Click on the first letter of the term you wish to
find.
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Abstract (of Title)
A historical summary of all the recorded
transactions that affect the title to the property.
An attorney or a title company will review an
abstract of title to determine if there are any
problems affecting the title to the property. All
such problems must be cleared before the buyer can
be issued a clear and insurable title.
Acceleration Clause
A loan provision giving the lender the power to
declare all sums owing lender immediately due and
payable upon the violation of a specific loan
provision, such as the sale of the property, or the
failure to make loan payments on time.
Example : John sells his property to Mary who takes
over John's mortgage payments. They do not notify
the lender of this transaction. The lender finds out
that the title to the property has transferred and
calls the loan, since the loan documents state that
the loan is due on the sale of the property. John is
now liable to pay his lender in full.
Accretion
The addition to land through natural forces like
wind or water.
Example : deposit of soil carried by a river
Agreement of
Sale
A written signed agreement between the seller and
the purchaser in which the purchaser agrees to buy
certain real estate and the seller agrees to sell
upon terms of the agreement. Also known as contract
of purchase, purchase agreement, offer and
acceptance, earnest money contract or sales
agreement.
Acknowledgment
Formal declaration before a public official
(typically a Notary Public) that one has signed a
document. Required before recording real estate
legal documents, such as a deeds of trust.
Acre
A measure of land equal to 43,560 square feet.
Adjustable Rate
Mortgage (ARM)
Also known as a variable rate mortgage. The interest
rate on these mortgages changes periodically.
Adjustment Period
This is the length of time for which the interest
rate is fixed on an adjustable. Therefore if the
adjustment period is six months, then the interest
rate will remain fixed for six months, after which
time it will adjust.
Amortization
A gradual paying off of a debt by periodic
installments which pay principal and interest.
Annual Percentage
Rate - APR
The effective rate of interest for a loan per year.
This rate is typically higher than the note rate
because it takes into account closing costs. This is
one way to compare loan programs offered by
different lenders. Caution : the APR is sometimes
computed differently by different lenders and can be
misleading.
Appraisal
An opinion or estimate of the value of a property at
a given date.
Arm's length
transaction
A transaction among parties each of who acts in his
or her own best interest.
Example : A transaction between a father and his son
would NOT
be an an Arm's length transaction
Assessment
A local tax levied against a property for a specific
purpose such as street lights.
Assumable Mortgage
A mortgage loan which allows a new home buyer to
take over the obligation of making loan payments
with no change in the terms of the loan. Assumable
loans do not have a due-on-sale clause. The lender
has to be notified and agree to the assumption. The
lender may require the buyer to qualify for the loan
and may charge an assumption fee. The seller should
obtain a written release from the lender stating
clearly that he/she is no longer liable to make
mortgage payments. See also "Subject
To".
Attorney In Fact
One who is authorized to act for another under a
power of attorney which may be general or limited in
scope.
Example : John wants to sell his house but has to be
out of the country for 4 months. John gives
authorization to Mary to sign the grant deed to sell
the property to a buyer. Mary becomes John's
Attorney In Fact.
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Balloon
(payment) Mortgage
Usually a short-term fixed-rate loan which involves
small payments for a certain period of time and one
large payment for the remaining amount of the
principal at a time specified in the contract.
Example : A balloon mortgage for $25,000 has
interest only payments for 5 years at 12% ($250 per
month), with the full principal of $25,000 due and
payable after 5 years.
Bankruptcy
The financial inability to pay one's debts when due.
The debtor surrenders his assets to the bankruptcy
court. An individual typically files for Chapter 7
(all debts wiped out) or Chapter 13 (establishes a
payment plan to pay off debts). A bankruptcy stays
on an individual's credit report for 7 years.
Beneficiary
The person who receives or is to receive the
benefits resulting from certain acts.
Example : The lender is named as the beneficiary on
a mortgage loan.
Example : John has a life insurance policy for
$100,000 with Jane as his beneficiary. Should John
die - Jane will receive the benefits i.e. $100,000.
Binder
Definition #1:
A title insurance binder is the written commitment
of a title insurance company to insure title to the
property subject to the conditions and exclusions
shown on the binder.
Definition #2:
Preliminary agreement, normally secured with earnest
money, between a buyer and a seller as an offer to
purchase real estate.
Bi-weekly Mortgage
A mortgage which requires 1/2 the normal monthly
payment every two weeks. Over the course of the
year, 26 half payments are made which is equivalent
to 13 full mortgage payments. As a result of this
extra payment the loan amortizes much faster than a
loan with normal monthly payments.
Blanket Mortgage
A mortgage covering more than one piece of property.
Example : A developer subdivides a tract of land
into lots and obtains a blanket mortgage on the
whole tract.
Bond
1. A debt instrument in the capital markets. The U.S. government, corporations and
municipalities use bonds to raise money. Bonds can
also be backed by mortgages. The best known bond is
the 30-year treasury bond issued by the U.S.
government.
2. A sum of money given to a court to guarantee
against a loss. For example if there is a lien on a
property, the owner may remove the lien by posting a
bond.
Borrower
(Mortgagor)
One who applies for a loan secured by real estate
and is responsible for repaying the loan (mortgage).
Bridge Loan
An interim loan typically used when the buyer is
unable to sell his/her house but needs money to
close the transaction on the house he/she is buying.
