transaction. At a closing a buyer executes a mortgage, note, and other documents and disclosures as required by state and federal law. This generally takes place at a title company. Loan refinances and home purchases both require a closing to complete the transaction.

closing costs

In real estate terms, closing costs are the costs associated with completing a real estate transaction. Depending on how the transaction is structured, a buyer or seller may have to bring cash to the closing to satisfy the closing costs. In some transactions, the closing costs are built into the loan’s principal balance.

common law

Common law refers to the English and American systems of law that is developed over time by the court system. Common law, by its nature, is not defined by a statute, but may be defined in various treatises like the Restatements of Law. The common law of contracts, for example, is compiled in the Restatement of the Law of Contracts, Second.

compensatory damages

See actual damages.

complaint

The document filed to begin a lawsuit. A complaint sets forth facts and legal claims supported by those facts. It is also referred to as a pleading.

concealment

In a bankruptcy context, concealment is generally a debtor’s purposeful omission of assets and liabilities from the bankruptcy petition’s schedules. In general, concealment is an effort to make more difficult the discovery of something that one is legally obligated to reveal.

condition precedent

A legal term of art that describes an action or event that must occur before a lawsuit can be filed. In a mortgage foreclosure context, lenders must notify borrowers that their loan is in default, that the lender intends to accelerate the debt, and that the lender may choose to proceed with a foreclosure before the lender can file a foreclosure lawsuit.

confirmation of plan

Bankruptcy judge's approval of a payment plan in chapter 13.

confirmation of sheriff’s sale

In Illinois, a sheriff’s sale is not final, and a foreclosure case is not closed until the sheriff’s sale is confirmed by a judge. This is codified in the Illinois Mortgage Foreclosure Law at 735 ILCS 5/15-1508.

consent foreclosure

In Illinois, a consent foreclosure is a statutory remedy codified at 735 ILCS 5/15-1402. In a consent foreclosure, the homeowner consents to a judgment of foreclosure being entered against him, and to title vesting immediately in the foreclosing lender. In exchange, the lender agrees to waive any deficiency judgment to which it may be entitled.

consumer

We avoid using the term “debtor.” You can find out why here. In our use, a consumer is any individual citizen who is seeking assistance with debt.

consumer debts

Debts incurred for personal needs. These cannot be debts incurred for business needs.

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau is a federal agency established by the Dodd-Frank Act. It has primary responsibility for promulgating rules and regulations that implement the nation’s consumer protection laws.

consumer fraud

Consumer fraud is the use of unfair or deceptive business practices. In Illinois, consumer fraud is prohibited by the Illinois Consumer Fraud and Deceptive Business Practices Act. At the federal level, the Fair Trade Commission Act prohibits the same conduct.

contested matter

Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding.

contract

A contract is an agreement between two or more parties where the parties exchange mutual obligations. A contract is a promise or set of promises for which there is a remedy at law in case of a breach of those promises. Contracts can be both written and oral.

co-signer

An individual who signs a legal instrument along with one or more individuals. For example, when a parent and child both sign student loan documents, the parent is generally referred to as the co-signer.

counterclaim

A counterclaim is a lawsuit brought by a party to an existing lawsuit within that lawsuit. For example, If A sues B, and B then asserts claims against A, B’s claims are referred to as counterclaims. In Illinois, a counterclaim may also be brought by two parties on the same side of the lawsuit. For example if A sues B and C, and then B asserts claims against C, it is called a counterclaim even though B and C are both defendants relative to A.

credit bureau

This term generally refers to the three major credit reporting bureaus, Equifax, TransUnion, and Experian. Their credit reporting behavior is regulated by the Fair Credit Reporting Act (FCRA).

credit counseling

Generally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual consumers must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual consumer must complete before a discharge is entered. There are exceptions to both requirements for certain categories of consumers, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

creditor

One to whom the consumer owes money or who claims to be owed money by the consumer.

creditors' meeting

This is the “meeting of the creditors” and is also known as the 341 meeting

credit report

A credit report is a report generated by a credit reporting bureau. It lists positive, negative, and neutral accounts held by a specific individual. Credit reports are generally used in determining whether a lender will extend a loan to a specific borrower.

current monthly income

The average monthly income received by the consumer over the six calendar months before filing of the bankruptcy case, including regular contributions to household expenses from other individuals and income from the consumer's spouse if the petition is a joint petition. This does not include social security income and certain other payments made because the consumer is the victim of certain crimes.

D

debt collector

As defined by the Fair Debt Collection Practices Act (FDCPA), a debt collector is an individual or entity that attempts to collect debts on behalf of a creditor, but does not identify itself as the creditor. For example, if Bob’s Discount Stereo Hut hires Kneecapper’s Collection Agency to collect its delinquent store accounts, then Kneecapper’s is a debt collector under the FDCPA. If Bob’s attempts to collect its debts directly, it is not a debt collector under the FDCPA.

debtor

A person who has filed a petition for relief under the Bankruptcy Code. We do not like to use this term. We explain why here.

deceptive act or practice

In a consumer fraud context, a deceptive act or practice is any undertaking which has a likelihood to confuse or deceive a reasonable person. The Federal Trade Commission defines a deceptive act or practice as “a representation, omission, or practice that is likely to mislead the consumer.” [i]

deed

A deed is a written instrument that transfers an interest in land from the grantor to the grantee. The main function of a deed is to pass title to land.

