Real Estate Terms

Real Estate Terms

 

1031 Exchange (1031 tax deferred exchange)

Under Section 1031 of the IRS Code, some or all of the realized gain from the exchange of one property for a like kind property may be deferred.

 

Abandonment

The voluntary and permanent cessation of use or enjoyment with no intention to resume or reclaim one’s possession or interest. This may pertain to an easement of a property.

 

Abstract of title

A condensed version of the history of a title to a particular parcel of real estate as recorded in the county clerk’s records.  It consists of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property.

 

Abutting

The joining, reaching, or touching of adjoining land. Abutting parcels of land have a common boundary.

 

Acceleration clause

A provision in a written mortgage, note, bond, or conditional sales contract that in the event of various reasons, the whole amount of the principal and the interest may be declared due and payable at once. Some reasons for accelerating a loan are if the borrower defaults on the loan, uses an owner-occupied property as rental property or transfers title to another individual without informing the lender.

 

Accrued depreciation

The actual depreciation that has occurred to a property at any given date; the difference between the cost of replacement new (as of the date of the appraisal) and the present appraised value.

 

Acknowledgment

A declaration made by a person to a notary public or other public official authorized to take acknowledgments that an instrument was executed by him or her as a free and voluntary act.

 

Actual eviction

The result of legal action originated by a lessor, by which a defaulted tenant is physically ousted from the rental property pursuant to a court order.

 

Actual notice

Express information or fact; that which is known; actual knowledge.

 

Adjustable-rate mortgage (ARM)

A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.

 

Adjustment date

The date the interest rate changes on an adjustable-rate mortgage.

 

Administrator

The party appointed by the county court to settle the estate of a deceased person who died without leaving a will.

 

Ad Valorem tax

A tax levied according to value; generally used to refer to real estate tax.

 

Adverse Possession

The actual, visible, hostile, notorious, exclusive, and continuous possession of another’s land under a claim to title. Possession for a statutory period may be a means of acquiring title.

 

Affidavit

A written statement signed and sworn to before a person authorized to administer an oath.

 

Agent

One who represents or has the power to act for another person (called the principal). The authorization may be express, implied, or apparent. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be her or his agent.

 

Agreement of sale

A written agreement by which the purchaser agrees to buy certain real estate and the seller agrees to sell, on the terms and conditions set forth in the agreement.

 

Air lot

A designated airspace over a piece of land. Air lots, like surface property, may be transferred.

 

Air rights

The right to use the open space above one’s property. It can be sold to build a skywalk or for a utility company to erect power lines.

 

Alienation

The act of transferring property to another. Alienation may be voluntary, such as by sale, or involuntary, such as through eminent domain.

 

Alienation clause

Clause in a mortgage instrument that does not allow the borrower to sell (without lender approval) on assumption or contract-for-deed. If an attempt is made to do so without prior approval, all of the mortgaged balance becomes due on the sale of the property.

 

Amendments

Changes to previously approved and adopted written agreements are amendments.

 

Amenities

Neighborhood facilities and services that enhance a property’s value. They are always outside of the property. Swimming pools, three-car garages, decks, etc., that are on the property are called features.

 

Americans with Disabilities Act (ADA)

A federal law, effective in 1992, designed to eliminate discrimination against individuals with disabilities.

 

Amortization

The liquidation of a financial burden by installment payments, which include principal and interest.  The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

 

Amortized loan

A loan in which the principal and interest are payable in monthly or other periodic installments over the term of the loan.

 

Amortization schedule

A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

 

Annual percentage rate (APR)

This is not the same as the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. The annual rate charged for borrowing.

 

Antitrust laws

The laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Violation of antitrust laws in the real estate business generally involves either price fixing (brokers conspiring to set fixed compensation rates) or allocation of customers or markets (brokers agreeing to limit their trades or dealings to certain areas or properties).

 

Application

The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.

 

Appraisal

The process through which conclusions about property value are obtained.  A written estimate and conclusion as to the value and quality of a property, primarily based on an analysis of comparable sales of similar homes nearby.

 

Appraised value

An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. An estimate of a property’s present worth.

 

Appraiser

An individual qualified by education, training, and experience to estimate the value of real property and personal property. An appraiser may work directly for mortgage lenders or may work independently.

 

Appreciation

The increase in the value of a property due to changes in market conditions, inflation, or other causes.

 

Appurtenant

Belonging to; incident to; annexed to.

 

Arbitrage

The simultaneous purchase and sale of a security with the purpose of obtaining a higher yield from the differential between its acquisition and selling price.

 

Arbitration

A means of settling a controversy between two parties through the medium of an impartial third party whose decision on the controversy (if agreed upon) will be final and binding.