The bridge loan is made on the buyers current
residence to finance the buyers new residence. The
loan is paid off when the buyers current residence
is sold.
Broker
See
Real Estate Broker
or
Mortgage Broker.
Buy Down
Obtaining a lower interest rate (buying down the
rate) by paying additional points to the lender. The
lower rate may apply for the full duration of the
loan or for just the first few years. A buydown may
be used to qualify a borrower who would otherwise
not qualify . This is because a buydown results in
lower payments which are easier to qualify for.
Example : A very popular buydown is the 2-1 buydown.
If the interest rate on the note is 9%, the buydown
results in the rate being 7% (9%-2%) for the first
year, 8% (9%-1%) for the second year, and 9%
thereafter.
Buyers Broker
An agent hired by a buyer to locate a property for
purchase. The broker represents the buyer and
negotiates with the sellers broker for the best
possible deal for the buyer.
Buyers Market
Market conditions that favor buyers i.e. there are
more sellers than buyers in the market. As a result
buyers have ample choice of properties and may
negotiate lower prices. Buyers markets may be caused
by an economic slump or overbuilding.
Bylaws
A set of regulations by which an organization
conducts its business.
Example : A condominium association prepares bylaws
that state the minimum number of owners to conduct a
meeting to decide policies.
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Capital Gains
Profit earned from the sale of real estate. A seller
may defer taxes on the capital gain of his/her
primary residence by buying a higher priced
residence within 2 years.
Cash Flow
The amount of cash derived over a certain period of
time from an income-producing property. The cash
flow should be large enough to pay the expenses of
the income producing property (mortgage payment,
maintenance, utilities, etc.).
Caveat Emptor
A legal term meaning "let buyer beware". The buyer
must examine the property and buy at his/her own
risk.
Example : A property may be offered in an "as is"
condition with no expressed or implied guarantee of
quality or condition.
CC&Rs - Covenants,
conditions, and restrictions.
The basic rules establishing the rights and
obligations of owners of real property within a
condominium, townhouse, PUD, subdivision or other
tract of land. An association is organized for the
purpose of operating and maintaining property
commonly owned by the individual owners. The
association is normally made up of property owners.
Certificate of
Eligibility
The document issued by the
Veterans Administration
to those that qualify for a VA loan which may be
used to buy a house with 0 down. Certificates of
eligibility may be obtained by sending the form
DD-214 to the local VA office along with VA form
1880.
Certificate of
Reasonable Value (CRV)
An appraisal performed by an VA approved appraiser
which establishes the property's current market
value. This value establishes the ceiling on the
maximum VA mortgage loan principal.
Certificate of
Occupancy
Document issued by a local governmental agency that
states a property meets the local building standards
for occupancy and is in compliance with public
health and building codes. This document is normally
required by a lender prior to closing the loan.
Certificate of
Title
An opinion rendered by an attorney as to the status
of title to a property, according to the public
records. This certificate does not the same level of
protection as
title insurance.
Chain of Title
The chronological order of conveyance of a parcel of
land from the original owner to the present owner.
Example : An abstractor can research title to
property going back to the date that the property
was granted to the
United States.
Clear Title
A marketable title, free of clouds and disputed
interests. Most lenders require a clear title prior
to closing.
Closing
1. The act of transferring ownership of a property
from seller to buyer in accordance with a sales
contract.
2. The time when a closing takes place.
Closing Costs
Expenses incurred by the buyer and seller in a real
estate or mortgage transaction. There are two types
of costs : recurring and non recurring.
Non-recurring costs are one time transactional costs
which include
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·
Discount and origination points
·
Lender fees - underwriting, processing, document
preparations, flood certificate, tax service, wire
transfer, courier, etc.
·
Title insurance fees
·
Escrow, attorney or closing agent fees
·
Recording fees
·
Inspection and appraisal fees
·
Real estate brokerage commissions
Recurring fees are costs associated with owning the
property and they recur month after month. These
costs may include hazard insurance, interest,
property taxes, mortgage insurance (PMI), and
association fees. A pro-rated amount of these fees
may have to be paid at closing including
·
Pre-paid interest - interest charges from the date
of closing to the end of the month
·
Property taxes if due
·
Hazard insurance, fire insurance or homeowner's
insurance has to be paid for one year
·
Mortgage insurance (PMI) - may be required if the
loan amount is more than 80% of the value of the
property. In the past a whole year of PMI had to be
paid up front, however in recent years many PMI
companies only require 1-2 months up front. Mortgage
insurance premiums are normally paid every month
with the loan payment
·
Impound account
may need money to be set up for future payments
Cloud on Title
An outstanding claim or encumbrance that, if valid,
would affect or impair the owner's title. Compare
with
clear title.
Commitment
A written document provided by a lender to agreeing
to make a loan on specific terms to a borrower or
builder.
Condemnation
1. Taking private property for a public use with
compensation to the owner under eminent domain. Used
by governments to acquire land for streets, schools,
freeways, etc and by utilities to acquire necessary
property.
2. Declaring a structure unfit for use because of
violations in housing codes or other reasons.
Conditional
Commitment
A written document provided by a lender agreeing to
make a loan provided certain conditions are met
prior to closing.
Condominium
Individual ownership of a dwelling unit and an
individual interest in the common areas and
facilities which serve the multi-unit project.