deed in lieu of foreclosure

A deed in lieu of foreclosure is a specialized transfer of property from a borrower to a lender. In Illinois, it is a statutory remedy codified at 735 ILCS 5/15-1401. In Illinois, the deed in lieu of foreclosure allows a borrower to deed his home to the lender. In turn, the lender agrees to waive any deficiency judgment it may be entitled to collect from the borrower.

deed of trust

In title-theory states, a deed of trust is used in place of a mortgage. A deed of trust vests title in a piece of land in the name of a third-party trustee.

default order

A default order is entered when a defendant fails to file an appearance or answer within a specific amount of time. A default order merely finds the defendant in default and does not function as an enforceable judgment against the defendant.

default judgment

A default judgment is entered after, and sometimes in conjunction with, a default order. In Illinois, a default judgment cannot be obtained without the plaintiff first proving its damages. A default judgment is a final judgment and can be enforced against the defaulted defendant.

defendant

An individual (or business) against whom a lawsuit is filed.

deficiency

A deficiency is the difference between the balance of a mortgage loan and the price for which the property sells at a sheriff’s sale. In some states, like Illinois, lenders may pursue borrowers for this deficiency. When this is done, the deficiency amount is reduced to a deficiency judgment.

discharge

A release of a consumer from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. A discharge releases a consumer from personal liability for certain debts and prevents the creditors owed those debts from taking any action against the consumer to collect the debts. The discharge also prohibits creditors from communicating with the consumer regarding the debt, including telephone calls, letters, and personal contact.

dischargeable debt

A debt for which the Bankruptcy Code allows the consumer's personal liability to be eliminated.

discovery

Discovery is an orderly, court-supervised process that allows parties to a lawsuit to request the production of documents, admissions of fact, and responses to interrogatories. Anything that may lead to relevant evidence supporting a claim is discoverable.

down payment

In a real estate context, a down payment is the amount of money that a purchaser pays up front to secure a contract for the purchase of a piece of property. Traditionally, a down payment on a home is 20% of the home’s purchase price.

E

eminent domain

Eminent domain is the power of the state or other governmental body to take private property for public use. The state must compensate the land owner for any land taken. Obtaining the land needed for airports and interstate highways is often done via eminent domain.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act (ECOA) is codified at 15 U.S.C. §1691 and makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age.

equitable contract

An equitable contract is created when an individual or entity relies on the representations of another individual or entity to its detriment, and that reliance is reasonably foreseeable by the other party. This is also known as a quasi-contract or promissory estoppel. In a consumer defense context, this is most often seen when a home owner is placed into multiple, successive trial loan modifications, with a promise that a permanent offer will be made if certain conditions are met.

equitable mortgage

In Illinois, an equitable mortgage is created when a deed appears to secure a debt, even if no actual mortgage is executed. Illinois courts look to many factors to determine whether an equitable or constructive mortgage exists, but one of the main factors is the intention of the parties.

equity

1. The value of a consumer's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)

2. See chancery.

escrow

A fund of money held in a specific account for a specific purpose. In a real estate context, some home owners choose to make monthly payments into an escrow account in order to save funds to pay property taxes and insurance premiums.

eviction

Also known as forcible entry and detainer, an eviction is a legal proceeding where a land owner seeks to terminate an individual’s possession of a piece of real property. In Illinois, landlords are not allowed to perform “self-help” evictions. This means that a landlord seeking to evict a tenant must file a lawsuit and obtain a court order to do so.

exemptions, exempt property

Certain property owned by an individual consumer that the Bankruptcy Code or applicable state law permits the consumer to keep from unsecured creditors. The availability and amount of property the consumer may exempt depends on the state the consumer lives in.

F

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) regulates the activities of creditors and the credit reporting bureaus. Entities like Equifax, Experian, and TransUnion are examples of credit reporting bureaus governed by the FCRA. It is codified at 15 U.S.C. §1681 et. seq.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is a federal law that regulates debt collectors and their debt collection activities. It was designed to protect consumers from abusive and deceptive debt collection practices. It is codified at 15 U.S.C. §1692 et. seq.

Federal Deposit Insurance Corporation

The Federal Deposit Insurance Corporation (FDIC) was created by the Glass-Steagall Act of 1933. It is a government corporation that provides deposit insurance, guaranteeing the safety of deposits in member banks, up to $250,000.00 per depositor. The FDIC has regulatory authority over banks and takes failed banks into receivership. An FDIC receivership typically results in either the liquidation of the failed bank or in the purchase and assumption of the failed bank by another bank.