 

Assessed value

The valuation placed on property by a public tax assessor for purposes of taxation.

 

Assessment

The placing of a value on property for the purpose of taxation.  The imposition of a tax, charge, or levy, usually according to established rates.

 

Assessor

A public official who establishes the value of a property for taxation purposes.

 

Asset

Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

 

Assignment

Ownership of a mortgage may be transferred from one company or individual to another.  Such transfer is called an assignment. The transfer in writing of rights or interest in a bond, mortgage, lease, or other instrument (such as a contract).

 

Assumable mortgage

A mortgage that can be assumed by a buyer of real property when it is sold.  The terms, including any required buyer qualification, must be determined in order  for the loan to be assumed.

 

Assumption

The term applied when a buyer assumes the seller’s mortgage.

 

Assumption of mortgage

The transfer of title to property to a grantee, by which the grantee assumes liability for payment of an existing note secured by a mortgage against the property. Should the mortgage be foreclosed and the property sold for a lesser amount than that due, the grantee/purchaser who has assumed and agreed to pay the debt secured by the mortgage is personally liable for the deficiency. Before a seller may be relieved of liability under the existing mortgage, the lender must accept the transfer of liability for payment of the note.

 

Attorney-in-fact

The holder of a power of attorney.

 

Attorney’s opinion of title

An instrument written and signed by the attorney who examines the title, stating her or his opinion as to whether a seller may convey good title.

 

Avulsion

A sudden tearing away of land by the action of natural forces.

 

Balloon mortgage

A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

 

Balloon payment

The final payment of a mortgage loan that is considerably larger than the required periodic payments, because the loan amount was not fully amortized.  The final lump sum payment that is due at the termination of a balloon mortgage.

 

Bankruptcy

By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

right to convey title. The grantor may add warranties to the deed at his or her discretion.

 

Beneficiary

The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. A lender who lends money of real estate and takes back a note and deed of trust from the borrower.

 

Bequest

A provision in a will providing for the distribution of personal property.

 

Bilateral contract

A contract in which each party promises to perform an act in exchange for the other party’s promise to perform.

 

Bill of sale

A written instrument given to transfer title to personal property.

 

Binder

An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser’s good faith and intent to complete the transaction.

 

Biweekly mortgage

A mortgage in which you make payments every two weeks instead of once a month, resulting in 13 payments per year instead of 12. The extra payment reduces the principal, reducing the time it takes to pay off a mortgage.

 

Blanket mortgage

A mortgage that covers more than one parcel of real estate and provides for each parcel’s partial release from the mortgage lien on repayment of a definite portion of the debt.

Blockbusting

The illegal practice of inducing homeowners to sell their properties by making representations regarding the entry, or prospective entry, of minority persons into the neighborhood.

 

Branch office

A secondary place of business apart from the principal or main office from which real estate business is conducted.

 

Breach of contract

The failure of one of the parties to a contract to perform according to the contract.

 

Bridge loan

A loan obtained by those who have not yet sold their current property, but must close on a purchased property. The bridge loan is typically paid upon sale of the current property.

 

Broker

In real estate:  One who buys and sells for another for a commission.  A person who has passed the broker’s licensing examination. Most REALTORS® are “agents” who work under a “broker.” Some agents are brokers as well, either working for themselves or under a broker. Only brokers can pay or earn a commission.  Agents then receive payment from their broker.

In the mortgage industry: A broker refers to a company or individual that does not lend the money for the loans directly, but brokers loans to larger lenders or investors.

 

Buffer zone

A strip of land that separates one land use from another.

 

Building code

An ordinance specifying minimum standards of construction of buildings for the protection of public safety and health.

 

Building line

A line fixed at a certain distance from the front and/or sides of a lot beyond which no structure can project; a setback line used to ensure a degree of uniformity in the appearance of buildings and unobstructed light, air, and view.

 

Building restrictions

The limitations on the size or type of property improvements established by zoning acts or by deed or lease restrictions. Building restrictions are considered encumbrances.

 

Business plan

A three to five year blueprint for an organization or individual real estate practitioner.

 

Buydown

A payment made to help the buyer qualify for the loan.  The funds for the buydown may come from the seller as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. The note rate on the loan (after the buydown adjustments) will be higher than the current market rate.

 

Canvassing

The practice of making telephone calls or visiting from door to door to seek prospective buyers or sellers; in the real estate business, generally associated with acquired listings in a given area.

 

Capacity of parties

The legal ability of persons to enter into a valid contract. Most persons have fully capacity to contract and are said to be competent parties.

 

Cap

Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a specified period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

 

Capacity of parties

The legal ability of persons to enter into a valid contract. Most persons have fully capacity to contract and are said to be competent parties.

 

Capital gain

Profit earned from the sale of an asset.