Construction loan
A short term loan to pay for the construction of
buildings or homes. These loans typically provide
periodic disbursements to the builder as each stage
of the building is completed. When construction is
completed a
take-out
or
permanent loan
is used to pay off the construction loan.
Consideration
Anything of value given to induce another to enter
into a contract. Earnest money deposit on a sales
contract is consideration.
Contingency
Conditions which must be satisfied before the buyer
can close the purchase of a property. Contingencies
are generally outlined in the purchase contract
between the buyer and seller.
Example : The buyer has 14 days to remove the
property contingency under the sales contract. In
this case the buyer has 14 days to inspect the
property and request the seller to perform repairs.
If the buyer is not satisfied with the condition of
the property or if the buyer and the seller cannot
agree on repairs, the buyer may back out of the
contract with no penalty. After 14 days the buyer no
longer has the right to back out with no penalty as
a result of a problem with the condition of the
property.
Contract
An agreement between competent parties to do or not
do certain things for consideration.
Example : To have a valid contract for the sale of
real estate there must be :
1.
an offer
2.
an acceptance
3.
competent parties
4.
consideration
5.
legal purpose
6.
written documentation
7.
description of the property
8.
signatures by principals or their attorney-in-fact
Contract of
Sale
Same as the
Agreement of Sale
Contract sale or
deed
A real estate installment selling arrangement where
the buyer may occupy the property but the seller
retains the title until the agreed upon sales price
has been paid. Also known as an installment land
contract.
Example : John sells Mary a house. Mary has to put
$10,000 and pay $1,000 per month for 24 months,
after which time she will receive title to the
property.
Conventional Loan
Any mortgage loan other than a VA or an FHA loan. A
convention loan may be conforming or non-conforming.
Conveyance
The transfer of title of real from one party to
another.
Co-op - cooperative
An apartment building or a group of dwellings owned
by a corporation, the stockholders of which are the
residents of the dwellings. It is operated for their
benefit by their elected board of directors. In a
cooperative, the corporation or association owns
title to the real estate. A resident purchases stock
in the corporation which entitles him to occupy a
unit in the building or property owned by the
cooperative. While the resident does not own his
unit, he has an absolute right to occupy his unit
for as long as he owns the stock.
Convertible ARMs
Some variable loans come with options to convert
them to a fixed loan based on a pre-determined
formula, during a given time period. For example the
1-year tbill adjustable may be converted to a fixed
during the first five years on the adjustment date.
The means that you could convert during the 13th,
25th, 37th, 49th and 61th months of the loan.
Credit Report
A report detailing a borrowers credit history
including payment history on revolving accounts (eg.
credit cards) and installment accounts (e.g.. car
loan). A credit report also includes information
found from public records including tax liens and
judgements.
Deed
A written document by which title to real property
is transferred from one owner to another. The deed
should contain an accurate description of the
property being conveyed, should be signed and
witnessed according to the laws of the State where
the property is located, and should be delivered to
the buyer at closing.
Deed of Trust
Used in many states in lieu of a mortgage to secure
the payment of a note. In a deed of trust there are
three parties - the borrower, the trustee, and the
lender, (or beneficiary). In such a transaction, the
borrower transfers the legal title for the property
to the trustee who holds the property in trust as
security for the payment of the debt to the lender
or beneficiary. If the borrower pays the debt as
agreed, the deed of trust becomes void. If, however,
he/she defaults in the payment of the debt, the
trustee may sell the property without a court
proceeding.
Deed Restriction
A clause in a deed that limits the use of land.
Example : A deed might require that a road cannot be
built on the land.
Default
Failure to meet legal obligations in a contract -
such as the failure to make the monthly mortgage
payment.
Defective Title
Any recorded instrument that would prevent a
grantor/seller from giving a clear title.
Example : The seller has a contractor lien on the
property that was filed when he/she failed to pay
the contractor for the kitchen remodel. The seller
may obtain clear title by paying the contractor and
removing the lien.
Deficiency Judgment
Personal claim against the debtor when the sale of
foreclosed property does not yield sufficient
proceeds to pay off the mortgages, accrued interest,
legal fees, etc.
Depreciation
Decline in the value of a house due to wear and
tear, obsolescence, adverse changes in the
neighborhood, or any other reason.
Discount Points
Fees paid to a lender to reduce the interest rate.
Documentary Tax
Stamps
Stamps affixed to a deed showing the amount of
transfer tax.
Dower
The rights of a widow or child to part of a deceased
husband's or fathers property.
Downpayment
The amount paid for the purchase of a property in
addition to the mortgage, but not including any
closing costs.
Example : John buys a house for $100,000 and obtains
a loan for $80,000. His downpayment is $20,000.
Due on
Sale
Clause
A clause in the Deed of Trust or Mortgage that
states that the entire loan is due upon the sale of
the property.
Dragnet Clause
A provision in a mortgage that pledges several
properties as collateral. A default in the mortgage
could lead to foreclosure proceedings on any of the
properties in the dragnet.
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Earnest Money
A deposit made by a buyer of real estate towards the
down payment to evidence good faith. This money is
typically held by the real estate brokers or the
escrow company.
Easement
The right to use the land of another for a specific
purpose. Easements may be temporary or permanent.
Example : The utility company may need an easement
to run electric lines.
Eminent Domain
The right of the government or a public utility to
acquire property for necessary public use by
condemnation, with proper compensation to the owner.