Federal Trade Commission

The Federal Trade Commission (FTC) was established in 1914 by the Federal Trade Commission Act. Its primary purpose is to protect consumers from unfair and deceptive business practices. It also regulates corporations, and is designed to prevent harmfully anti-competitive business practices such as monopolies. When the FTC identifies a business or industry that is behaving badly, it will often force that business or industry into a consent decree. FTC consent decrees generally last for tens of years and require the subject business or industry to submit to heavy regulatory scrutiny.

fee simple

Fee simple is a type of an estate in land. In the United States, the vast majority of deeds convey a fee simple interest in the land. Generally, a fee simple interest in land allows the owner to convey the land to another person with no restrictions.

force-placed insurance

Force-placed insurance is a practice where a mortgage lender or servicer purchases insurance for a property when the borrower fails to maintain homeowner’s insurance or does not have adequate homeowner’s insurance. There has been a large amount of concern related to banks abusing this ability, in particular because force-placed insurance is generally more expensive than regular homeowner’s insurance. The cost of the force-placed insurance is passed along to the borrower, which can cause a monthly mortgage payment to skyrocket.

foreclosure

Foreclosure is the process by which a bank repossesses a piece of real property due to a borrower’s default on a loan secured by the property. In Illinois, this process is governed by the courts and is known as a judicial foreclosure. In some states, there is no judicial process. In those states, the process is called non-judicial foreclosure.

fraud

At common law, fraud is the false representation of an existing, material fact, with the speaker’s knowledge of the falsity and his intention that the statement be relied upon by others who are unaware of the falsity and are subsequently injured by that reliance. For example, if Bob tells Anna that his car is in 100% working order (knowing that its engine will require extensive repairs to run) in order to convince Anna to purchase the car, then if Anna relies on Bob’s statement and purchases the car, Bob has likely committed fraud.

free house

There is no such thing as a free house. This term is often used by creditors and their attorneys to describe a person who is defending his home against foreclosure. “All he wants is a free house.” There are no free houses – if someone tells you they can get you a free house based on mortgage irregularities or any other theory, that person is either seriously misguided or lying.

G

good faith and fair dealing

This phrase is a legal concept associated with contracts and business relationships. The implied covenant of good faith and fair dealing applies to all parties to a contract and assumes that they will be honest and fair to each other so that all parties can enjoy their rights under the contract.

Good Faith Estimate

A good faith estimate (GFE) is a disclosure required by the Real Estate Settlement Procedures Act. It is to be given to a borrower by a mortgage lender or broker when a borrower is purchasing a home or refinancing a loan. The GFE includes an itemized list of the costs and fees associated with the loan and must be provided within three days of the borrower applying for the loan.

guarantor

A person or entity that has provided a guarantee. In a real estate context, guarantor refers to a person or entity that has guaranteed a loan’s repayment on behalf of a corporation or another person. This is most often seen in commercial real estate loans, where a corporation is purchasing a piece of property.

H

Hardest Hit Fund

The Hardest Hit Fund was established by the United States Treasury in February 2010. It is designed to provide targeted relief to the states most affected by the economic crisis.

holder

A holder is an individual or entity that is in lawful possession of a negotiable instrument or other commercial paper, like a check, and who is entitled to payment on the instrument. A promissory note is another kind of negotiable instrument, and only the lawful holder of the promissory note may demand payment on the note.

holder in due course

A holder in due course is a holder who has taken lawful ownership of commercial paper who has taken it for value (e.g. paid cash) in good faith, and without notice of any claim against the instrument or that it has been dishonored (e.g. payment refused).

Home Affordable Modification Program

The Home Affordable Modification Program (HAMP) is likely the best-known and most-maligned program included in the Making Home Affordable program. It is designed to encourage lenders to enter into loan modifications with borrowers, thus preventing foreclosures. The program has undergone significant modifications since its inception, but is generally viewed as an underperforming program.

home equity line of credit

A home equity line of credit (HELOC) is a very common form of second or third mortgage taken out against residential real estate. Instead of taking a large sum of money against the home’s equity up front, a HELOC operates as a line of credit upon which the homeowner can draw up to a set limit. These loans tend to have a variable interest rate. Homeowners may draw funds from the line of credit during the loan’s draw period (usually 5 to 25 years). There are generally monthly payments that may be “interest only” payments. This means that the monthly payment only pays the accrued interest and does not reduce the principal balance. During the real estate boom of the early 2000’s, some borrowers purchased homes with 100% financing, where 80% of the purchase price was supported by a mortgage and the other 20% was supported by a HELOC that was already drawn to its limit.

homestead rights/homestead exemption

In Illinois, the homestead right or exemption is a statutory right that was originally designed to protect spousal rights to a piece of land. It currently functions as an exemption to which a judgment lien cannot attach. Each spouse is entitled to a specific exemption amount which cannot be pursued by a judgment creditor. The amount is currently $15,000.00 per person.

Housing and Urban Development, Department of

The Department of Housing and Urban Development (HUD) became a Cabinet department in the Executive branch of the federal government in 1965. HUD’s mission is to create strong, sustainable communities, and to prevent discrimination in the housing and rental markets. HUD also engages in community planning and development activities. It also oversees the Government National Mortgage Association (Ginnie Mae).

HUD-1

The HUD-1 is the standard settlement statement form used in real estate closings. The HUD-1 itemizes all closing costs and fees. Borrowers can compare their Good Faith Estimate to the HUD-1 and ask for an explanation of any changes.

