Glossary of Distressed Real Estate – U

Underwater – This is an expression used to refer to a condition that exists when the fair market value of one’s real property is less than the current balance of all mortgages and other liens recorded against it. For example, if two mortgages total $300,000 and the property’s present fair market value is $200,000, it is said to be “underwater.”  [See “Negative Equity”]

Underwriting – The process of analyzing a prospective borrower’s loan application to determine their ability to honor the terms of a loan for a specific amount of money upon certain repayment terms. It includes a review of the applicant’s credit history, credit score, employment, net worth, and a determination of the property’s market value compared to the amount sought for the loan.  The final lending decision is made at underwriting, which does not usually occur until late in the real estate transaction, shortly before funding and closing.

Uniform Commercial Code or “UCC”– A set of laws governing commercial [as opposed to real estate] transactions. They are called “uniform” because they were prepared for all states to adopt, and with variances between the states, the have been accepted in all states.  They became necessary in order that commercial law could be applied to interstate commerce.  The UCC is important in foreclosure law because Articles 3 and 9 govern the transfer of the promissory note between successive lenders.

Up-Front Charges – Bank fees charged to a borrower at the time of closing. This includes points, mortgage broker’s fees, pre-paid taxes and insurance premiums, and other charges.