Encroachment
A building, a part of a building, or an obstruction
(e.g.. a fence or a wall) that physically intrudes
upon or overlaps into the property of another.
Encumbrance
A legal right or interest in land that affects a
good or clear title, and diminishes the land's
value. It can take numerous forms, such as zoning
ordinances, easement rights, claims, mortgages,
liens, charges, a pending legal action, unpaid
taxes, or restrictive covenants. An encumbrance does
not legally prevent transfer of the property to
another. A title search is all that is usually done
to reveal the existence of such encumbrances, and it
is up to the buyer to determine whether he wants to
purchase with the encumbrance, or what can be done
to remove it.
Equity
Equity=Property Value - Loans/Liens Against the
property.
Equity is typically expressed as a percentage of the
property value.
Equity Sharing
Joint ownership of a property between the
owner/occupant and the owner/investor, that results
in tax advantages for both parties. Upon sale of the
property the joint owners split profits based on the
percentage they own.
Escrow
1. Neutral third party that handles all funds in a
real estate transaction. The buyer puts his deposit
into escrow, the lender funds the loan into escrow.
Escrow pays the real estate brokers commission, pays
off any loans/liens against the property, pays real
estate taxes and any other fees associated with the
transaction and sends the balance of the money to
the seller.
2. Escrow payment - see
impound account.
Escheat
The reversion of property to the state in the event
that the owner dies without leaving a will and has
no legal heirs.
Executor (Executrix
- feminine for Executor)
A person named in a will to carry out its provisions
for the disposition of the estate.
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Federal National
Mortgage Association (FNMA, Fannie Mae)
Purchases loans from lenders, securitizes them and
sells FNMA mortgage backed securities on wall
street.
Federal Home Loan
Bank Board (FHLBB)
Provides financing to farmers.
Farmer's Home
Administration (FmHA)
An agency, within the U.S. Department of
Agriculture, that administers assistance programs
for purchasers of homes and farms in small towns and
rural areas.
Federal Home Loan
Mortgage Corporation (FHLMC, Freddie Mac)
Purchase loans from members of the Federal Reserve
and the Federal Home Loan Bank Systems, securitizes
them and sells FHLMC mortgage backed securities on
wall street.
Federal Housing
Administration (FHA)
An agency within the
U.S. Department of Housing and Urban Development
(HUD)
that administers loan programs, issues loan
guarantees to make more housing available.
Federal Reserve
System
The central federal banking system that regulates
and provides services to member commercial banks.
Also has the responsibility for conducting federal
monetary policy.
Fee Simple (Fee
Absolute or Fee Simple Absolute)
Absolute ownership of real property; owner is
entitled to the entire property with unconditional
power of disposition during the owners life and upon
his death the property descends to the owner's
designated heirs.
Fidelity Bond
An assurance, generally purchased by an employer, to
cover employees who are entrusted with valuable
property or funds.
Example : A landlord employs a clerk who collects
rents. To safeguard these funds during the
collection process, the landlord purchases a
fidelity bond the clerk.
Fiduciary
A person in a position of trust or responsibility
with specific duties to act in the best interest of
a client. A real estate broker is a fiduciary for
his/her clients.
Finance Charge
Interest charged by a lender.
First Mortgage
A mortgage that has priority as a lien over all
other mortgages. In the case of a foreclosure the
first mortgage will be satisfied before other
mortgages. See also
second mortgage.
Fixture
Improvements or personal property attached to the
land so as to become a part of the real estate.
Fixtures are transferred to the buyer upon sale of
the property. To determine whether an item is a
fixture include :
·
Intent (was it intended to be part of the property)
·
How is it fixed ?
·
Is the fixture essential to the property ?
·
Relationship - was the fixture intended to be a part
of the tenant's business ?
Example : John sells his house to Mary. John wants
to take the chandelier because he states it is
personal property. Mary wants the chandelier to stay
because she believes it is a fixture.
Flood Insurance
An insurance policy that covers property damage due
to natural flooding. Flood insurance may be required
on properties in a flood zone.
Foreclosure
(Repossession)
A legal process by which the lender forces a sale of
a property because the borrower has not met the
terms of the mortgage.
Free and clear
A property that has no liens.
FSBO
For sale by owner. A property for sale that is not
listed with a real estate broker.
Fully indexed rate
The fully indexed rate=value of the index + margin.
See
adjustable loans.
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General Warranty
Deed
A deed in which the grantor (seller) agrees to the
protect the grantee (buyer) against any other claim
to title of the property. See also
warranty deed.
Government National
Mortgage Association
(GNMA, Ginnie Mae)
A government agency part of
HUD
that buys VA and FHA loans from lenders, securitizes
them and sells Ginnie Mae securities to investors.
Grantee
That party in the deed who is the buyer or
recipient.
Grantor
That party who is the seller or the giver.
Graduated Payment
Mortgage (GPM)
A mortgage that has lower payments initially (with
potential negative amortization) which increase each
year until the loan is fully amortized.
Grandfather Clause
The clause in a law permitting the continuation of a
use, business, etc., which was permissible but
because of a change in the law is now no longer
permissible.
Hazard Insurance
(Fire Insurance, Homeowner's insurance)
Insurance on a property against fire and other
risks. A homeowner's policy may have additional
coverage for theft, liability, etc. that a fire
insurance policy may not cover.