I

Illinois Mortgage Foreclosure Law

The Illinois Mortgage Foreclosure Law (IMFL) is the section of the Illinois Code of Civil Procedure which governs the mortgage foreclosure process in Illinois. It is codified at 735 ILCS 5/15-1101 et. seq.

indorsement

An indorsement is a signature placed on an instrument or piece of commercial paper. To be a valid indorsement, the indorsement must be effective to transfer the entire instrument.

in personam

A Latin phrase meaning “against the person.” It is used to define specific types of claims that are brought against a person in a lawsuit. It is also used to describe a court’s jurisdiction over the person.

in rem

A Latin phrase meaning “against the thing.” It is used to define claims that are brought against things like cars, houses, tracts of land, sums of money, etc. When a state seeks to seize an asset pursuant to its drug-related forfeiture laws, it must file an in rem claim against the asset it wishes to seize.

insolvent

A financial condition wherein a person or entity is unable to pay debts as they come due in the ordinary course of business, or a person or entity whose liabilities exceed assets at a given time.

interest rate

A loan’s interest rate is the amount charged, reflected as a percentage of the principal balance, by a lender to a borrower for the use of assets. Borrowers who are considered to be a lower risk are generally charged a lower interest rate than those considered to be higher risk.

insider (of individual consumer)

Any relative of the consumer or of a general partner of the consumer; partnership in which the consumer is a general partner; general partner of the consumer; or a corporation of which the consumer is a director, officer, or person in control. In a bankruptcy context, debt repayments to insiders made shortly before a bankruptcy filing may be unwound by the bankruptcy trustee.

interrogatories

Interrogatories are a type of discovery request. They are used to ask questions of a party to a lawsuit. For example, “State the date on which you came into possession of the subject note,” may be a useful interrogatory in a mortgage foreclosure lawsuit where the plaintiff is not the original lender, but an entity asserting its right to sue because it is the holder of an indorsed note.

investment property

An investment property is generally a piece of real estate that is not the owner’s primary residence. Many investment properties contain multiple dwelling units, which the investor will rent out to support the property’s mortgage and ultimately make a profit. Investment properties may be treated differently by various state and federal laws regulating mortgage lending and foreclosures.

J

joint petition

One bankruptcy petition filed by a husband and wife together.

Joint tenants

A joint tenancy is a means of holding title to land. It vests title in two or more persons who have co-equal rights and interests in the property. A joint tenancy includes a right of survivorship. When one joint tenant dies, his or her interest in the property fully vests in the other joint tenant or tenants. If one joint tenant sells or conveys his or her interest in the property, the joint tenancy is destroyed and the remaining joint tenants become tenants in common with the new party.

judgment creditor

A judgment creditor is any individual or entity with a money judgment against another individual or entity. If Steve sues Alice for breach of contract and obtains a $5,000.00 judgment against her, then Steve becomes Alice’s judgment creditor.

judgment lien

In Illinois, a judgment lien is a lien that can be placed on a piece of real property. This lien will most likely be a junior lien to any mortgages or other liens already filed against the property. However, in order for the lien to be extinguished, the judgment must be satisfied and the lien released. This means that before the property can be sold, the judgment lien must be satisfied.

judgment proof

This phrase describes an individual or entity that is financially insolvent. If a judgment is obtained against such an individual or entity, collecting the judgment will be extremely difficult, if not impossible.

judicial foreclosure

In Illinois, the foreclosure process is handled by the court system. A judicial foreclosure is one that is handled by the court system. States that do not have a judicial process for foreclosures are called non-judicial foreclosure states.

junior mortgage/lien

This term is used to describe mortgages or other liens that are “next in line” after the primary or senior mortgage or lien. For example, if Bob purchases a home by taking out a mortgage loan against the property, that mortgage is the senior mortgage. When Bob then takes out a home equity line of credit to pay for roof repairs, the line of credit becomes a junior mortgage, subject and subordinate to the senior mortgage.

jurisdiction

Jurisdiction is a court’s power to hear cases and assert its authority over people, entities, and things.

L

laches

Laches is an equitable defense to a claim that argues an undue lapse of time has passed since the claim arose and that the plaintiff was negligent in not pursuing the claim earlier.

legal description

A legal description is a specialized way of describing a specific parcel of land. They are often based on metes and bounds, lot and block surveys, or other systems. A legal description is the written statement that identifies the property.

lien

The right to take and hold or sell the property of a consumer as security or payment for a debt or duty. Common liens include automobile loans, mortgages, and mechanic’s liens.

Lien theory

Lien theory describes states where a mortgage exists as a lien against a piece of real property. The borrower/homeowner retains legal title to the property. In general, lien theory states are also judicial foreclosure states.

liquidation

A sale of a consumer's property with the proceeds to be used for the benefit of creditors.

liquidated claim

A creditor's claim for a fixed amount of money.

liquidated damages

Liquidated damages are an amount stipulated in a contract which the parties agree are a reasonable estimation of the damages owed from one party to another in the event of a breach of the contract.

loan application

A loan application is the document a prospective borrower submits to a lender to be considered for a loan. It generally lists the borrower’s income, assets, and liabilities.

loan modification

A loan modification is an agreement between a borrower and a lender which modifies the terms of the loan. Lenders are under no obligation to modify loans. Since the beginning of the financial crisis, the federal government has made efforts to encourage loan modifications as an alternative to foreclosures.

loan to value ratio

The loan to value ratio (LTV) is a useful tool for determining whether equity exists in a piece of real property. It is also useful for evaluating whether saving a specific piece of property makes financial sense. If a property has a loan balance of $300,000.00 and it has a market value of $200,000.00, then it has an LTV of 1.5.