 

Capital investment

The initial capital and the long-term expenditures made to establish and maintain a business or investment property.

 

Capitalization

The process of converting into present value (or obtaining the present worth of) a series of anticipated future periodic installments of net income. In real estate appraisal, it usually takes the form of discounting. The formula is Income/Rate = Value

 

Capitalization rate

The rate of return a property will produce on the owner’s investment.

 

Cash flow

The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. If expenses exceed income, a negative cash flow is the result.

 

Cash-out refinance

When a borrower refinances his mortgage at an amount higher than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”

 

Caveat emptor

A Latin phrase meaning, “let the buyer beware.”

 

Certificate of deposit

A time deposit held in a bank which pays a certain amount of interest to the depositor.

 

Certificate of deposit index

One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

 

 

Certificate of Eligibility

A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.

 

Certificate of Reasonable Value (CRV)

Once an appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

 

Certificate of title

The statement of opinion on the status of the title to a parcel of real property, based on an examination of specified public records.

 

Chain of title

An analysis of the transfers of title to a piece of property over the years. The succession of conveyances from some accepted starting point by which the present holder of real property dervies his or her title.

 

Chattels

Personal property.

 

Check

Tracts of land located repetitively every 24 miles from a principal meridian and 24 miles from a defined base line. Guide meridians and correction lines define a check;s boundaries, consisting of 16 townships. A correction line “corrects” for the curvature of the earth, and guide meridians slant to compensate for North Pole directional movement.

 

City planning commission

A local government organization designed to direct and control the development of land within a municipality.

 

Claim of right

Used as a factor in determining adverse possession claims. Adversely occupying another’s real estate for a statutory period of time may create a claim of right.

 

Clear title

A title that is free of liens or legal questions as to ownership of the property.

 

Closing

This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.

 

Closing costs

Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.  Fees that are associated with a home purchase. They apply to both a seller and a buyer, and they are paid at the closing.

 

Closing statement

See Settlement Statement.

 

Cloud on title

A claim or encumbrance that may affect the title to land.  Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.

 

CLUE

An insurance company repository for reported claim activity and previous property damage. CLUE is an acronym for Comprehensive Loss Underwriting Exchange. Insurers use the report to ascertain patterns of possible future claims and adjust their insurance premiums according to risk.

 

Codicil

A testamentary disposition subsequent to a will that alters, explains, adds to, or confirms the will, but does not revoke it.

 

Coinsurance clause

A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage that is generally equal to at least 80% of the property’s actual replacement cost.

 

Co-borrower

An additional individual who is obligated on the loan.

 

Collateral

In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.  Something of value given or pledged to a lender as a security for a debt or obligation.

 

Collection

When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.

 

Commercial property

A classification of real estate that includes income-producing property, such as office buildings, restaurants, shopping centers, hotels, and stores.

 

Commingled property

Property of a married couple that is so mixed or commingled that it is difficult to determine whether it is separate of community property. Commingled property becomes community property.

 

Commingling

The illegal act of a real estate broker who mixes the money of other people with that of his or her own; brokers are required by law to maintain a separate trust account for other parties’ funds held temporarily by the broker.

 

Commission

Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including Realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. REALTORS® generally earn the largest commissions, followed by lenders, then the others. The payment made to a broker for services rendered, such as in the sale or purchase of real property; this is usually a percentage of the selling price of the property.

 

Common area assessments

In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.

 

Common areas/common elements

Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.  The parts of a property that are necessary or convenient to the existence, maintenance, and safety of a condominium, or that are normally in common use by all of the condominium residents. All condominium owners have an undivided ownership interest in the common elements.  Areas which are available for use by more than one person.

 

Common law

An unwritten body of law based on custom, usage, and court decisions.

 

Community property

A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage.

 

Comparable sales

Recent sales of similar properties in nearby areas listed in an appraisal report used to help determine the market value of a property. Also referred to as “comps” or “comparables”.

 

Condemnation

A judicial or administrative proceeding or process to exercise the power of eminent domain.

 

Condominium

A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership. The absolute ownership of an apartment or a unit, generally in a multi-unit building, based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned together with the other condominium unit owners. The entire tract of real estate included in a condominium development is called a parcel or development parcel. One apartment or space in a condominium or part of a property intended for independent use and having lawful access to the public way is called a unit. Ownership of one unit also includes a definite undivided interest in the common elements.

 

Condominium conversion

Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium hotel

A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas.

 

Conforming mortgages

Securitized mortgages sold on the secondary market that meet certain requirements established by Fannie Mae and Freddie Mac.

 

Consideration

Something of value that induces one to enter into a contract. Consideration may be “valuable” (money or commodity) or “good” (love and affection”). Also, an act of forbearance, or the promise thereof, given by one party in exchange for something from the other. Forbearance is a promise not to do something.