Homeowners
Association
An association of homeowners in a particular
subdivision, planned unit development (PUD), or
condominium organized to manage the common area of
the development and to enforce the association rules
and regulations.
Homestead
Status provided to a homeowner's principal residence
in some states that protects the home against
judgements up to specified amounts.
Homestead
Exemption
Available in some states - this causes the assessed
value of a principal residence to be reduced by the
amount of the exemption for the purposes of
calculating property tax.
Example : John's principal residence is assessed at
$100,000 and the homestead exemption is $7,000. His
property taxes will be based on $93,000.
Home Warranty Plan
Insurance that covers appliances, heating systems,
etc. Typically purchased at the time of closing.
Housing and Urban
Development
A
U.S.
government agency established to implement certain
federal housing and community development programs.
Housing Code
A local government ordinance that sets minimum
standards of safety and sanitation for existing
residential buildings.
HUD 1
A closing document required by HUD that outlines the
settlement cost of a loan. The closing agent
prepares this document and sends it to the buyer
upon closing.
Hypothecate
To pledge a property as security without having to
give up possession of it.
Improvements
Additions to raw land such as buildings, streets,
etc. that add value to the land.
Impound Account
That portion of a borrower's monthly payments held
by the lender or servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and
other items as they become due. Also known as
reserves.
Income Approach
A method used by an appraiser to estimate the value
of a property based on the income it generates.
Income Property
Real estate that generates rental income. Examples :
apartment buildings, office buildings and shopping
centers.
Index
A statistic that indicates some current economic of
financial condition. Indexes are used to make
adjustments in
variable rate loans.
Ingress and Egress
The right to go in and out over a piece of property
but not the right to park on it. See also
Easements.
Installment
Sale
See
land contract.
Joint and
Several Liability
A creditor can demand full repayment from any and
all of those who have borrowed. Each borrower is
liable for the full debt, not just the prorated
share.
Joint Tenancy
Ownership of a property by 2 or more people, each of
whom has an undivided interest with the right of
survivorship.
Example : John and Mary own a house in joint
tenancy. Each owns half of the entire (undivided)
property. If John dies, Mary will own the entire
property and vice versa.
Judgement
The decision of a court of law stating that one
individual is indebted to another and fixing the
amount of indebtedness. Judgements, when recorded,
become a lien on real property owned by the
defendant.
Judgement Lien
The claim on the property of a debtor resulting from
a judgement.
Jumbo Loan
Loan size that is larger than the limit established
by
Fannie Mae
or
Freddie Mac.
Junior Mortgage
A mortgage subordinate to another mortgage. In the
case of a foreclosure a senior mortgage will be paid
prior to a junior mortgage.
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Kicker
A payment required by a mortgage in addition to
normal principal and interest. Sometimes known as a
participation loan.
Land
Contract
A real estate installment selling arrangement
whereby the buyer may use and occupy land, but no
deed is given by seller until the sales price has
been paid.
Lease with Option
to Purchase
A lease under which the lessee has the right to
purchase the property. The option may run for a
portion or for the full length of the lease
Leasehold Estate
Tenant's right of possession for a specific period
of time under a lease agreement.
Legal Description
Legally acceptable identification of real estate by
one of the following:
·
the government rectangular survey
·
metes and bounds
·
recorded plat (lot and block number)
Lessee
A person to whom property is rented under a lease.
(Tenant)
Lessor
A person who rents property to another under a
lease. (Landlord)
Lien
A claim against the property for the payment of a
debt, judgement, mortgage or taxes.
Example : Unpaid contractors may file a mechanic's
lien.
Life Estate
An estate in real property for the life of a living
person. The estate then reverts back to the grantor
or to a third party.
Lis Pendens
Latin for "lawsuit pending." Recorded notice that
litigation is pending on a property. Most lenders
will require the clearance of the Lis Pendens prior
to closing.
Loan Application
A document required by a lender prior to loan
approval. The application includes detailed
information about the borrower and the property.
Loan origination
fee or points
Charge by a lender or broker connected with
originating a loan. This is different from discount
points which are used to buy down the rate of
interest.
Loan to Value Ratio
(LTV)
The loan amount divided by the value of the
property.
Loan Servicing
The act of collecting loan payments, handling
property tax and insurance escrows, foreclosing on
defaulted loans and remitting payments to the
investors.
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Margin
A fixed number added to the index to compute the
rate on an adjustable rate mortgage.
Marketable Title
Title that is free of liens, clouds and other legal
defects and hence is readily acceptable by a buyer.
Market Value
The highest price that a buyer would pay and the
lowest price a seller would accept on a property.
Market value may be different from the price a
property could actually be sold for at a given time.
Mechanics Lien
The right of an unpaid contractor or subcontractor
to file a lien against property to recover the
amount due to him/her.
Mortgage
A written instrument that creates a lien upon real
estate as security for the payment of a specified
debt.
Mortgage Backed
Security (MBS)
A bond or other financial obligation secured by a
pool of mortgage loans.
Mortgage Banker
Specializes in originating and servicing loans. They
generally sell their loans to investors, but may
continue to service them.
Mortgage Broker
Arranges financing for a borrower by placing loans
with lenders. Mortgage brokers are paid a fee by the
borrower or the lender when a loan closes.
Mortgagee
The lender.
Mortgagor
The borrower.