London Interbank Offered Rate

The London Interbank Offered Rate (LIBOR) is the average interest rate that leading banks in London charge when lending to other banks. This is a common index used for calculating the interest rate of adjustable rate mortgages.

loss mitigation

Loss mitigation is a phrase used to describe attempts to avoid foreclosure or to minimize the impact of a foreclosure. Loan modifications, consent foreclosures, deeds in lieu of foreclosure, and short sales are all types of loss mitigation.

M

maker

In a commercial law context, a maker is an individual or entity who executes a promissory note and thus promises to repay the amount due under the note.

Making Home Affordable

Making Home Affordable (MHA) is a program created by the Financial Stability Act of 2009. It is an official program of the Department of the Treasury and the Department of Housing and Urban Development. MHA includes many sub-programs, the most famous of which is the Home Affordable Modification Program (HAMP).

means test

Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual consumer's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code. Abusive filings are either dismissed or converted to Chapter 13 cases (with the consumer’s consent.) If a consumer fails the means test, other factors are considered to determine whether the filing is abusive. The consumer may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.

motion

A motion is a specialized application to the court that requests an order or rule to be issued in the moving party’s favor. Most motions are founded on a specific section of the state or federal rules of civil procedure. Typical types of motions are motions to dismiss, motions for summary judgment, and motions to compel discovery.

mortgage

A legal instrument that secures a loan against a piece of real property. In Illinois, this interest is represented as a lien against the title of a piece of real property.

mortgage-backed security

A mortgage-backed security (MBS) is a specialized financial instrument. A MBS is a pool of mortgage loans that has been placed into a trust and then sold in “strips” as securities. Traditionally, a MBS was a safe, long-term investment vehicle that was used by pension funds and other investment funds for stable, long-term growth.

mortgagee

The mortgagee is the party lending money in a mortgage loan transaction.

mortgage insurance

An insurance policy that protects a mortgage lender or title holder in the event that the borrower defaults on payments, dies, or is otherwise unable to meet the contractual obligations of the mortgage.

mortgagor

The mortgagor is the party borrowing money in a mortgage loan transaction.

motion to lift the automatic stay

A request by a creditor to allow the creditor to take action against the consumer or the consumer's property that would otherwise be prohibited by the automatic stay.

N

Negotiable instrument

A specific type of commercial paper that is a writing, signed by the maker, which contains an unconditional promise to pay a sum certain in money, is payable on demand or at a definite time, and is payable to order of a named party or bearer. Personal checks and promissory notes are two types of negotiable instruments.

negotiation

In commercial law, negotiation is the process by which a negotiable instrument is passed from one owner to the next. For promissory notes, this involves indorsement and delivery of the original instrument.

nemo dat, rule of

The rule of nemo dat is based on the Latin phrase, “nemo dat non quod habet,” which means, “no one gives what he doesn’t have.” It is used to express the concept that a person who does not have title to a piece of property cannot convey anything to another person, leaving the purchaser without any title to the piece of property.

no-asset case

A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.

No income no asset

A no income no asset loan (NINA) is a type of loan that was very popular during the housing bubble of the early 2000’s. Mortgage brokers would submit loan applications based solely on the borrower’s credit score and not disclose any income or assets to the lender. These loans are no longer allowed and have become to be known as “liar loans.”

nondischargeable debt

A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the consumer's conviction of a crime.

non-judicial foreclosure

States that do not require a lender to file a lawsuit to foreclose on a mortgage are called non-judicial foreclosure states.

note

See also promissory note

nunc pro tunc

A Latin phrase which means “now for then.” In a legal context, courts will sometimes issue orders nunc pro tunc. These orders correct the court record and operate as if the correction had always been operative.

O

objection to dischargeability

A trustee's or creditor's objection to the consumer being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the consumer's fraud while acting as a fiduciary.

objection to exemptions

A trustee's or creditor's objection to the consumer's attempt to claim certain property as exempt from liquidation by the trustee to creditors.

obligor

One who has promised to perform a specific act or pay a sum of money pursuant to a contract.

Office of the Comptroller of the Currency

The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Treasury that was established by the National Currency Act of 1863. It charters, regulates, and supervises all national banks as well as the federal branches and agencies of foreign banks in the United States.

order

An order is issued by a judge and can have many operative effects. Some orders merely set cases over to a new date, others may dismiss a case, impose sanctions, or otherwise direct parties to act.

originator

In a mortgage lending context, the originator is the entity that works with a borrower to complete a mortgage transaction. A mortgage originator can be a mortgage broker or a mortgage banker. Either party would be considered the original lender on the mortgage.

