Glossary of Distressed Real Estate – B

Back-End Ratio – [See, Debt-to-Income Ratio (“DTI”)]

Balance Sheet – A financial statement showing assets and liabilities of a person or company.  The difference between the assets and liabilities is called “net worth.”

Balloon Payment – A lump sum payment of principal made to the lender.  It may be scheduled in the loan documents or, if the loan permits, by full or partial balloon payments, made at any time the buyer decides to do so.  A “full” balloon payment would be the sum necessary to pay off the entire principal balance of the loan, whereas a “partial” balloon payment would be something less than that.  Most loan documents provide that making a partial balloon payment will not excuse the borrower from continuing to make the remaining regularly scheduled payments of principal and interest.  Frequent partial principal payments, such as every two weeks [rather than monthly] will have the effect of dramatically (a) reducing the total interest paid over the life of the loan, and; (b) accelerating the date the principal loan balance will be completely paid off.

Bankruptcy – A process under federal law whereby a debtor asks the court to take control of their non-exempt assets, if any, liquidate them, and distribute any proceeds to the unsecured creditors in full satisfaction of all of the bankrupt’s liabilities.  This is known as a “Chapter 7 Bankruptcy.” Secured creditors [i.e., those that have “secured” the bankrupt’s repayment obligation by a mortgage or other security document] typically have more protection in bankruptcy because they have the first right to attach and liquidate their security interest in the bankrupt’s assets.  At the moment of filing for bankruptcy, all creditors are strictly forbidden from attempting to secure payment from the debtor without permission of the court.  A Chapter 13 Bankruptcy sets up a payment plan between the borrower and the major creditors to be monitored by the court. Under a Chapter 13, the homeowner is permitted to keep the property, but must make payments according to the agreed-upon terms of the plan within a 3 to 5 year period.

Beneficiary – In trust deed law, the beneficiary is the lender to whom repayment of the loan is to be made.  MERS purports to serve as the “nominal beneficiary” for its member banks.  As of June 1, 2012, the legality of this model is still being litigated in Oregon.  In general law, a “beneficiary” is the person receiving a specified benefit under a trust, will, or some contractual provision.  In a trust agreement, the beneficiary is the person or entity designated to receive some asset, money, or other consideration.

Biweekly Payments – The payment of a loan twice a month.  The effect of this arrangement is to reduce principal sooner, which means that there is less interest charged to the borrower over the life of the loan.  This arrangement also significantly accelerates the ultimate payoff of the entire principal loan balance.

Blanket Mortgage or Trust Deed – A mortgage or trust deed secured by more than one parcel of property.  Frequently, when such an arrangement is established with a lender, the borrower insists upon a “partial release” provision, in order to allow parcels to be released from the lien of the blanket encumbrance as pre-agreed portions of the indebtedness are repaid.

Bona Fide Purchaser – The term “bona fide” is Latin for “good faith.”  A bona fide purchaser (or “BFP”) is one who pays full and fair consideration for a property, acting in good faith, and without notice of any adverse claims against the property.  The law gives certain legal preferences to BFPs when there are competing claims to purchase the same property.

Breach of Contract – The violation of, or failure to perform, the terms of any contract without legal excuse.  Most written contracts provide for legal remedies upon a material breach of the contract.

Bridge Loan – A loan given by a lender for a short period of time.  In the past, bridge loans were frequently given to “bridge” or cover the carrying costs [such as mortgage payments, etc.] for a borrower who had acquired a second residence, but had not yet been able to sell their first home. Bridge loans are less frequent today due to the tightening of credit standards and slowing of home sales.

Broker – An intermediary involved in the sale of a product or service, such as a stock broker, mortgage broker, insurance broker, business chance [or “business opportunity”]broker, or real estate broker.

Broker Price Opinion (“BPO”) – The opinion issued by a licensed real estate broker, concerning the present value of a property for resale purposes.  Banks frequently obtain BPOs from brokers prior to deciding whether to (a) modify a loan; (b) accept the property back in lieu of foreclosure; (c) consent to a short sale; or (d) list bank owned property for a certain price.  BPOs are not “appraisals,” although they may both reach similar conclusions regarding present value. However, in Oregon, appraisals may only be issued by state licensed appraisers.  Technically, BPOs from licensed real estate brokers do not express an opinion of the “fair market value” of a property, but that distinction is generally lost on the public.