Mortgage Insurance
See
private mortgage insurance
(PMI)
Mortgage Note
A written agreement to repay a loan. The agreement
is secured by a mortgage, serves as proof of an
indebtedness, and states the manner in which it
shall be paid. The note states the actual amount of
the debt that the mortgage secures and renders the
mortgagor personally responsible for repayment.
Negative
Amortization
An increase in principal balance which occurs when
the monthly payments do not cover all of the
interest cost. The interest cost which is not
covered by the payment is added to the unpaid
principal balance.
Net Effective
Income
The borrowers gross income minus federal income tax.
Non-conforming loan
Loans that do not comply with
Fannie Mae
or
Freddie Mac
guidelines.
Note
A written instrument that acknowledges a debt and
promises to pay.
Notary Public
One authorized to take acknowledgments of certain
types of documents, such as deeds, contracts, and
mortgages.
Notice of default
A letter sent to the defaulting party as a reminder
of the default.
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Offer
An expression of willingness to purchase a property
at a specified price.
Offeree
One who receives the offer. When the buyer makes an
offer to the seller the seller is an offeree.
Offeror
One who makes the offer. When the buyer makes an
offer to the seller the buyer is an offeror.
Office of
Comptroller Currency
The oldest federal financial regulatory body that
oversees the nation's federally chartered banks.
Office of Thrift
Supervision
The OTS charters federal thrift institutions and is
the primary regulator of all federal and many
state-chartered thrift institutions.
Open House
A method of showing a home for sale to prospective
buyers where the home is left open for inspection by
those who may be interested in making a purchase.
Open End Mortgage
A mortgage permitting the mortgagor to borrow
additional money under the same mortgage, with
certain conditions.
Origination Fee
See
Loan Origination Fee.
Optionee
One who receives or purchases an option.
Optionor
One who gives or sells an option.
Oral Contract
A verbal agreement. Verbal agreements for the sale
or use of real estate are normally unenforceable.
Owner of Record
The individual named on a deed that has been
recorded at the county recorders office.
Owner Occupant
A tenant of a residence who also owns the property.
Package Mortgage
Mortgage covering both real and personal property.
Paper
A mortgage, deed of trust or land contract provided
in lieu of cash.
Partial Release
A provision in a mortgage that allows some of the
property secured to be freed from serving as
collateral.
Participation
Mortgage
A mortgage that allows the lender to share in part
of the income or resale proceeds.
Pass Through
Certificates
Interests in a pool of mortgages sold by mortgage
bankers to investors. Money collected as monthly
mortgage payments is distributed to those who own
certificates..
Permanent Loan
or Mortgage
A mortgage for a long period of time. Often referred
to as the mortgage that pays off a construction loan
on a completed property.
Permit
A document issued by a government regulatory
authority that allows the bearer to take some
specific action.
An occupancy permit allows the owner of a building
to occupy or rent the building.
PITI
Abbreviation for principal, interest, taxes and
insurance, which may be combined in a single monthly
mortgage payment.
Planned Unit
Development (PUD)
A zoning classification that allows flexibility in
the design of a subdivision. PUDs include
individually owned units as well as some common
space that is jointly owned.
Plat
A plan or map of a specific land area.
Plat Book
A public record containing maps of land, showing the
division of the land into streets, blocks, and lots
and indicating the measurements of the individual
parcels.
Points
Fees paid to lenders. 1 point=1% of the loan amount.
On a $100,000 loan 1 point is $1000. Points may be
further classified into
origination points
or
discount points.
Portfolio Loan
A loan that is held as an investment by a bank or
savings and loan, and
NOT
sold on the secondary market to investors.
Power of Attorney
A written document authorizing a person to act on
the behalf of another person. That person does not
have to be an attorney. See
Attorney-in-fact.
Prepaid Interest
Prepaid interest is the interest charged to
borrowers at closing to pay for the cost of
borrowing for a balance of the month. For example,
if a loan closes on the 19th of the month and the
first payment is due on the 1st of the following
month, the lender will charge 12 days of prepaid
interest.
Prepayment
Full or partial payment of the principal before the
due date. This might occur if the borrower makes
extra payments, sells the property, or refinances
the existing loan.
Prepayment Penalty
Fees paid by the borrower if they pay the loan
before its due date.
Primary Mortgage
Market
Companies that originate and service mortgage loans
(banks, savings & loans, credit union, mortgage
bankers, institutional lenders) make up the primary
mortgage market. See also
secondary mortgage market.
Prime Rate
The lowest commercial interest rate charge by a bank
on short term loans to their most credit worthy
customers. View
current prime rate.
Principal
The outstanding balance on a loan.
Private Mortgage
Insurance
(PMI)
In the event that you do not have a 20 percent down
payment, lenders will allow a smaller down payment -
as low as 2 percent in some cases. With the smaller
down payment loans, however, borrowers are usually
required to carry private mortgage insurance.
Private mortgage insurance payments are normally
made annual or monthly. An
impound account
may be required.
Probate
Court process to establish the validity of the will
of a deceased person.
Purchase Money
Mortgage
A mortgage used to finance the purchase of a
property.
Property Tax
A government levy based on the market value (as
assessed by the county assessor's office) of the
property.
Public Sale
An auction of property with notice to the general
public.
Purchase Agreement
See
Agreement of Sale.
Quiet Title
(Action)
A court action to settle a title dispute.