P

party in interest

A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The consumer, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.

payday loan

Payday loans are loans designed to be short-term loans, often being paid off in a matter of days or weeks. However, these loans also charge amazingly high interest rates. Many consumers are unaware of this fact because the interest rate is not disclosed and is expressed as a flat fee due at the time of repayment. These loans are often self-perpetuating. A borrower will pay back a loan on his or her next payday, then need another payday loan to have money until the next paycheck arrives. These loans are best avoided.

payee

A payee is the person or entity to whom a promissory note is payable. If Bob writes a personal check to Steve, then Steve is the payee of that check.

payment shock

Payment shock is a term used to describe the risks associated with adjustable-rate loans. While some adjustable rate mortgages have low initial payments, these payments can skyrocket when the loan’s interest rate adjusts.

personal guarantee

A personal guarantee is often used in commercial lending. For example, if Dave has a company and wants to have a loan issued to his company, then he may be required to sign a personal guarantee on that loan. This means that if Dave’s company defaults on the loan, Dave will be personally liable for repaying the loan.

persuasive authority

Persuasive authority is a term used to describe legal precedents that are not binding on a specific court. Persuasive authority is often used when a specific jurisdiction does not have similar case law on an issue, or when an attorney seeks to have a court adopt a rule from a different jurisdiction.

Pick A Payment Loans

Pick a payment loans are a specialized type of loan often offered to individuals with bad credit, or to individuals who have non-standard income, like those who are self-employed. They allow borrowers to pick various payment schedules. However, they are also dangerous for the unaware borrower. By only making the minimum payment, many borrowers are surprised when their loan balance begins to climb. This is because many pick a payment loans roll interest into the loan’s principal balance.

PITI

PITI is an acronym that stands for Principal Interest Taxes Insurance. PITI is the total monthly cost of owning real property with a mortgage loan attached to it. Most borrowers have escrow accounts designed to cover property taxes and insurance payments, so most borrowers’ monthly mortgage payments can be expressed as PITI.

plaintiff

A person or business that files a formal complaint with the court.

plan

A consumer's detailed description of how the consumer proposes to pay creditors' claims over a fixed period of time. In an consumer context, these are used in Chapter 13 filings.

points

In a mortgage lending context, points (also known as discount points) represent money paid at loan origination to lower the interest rate on a loan. This means that, in exchange for an up-front payment, the borrower will have lower payments on the loan over its lifetime due to the lower interest rate.

Pooling and Servicing Agreement

A Pooling and Servicing Agreement (PSA) is the legal document that creates a mortgage-backed security trust. It governs how loans become part of the trust, how they are serviced, and what kinds of bonds are issued to investors in the trust.

postpetition transfer

A transfer of the consumer's property made after the commencement of the case.

precedent

A precedent is a rule of law established by a court for the first time in a type of case which is then applied to future cases of the same type. It is a foundational concept of Anglo-American common law.

predatory lending

Predatory lending is a term used to describe deceptive, unlawful, abusive, and discriminatory practices used by some lenders in the loan origination process. There is no official legal definition of the term in the United States, but it is generally defined as the practice of imposing unfair and abusive loan terms on consumers.

preference or preferential debt payment

A debt payment made to a creditor in the 90-day period before a consumer files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the consumer's chapter 7 case.

primary residence

A person’s primary residence is the place where the person normally lives. A vacation home used a few months out of the year is generally not a primary residence. Similarly, an investment property is generally not a primary residence.

principal

In a lending context, principal is the amount borrowed or still owed on a loan, separate from interest. Since interest is calculated from a loan’s principal balance, paying down principal is a good way to save money over the lifetime of a loan.

priority

The Bankruptcy Code's statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full.

priority claim

An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.

private mortgage insurance

Private mortgage insurance (PMI) is often required when a borrower seeks to obtain a mortgage with less than a 20% down payment. It serves to protect lenders in the event that borrowers default on their mortgage payments.

promissory estoppel

Promissory estoppel is an equitable theory also referred to as a quasi-contract theory. Under promissory estoppel, an individual argues that although there was no true contract between two parties, the actions and representations of one party to the other has created a contract. A party claiming promissory estoppel must demonstrate that he or she reasonably relied on the promise made by the other party and that he or she was harmed by that reliance.

promissory note

A type of negotiable instrument where the maker (borrower) agrees to pay a certain sum of money at a specific time.

proof of claim

A written statement and verifying documentation filed by a creditor that describes the reason the consumer owes the creditor money.

property index number

A property index number (PIN) is used to identify a specific parcel of real property.

property of the estate

All legal or equitable interests of the consumer in property as of the commencement of the bankruptcy case.

pro se

Pro se is a Latin phrase meaning “for oneself.” It is used in the law to describe a person who is representing himself or herself in a legal proceeding without the assistance of an attorney. In some states, the term “pro per” is used.

Punitive damages

Punitive damages are a type of damages awarded in some lawsuits. They are not related to actual harm, but are designed to punish a pattern or practice of bad behavior. Punitive damages are rarely awarded by U.S. courts but are available in some situations.

Q

quasi in rem

Quasi in rem is a legal term used to describe specific types of lawsuits and the power or jurisdiction that a court exercises over the case. Actions against a person are “in personam” actions. Actions against property are “in rem” actions. In Illinois, a mortgage foreclosure lawsuit is a quasi in rem action because the action is brought against the homeowner and against the mortgaged property.

quiet title

Quiet title is a specific kind of legal action brought to establish a party’s clear title to a piece of land against all other claimants. It is generally brought to remove liens or other “clouds on title” which may exist in relation to a specific piece of land.

quit claim deed

A quit claim deed conveys property to a person or entity subject to any liens that may exist on the property. Unlike a warranty deed, a quit claim deed contains no guarantees regarding the grantor’s title to the property. When purchasing real estate, it is an immensely bad idea to accept a quit claim deed without fully investigating the title to the land.

R

reaffirmation agreement

An agreement by a chapter 7 consumer to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.

Real Estate Mortgage Investment Conduit

A Real Estate Mortgage Investment Conduit (REMIC) is a specialized type of financial vehicle that was introduced in 1987 and is defined in the U.S. Internal Revenue Code. They are the most popular means of securitizing mortgages into investment pools due to their preferential tax treatment.

Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act (RESPA) is a federal law that was passed in 1974. It is codified at 12 U.S.C. §2601 et. seq. It prohibits kickbacks from lenders to mortgage brokers or other third-parties. It also requires that lenders disclose the costs of a loan via a Good Faith Estimate (GFE) and a final accounting of the loan’s costs on the HUD-1 statement provided to borrowers at the loan’s closing.

recourse

In a mortgage lending context, a recourse state is a state where the law allows a mortgage lender to pursue a borrower for the balance of a mortgage loan. Illinois is a recourse state. Once a property is sold at a sheriff’s sale, the lender has the right to pursue the borrower for any remaining balance due on the loan.

redemption

The process of paying off an accelerated mortgage loan balance. In Illinois, this right is created by statute and has a time limit for its exercise.

red lining

Red lining is a practice where services such as mortgage or other lending are made more costly or are simply denied to an area based on its racial makeup. The practice was once widespread in the United States and is now prohibited by the Fair Housing Act of 1968.

refinance

A refinance loan is a type of loan taken out to restructure an existing mortgage loan. As part of the transaction, the existing loan is paid off and the new loan takes its place. Borrowers often refinance their mortgage loans to extract equity from the property (cashing out) or to obtain a lower interest rate.

reinstatement

The process of curing a default on a mortgage loan. Depending on state laws, this may require the repayment of the missed payments, plus fees and costs. Some rights to redemption may expire over time.

reverse mortgage

A reverse mortgage is a form of mortgage available in the United States. It is available to seniors aged 62 or over and is part of a program regulated by HUD. In a reverse mortgage, the borrower receives the equity in the home up front. The reverse mortgage is not due until the borrower dies, sells the home, or breaches one of the mortgage conditions.

S

sanctions

A type of remedy requested to punish the bad behavior of an opposing party or its attorneys. Typical sanctions are cash sanctions. More extreme sanctions are the dismissal of a case or the entry of judgment in a case.

schedules

Detailed lists filed by the consumer along with the petition showing the consumer's assets, liabilities, and other financial information. See Appendix 3.

secured creditor

A creditor holding a claim against the consumer who has the right to take and hold or sell certain property of the consumer in satisfaction of some or all of the claim. The holder of your home mortgage or auto loan are examples of two types of secured creditors.

secured debt

Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.

securitization

A process by which loans (e.g. mortgage loans, auto loans, credit card debts) are bundled into pools. The pools, which are set up as trusts, issue bonds that represent the right to collect profits generated by the loans. The loans must be “performing” (not in default) in order for a securitization trust to generate wealth for investors.

servicer

A bank or other entity that accepts and processes payments on behalf of the owner of a mortgage loan. Servicers also assess fees and penalties when loans are delinquent.

setoff

A type of claim or defense asserted in response to a lawsuit. A setoff alleges that the amount claimed to be due by the Plaintiff is offset by amounts the Plaintiff would owe to the Defendant.

Sheriff’s sale

In Illinois, a sheriff’s sale is held after the entry of a judgment of foreclosure and sale. After a sheriff’s sale is held, the sale must be confirmed by a judge. Prior to the sale being confirmed, the homeowner retains title to the property.

short sale

A sale of real property where the purchase price is less than the amount the seller owes on his or her mortgage.

special indorsement

A special indorsement is a means of indorsing a negotiable instrument. A special indorsement makes the instrument payable to a specific person or entity. For example, a signature accompanied with the language, “Pay to the order of Bob Smith,” would be a special indorsement making the instrument payable only to Bob Smith.

special right to redeem

A statutory remedy in Illinois, the special right to redeem gives some homeowners one last opportunity to avoid foreclosure. After a sheriff’s sale is conducted, if the winning bidder is the mortgagee or its agent, and if the sale price is less than the redemption value, then the homeowner has the right to pay the mortgagee the sale price, plus fees, costs and statutory interest.

standing

At law, standing is the legal capacity to bring a lawsuit or to assert a claim against another. This means that a party asserting a claim must be the real party in interest, who has a legally recognized claim that can be resolved by a court. For example, if Bob and Steve enter into a contract, both Bob and Steve have standing to assert a claim against the other if he breaches the contract. However, Alice, who is not a party to the contract, will generally not have the standing to assert a claim against Bob or Steve for breach of the contract.

statement of financial affairs

A series of questions the consumer must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a consumer must use.)

statement of intention

A declaration made by a chapter 7 consumer concerning plans for dealing with consumer debts that are secured by property of the estate. This generally involves whether the consumer wants to reaffirm specific debts.

statutory damages

A type of damages that are granted to a successful plaintiff by the authority of a statute. These are generally awarded in addition to actual damages.

stripping

In a bankruptcy context, it is possible to remove or “strip” liens from a piece of real property as part of the bankruptcy process. This is most often done to strip underwater second or third mortgages from a home in a Chapter 13 bankruptcy.

subprime loan

A subprime loan is generally a loan sold to individuals with poor credit scores or limited credit history. During the real estate boom, many borrowers were steered into subprime loans when they qualified for loans with better terms. Subprime loans usually contain features that benefit the bank at the expense of the consumer. For example, a subprime loan may contain a variable interest rate and a prepayment penalty.

summons

A summons is a legal document addressed to the defendant in a lawsuit. It puts the defendant on notice of the lawsuit and states a date on which the defendant must appear in court.