Quit Claim Deed
A deed which transfers whatever interest the maker
of the deed may have in the particular parcel of
land. A quitclaim deed is often given to clear the
title when the grantor's interest in a property is
questionable. By accepting such a deed the buyer
assumes all the risks. Such a deed makes no
warranties as to the title, but simply transfers to
the buyer whatever interest the grantor has.
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Realtor
A real estate professional who is a member of the
National Association of Realtors.
Real Estate Broker
An individual who often owns a real estate company
or is in a management position, and who is licensed
to represent a buyer or a seller in a real estate
transaction.
Real Estate
Settlement Procedure Act (RESPA)
A law that states how mortgage lenders must treat
those who apply for real estate loans on property
with 1-4 units.
Example : A lender is required to provide a good
faith estimate of closing costs within 3 days of an
application being filed.
Redlining
The practice of refusing to provide loans or
insurance in a certain neighborhood.
Refinancing
Repaying an existing loan from the proceeds of a new
loan on the same property.
Reconveyance
When a mortgage is paid off in full, the lender
conveys the property back to the owner.
Recording
The act of entering into a book of public records
instruments affecting title to the real property. A
lender requires that a deed of trust or a mortgage
be recorded to evidence the debt against the
property.
Recision
The cancellation of a contract. When refinancing a
mortgage on a principal residence the law gives the
homeowner three days to cancel the contract
Recourse
The right of the holder of a note secured by a
mortgage or deed of trust to claim money from the
borrower in default in addition to the property
pledged as a collateral.
Regulation Z
(Reg Z)
A federal regulation requiring creditors to provide
full disclosure of the terms of a loan including the
terms of the loan and the annual percentage rate
(APR).
Real Estate
Investment Trusts (REIT)
A trust that uses investors money to purchase and
manage real estate. Investors realize some of the
tax advantages in owning real estate.
Right of
survivorship
The right of a surviving joint tenant to acquire the
interest of a deceased joint owner.
Reverse Mortgage
A mortgage used by the elderly that provides income
as long as they live in exchange. Payments made
cause the loan principal to increase.
Rollover Loan
A loan that is amortized over a long period of time
(e.g. 30 years) but the interest rate is fixed for a
short period (e.g. 5 years). The loan may be
extended or rolled over, at the end of the shorter
term, based on the terms of the loan.
Restrictive
Covenants
Private restrictions limiting the use of real
property. Restrictive covenants are created by deed
and may "run with the land," binding all subsequent
purchasers of the land, or may be "personal" and
binding only between the original seller and buyer.
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Sales Agreement
or Sales Contract
See
Agreement of Sale.
Savings & Loan
Depository institutions that specialize in
originating, servicing and holding mortgage loans
primarily on owner occupied residential property.
Secondary Mortgage
Market
The market where banks, savings & loans and mortgage
bankers can sell mortgages to investors like
Fannie Mae
or
Freddie Mac.
Second Home
Also known as a vacation home. This home is
different from an investment property as it is not
rented, but used occasionally by the owners.
Second Mortgage
A subordinated lien, created by a mortgage loan,
over the amount of a first mortgage. Second
mortgages generally carry a higher rate than a first
mortgage since they represent a higher risk for an
investor.
Section 8 Housing
Privately owned rental units participating in the
low-income rental assistance program. Landlords
receive subsidies on behalf of qualified low-income
tenants, allowing the tenants to pay a limited
proportion of their incomes toward the rent.
Section 1031
The section of the IRS that deals with tax free
exchanges of certain property. General rules for tax
free exchanges are :
The properties must be :
·
Exchanged
·
Similar
·
Used for business or as an investment
Security
Property that serves as collateral for a debt.
Servicing
The act of billing, collecting payment, filing
reports, managing impound accounts and handling
defaults on a mortgage.
Settlement Cost
(HUD guide)
A booklet that provides an overview of the lending
process and is required to be given to consumers
after the loan application is completed.
Settlement
Statement
See
HUD 1
Special Assessment
A special tax imposed on property, individual lots
or all property in the neighborhood to pay for
improvements - street lights, sidewalks, etc.
Special Warranty
Deed
The grantor does not warrant against title defects
arising from conditions that existed before he/she
owned the property. The seller warrants that he/she
has done nothing to impair title.
Shared Appreciation
Mortgage
A residential loan with a fixed interest rate that
is below market, with the lender entitled to a
specified share of appreciation of the property over
an agreed upon time interval.
Sheriff's Deed
A deed given at the sheriff's sale in the
foreclosure of a mortgage.
Single Family
Housing (SFR)
A type of residential structure designed to include
one dwelling.
Example : Town houses, detached units.
Spec House
A single family dwelling constructed by a builder in
anticipation of finding a buyer.
Specific
Performance
A legal action in which the court requires a party
to a contract to perform the terms of the contract
when the party has refused to fulfill its
obligations.
Standard Uniform
Loan Application (Form 1003)
A
standard loan application widely used in the
mortgage industry.
Subdivision
A tract of land divided into lots suitable for home
building purposes.
Subordination
A loan in a lower priority, for example a second
mortgage is subordinate to a first.
Subject To
(Purchasing subject to a mortgage)
The buyer agrees to make payments on the existing
mortgage, without notifying the lender. The seller
remains liable for making payments on the loan if
the buyer does not make the mortgage payment. The
buyer is not personally liable for mortgage
payments, but must make payments to keep the
property. See also
Assumable Mortgage
Survey
Map made by a licensed surveyor who measures land
and charts its boundaries, improvements and
relationship to the property surrounding it.