Supreme court

In Illinois and in the federal system, the supreme court is the highest court in the structure. Rulings issued by the Illinois Supreme Court are binding on all courts in Illinois. Rulings issued by the U.S. Supreme Court are binding on all courts in the nation.

T

Tenants by the entirety

A type of tenancy in which a married couple holds land as if both individuals were one person. A tenancy by the entirety includes a right of survivorship – when one spouse dies, the other inherits his or her interest.

Tenants in common

A type of tenancy in which multiple persons or entities each own shares of one piece of property. This type of tenancy contains no right of survivorship, and one tenant in common is permitted to encumber or sell his or her portion of the property without the consent of the other tenants.

title

Having title to something means having the right to possess the thing. In real property, title often refers to the record owner of a piece of land.

title theory state

In a title theory state, the lender retains title to a mortgaged piece of real property. Once the mortgage is paid off, the lender then conveys a deed to the homeowner. Title theory states tend to lack a judicial foreclosure process.

transfer

Any mode or means by which a consumer disposes of or parts with his/her property.

Troubled Asset Relief Program (TARP)

The Troubled Asset Relief Program (TARP) is a U.S. government program that allows the Treasury to purchase distressed assets like mortgage loans.

trust

An entity created by a written instrument. A trust can be used for many purposes. One such purpose would be a mortgage securitization trust, which pools mortgage loans and issues bonds whose value is tied to the performance of the underlying loans.

trustee

The trustee is a private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11 cases. The trustee's responsibilities include reviewing the consumer's petition and schedules and bringing actions against creditors or the consumer to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 13 have similar duties to a chapter 7 trustee and the additional responsibilities of overseeing the consumer's plan, receiving payments from consumers, and disbursing plan payments to creditors.

Truth In Lending Act (TILA)

The Truth In Lending Act is a federal law that was passed in 1968 and requires that lenders give certain standardized disclosures regarding the terms and costs of any credit offered. It is codified at 15 U.S.C. §1601 et. seq.

U

unclean hands

This is an equitable doctrine that states that a party who has done wrong cannot seek an equitable remedy. The defense claims that the party seeking equitable relief has acted in bad faith in relation to the claim being made.

unconscionability

When used in contract law, unconscionability is a defense to the enforceability of a contract. It is generally related to contract terms that are so unfair, they cannot be enforced. There are two types of unconscionability, procedural and substantive.

Procedural unconscionability refers to the conditions of contract formation. It examines the age, intelligence and relative power positions of the parties to a contract. The two main elements of procedural unconscionability are oppression (taking advantage of a disproportionate power relationship) and surprise (hiding terms of a contract from one party).

Substantive unconscionability refers to the unfairness of a contract’s terms. It involves contract terms that are so patently unfair that a court may decline to enforce those terms.

undersecured claim

A debt secured by property that is worth less than the full amount of the debt. If your mortgage is for $600,000 and your home is only worth $400,000, the claim is unsecured.

underwater

A term used to describe a house that is worth less than the balance of the mortgage secured against the house.

Unfair acts and deceptive practices (UDAP)

In addition to the federal prohibition against unfair and deceptive business acts and practices encoded in the Fair Trade Commission Act, most states have their own UDAP statute. In Illinois, our UDAP statute is called the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA). An unfair business practice may be an action like charging excessive fees to cell phone users. A deceptive business practice may be an action such as advertising a sale item, yet not having the sale item in stock. This kind of deceptive practice is also known as a bait-and-switch.

Uniform Commercial Code (UCC)

The Uniform Commercial Code is a set of laws designed to regulate commerce in the United States. The UCC has been enacted in all 50 States. Louisiana has not adopted Article 2 of the UCC, instead preferring to retain its civil system for regulating the sale of goods.

United States trustee

An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties.

unliquidated claim

A claim for which a specific value has not been determined.

unscheduled debt

A debt that should have been listed by the consumer in the schedules filed with the court but was not. Depending on the circumstances, an unscheduled debt may or may not be discharged.

unsecured claim

A claim or debt for which a creditor holds no special assurance of payment. This is credit which was extended based solely upon the creditor's assessment of the consumer's future ability to pay. One primary example would be credit card debt.

V

Voluntary transfer

A transfer of a consumer's property with the consumer's consent.

Y

Yield Spread Premium (YSP)

A yield spread premium is the practice of paying a mortgage broker or loan officer a kickback for steering a borrower into a mortgage loan that will net a higher yield for the lender. In general, the more exotic the loan, the higher the yield spread premium.