Sweat Equity
Value added to a property due to improvements made
personally by the owner.
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Takeout
Financing
A commitment to provide permanent financing upon
completion of construction. The take out loan
normally pays off the construction loan.
Tax Lien
Lien for nonpayment of taxes
Tax Sale
Public sale of a property at an auction by a
government authority as a result of non-payment of
taxes.
Teaser Rate
A low initial interest rate on a mortgage.
Tenancy at
Sufferance
Tenancy established when a person who had been a
lawful tenant wrongfully remains in possession of
property after expiration of a lease.
Tenancy at Will
A license to use or occupy land and buildings at the
will of the owner. The tenant may decide to leave
the property at any time or must leave at the
landlords will.
Tenancy by the
Entirety
A form of ownership by husband and wife whereby each
owns the entire property. In event of the death of
one, the survivor owns the property without probate
Tenancy for Years
Created by a lease for a fixed term, such as 6
months, 2 years, etc.
Tenancy in Common
Ownership of a property by 2 or more persons, each
of whom has an undivided interest, without the right
of survivorship. Upon the death of one of the
owners, the ownership share of the deceased is
inherited by the beneficiary designated on the
owner's will.
Tenancy in
Severalty
Ownership of property by one person.
Time is of the
Essence
Legal phrase in a contract requiring all references
to specific dates and times noted in the contract be
interpreted exactly.
Time Share
A form of property ownership under which a property
is held by a number of people, each with the right
of possession for a specified time interval. Time
sharing is used mostly for vacation properties.
Title
Evidence that the owner of the property is in lawful
possession. Evidence of ownership.
Title Insurance
An insurance policy which protects the insured
against loss arising from defects in title. Title
insurance policies are typically obtained for the
buyer and the lender.
Title Report
A document indicating the current state of title.
The report includes information on the current
ownership, outstanding deeds of trust or mortgages,
liens, easements, covenants, restrictions, and any
defects.
Title Search
An examination of the public records to determine
the ownership and encumbrances affecting the
property.
Town House
Residence which normally has 2 or more floors and is
attached to other similar units. Town houses are
commonly found in planned unit developments (PUDs)
and condominiums.
Tract
A parcel of land, generally held for subdividing.
Transfer Tax
Tax paid to the city, county, state or other
government entity upon sale of a property.
Triple-Net Lease
One in which the tenant pays all operating expense
of the property. The landlord receives the net rent.
Trust Account
A separate bank account maintained by a broker or
escrow company to handle all money collected for
clients. A broker may not commingle these funds with
his/her own funds.
Trust Deed
See
Deed of Trust.
Trustee
A party who is given legal responsibility to hold
property in the best interest of or "for the benefit
of" another. The trustee is one placed in a position
of responsibility for another, a responsibility
enforceable in a court of law.
Truth in Lending
See
Regulation Z.
Two-Step Mortgage
A mortgage in which the borrower receives a fixed
rate for a specified number of years (most often 5
or 7), and then receives a new interest rate based
on the terms in the note.
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Underwriting
The decision whether to make a loan to a potential
home buyer based on credit, income, employment
history, assets, etc.
Undivided
Interest
An ownership right to use and possess a property
that is shared among co-owners, with no one co-owner
having exclusive rights to any portion of the
property.
Unincumbered
Property
Real estate with free and clear title.
Unimproved Property
Land that has received no development.
Unrecorded Deed
A document that transfers title from the grantor to
the grantee without recording (i.e. providing public
notice).
Usury
Charging a rate of interest greater than that
permitted by law.
Vacation Home
See second home.
VA Loan
Home loan guaranteed by the
U.S.
Veterans Administration, enabling a veteran to
buy a home with no money down.
Variable Rate Mortgage
See
Adjustable Rate Mortgage
Verification of
Deposit (VOD)
A document signed by the borrower's bank or other
financial institution verifying the account balance
and history.
Verification of
Employment
A document signed by the borrower's employer
verifying his/her starting date, job title, salary
and probability of continued employment.
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Waiver
The voluntary renunciation, abandonment, or
surrender of some claim, right, or privilege.
Warehousing
Mortgage bankers and other financial institutions
make loans that are then periodically sold on the
secondary market. After the loan is made but before
it is sold - the loan is said to be in the lenders
warehouse.
Warranty Deed
A deed conveying the title to a property with a
warranty of a clear marketable title.
Wraparound Mortgage
A loan arrangement whereby the existing loan is
retained an a new loan is added to the property.
Example : The seller sells his/her property for
$200,000. The buyer puts $80,000 down. The seller
has an existing loan balance of $100,000 for a
remaining period of 25 years at an interest rate of
6%. The seller then makes a wraparound mortgage to
the buyer, (where the seller acts as a lender) for
$120,000 at 8%. The seller has to continue making
payments on his old loan. They buyer has to pay the
seller on the new loan. The buyer may at a later
date refinance the property and close both loans.
Zero
Lot
Line
A form of housing where individual units are on
separate lots, but are attached to one another.
Example : PUD, townhouse.
Zoning
Areas may be zoned to specify use of a property i.e.
residential, commercial, agricultural. These zoning
ordinances are normally enforced by the city or the
county.