 

Constructive eviction

  1. Acts by the landlord that so materially disturb or impair the tenant’s enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent. 2. A purchaser’s inability to obtain clear title.

 

Constructive notice

Notice given to the world by recorded documents. All persons are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property also is considered constructive notice that the person in possession has an interest in the property.

 

Construction loan

A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

 

Contingency

A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.  A provision or condition in the purchase of real estate requiring a certain act to be done or an event to happen before the contract becomes binding.

 

Contract

An oral or written agreement to do or not to do a certain thing.  An agreement entered into by two or more legally competent by the terms of which one or more of the parties, for a consideration, undertakes to do or to refrain from doing some legal act or acts. A contract may be either unilateral (where only one party is bound to act) or bilateral (where all parties to the instrument are legally bound to act as prescribed).

 

Contract for deed

A contract for the sale of real estate under which the sale price is paid in periodic installments by the purchaser, who is in possession and holds equitable title, although actual title is retained by the seller until final payment.

 

Contract for exchange of real estate

A contract for sale of real estate in which the consideration is paid wholly or partly in property.

Conventional mortgage/ Conventional loan

A loan that is not insured or guaranteed by a government agency.

Refers to home loans other than government loans (VA and FHA).

 

Convertible ARM

An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

 

Conveyance

A written instrument that evidences transfer of some interest to real property from one person to another.

 

Cooperative (co-op)

A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.  A residential multi-unit building whose title is held by a trust or corporation that is owned by, and operated for, the benefit of persons living within the building. These persons are the beneficial owners of the trust or the shareholders of the corporation, each having a proprietary lease.

 

Corporation

An entity or organization created by operation of law whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until dissolved according to legal procedures.

 

Correction lines

The horizontal provisions in the rectangular survey system made to compensate for the curvature of the earth’s surface. Every fourth township line is used as a correction line on which the intervals between the north and south range lines are remeasured and corrected to a full six miles.

 

Cost approach

The process of estimating the value of a property by adding the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation, to the estimated land value.

 

Cost of funds index (COFI)

One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages.

 

Counteroffer

A new offer made as a reply to an offer received, having the effect of rejecting the original offer. The original offer cannot be accepted thereafter unless revived by the offeror repeating it.

 

Covenants, Conditions, and Restrictions (CC&Rs)

Condominium documents that serve as the operational procedures describing the rights and prohibitions of the co-owners in a condominium association.

 

Credit

An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

 

Credit history

A record of an individual’s repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.

 

Creditor

A person to whom money is owed.

 

Credit report

A report of an individual’s credit history prepared by a credit bureau.

 

Credit repository

An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

 

Credit scoring

A three-digit score that assesses a borrower’s credit risk and the probability of default based on his or her past pay performances, outstanding credit balances, credit mix, time on file, and number of search inquiries.

 

Cul-de-sac

A dead-end street that widens sufficiently at the end to permit an automobile to make a U-turn.

 

Cycle

A recurring sequence of events that regularly follow one another, generally within a fixed interval of time.

 

Debt

Something owed to another; an obligation to pay or return something.

 

Deed

A written instrument that when executed and delivered conveys title to, or an interest in, real estate.

 

Deed-in-lieu of foreclosure

Conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Deed-in-lieu may show on a credit history. It may prevent having the documents to a foreclosure being recorded and become a matter of public record.  A process by which the mortgagor can avoid foreclosure. Mortgagor gives a deed to mortgagee when mortgagor is in default according to terms of mortgage.

 

Deed of reconveyance

The instrument used to reconvey title to a trustor under a deed of trust once the debt has been satisfied.

 

Deed of trust

An instrument used to create a lien by which the mortgagor conveys her or his title to a trustee, who holds it as security for the benefit of the noteholder.

 

Deed restrictions

The clauses in a deed limiting the future users of the property. Deed restrictions may impose a variety of limitations and conditions, such as limiting the density of buildings, dictating the types of structures that can be erected, and preventing buildings from being used for specific purposes or from used at all.

 

Default

Failure to make the mortgage payment within a specified period of time. The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

 

Deficiency judgment

A personal judgment levied against the mortgagor when a foreclosure sale does not produce sufficient funds to to pay the mortgage debt in full.

 

Delinquency

Failure to make mortgage payments when mortgage payments are due. Even though a lender may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

 

Delinquent taxes

Unpaid taxes that are past due.

 

Delivery

The legal act of transferring ownership. Documents such as deeds and purchase agreements must be delivered and accepted to be valid.

 

Delivery in escrow

Delivery of a deed to a third person until the performance of some act or condition by one of the parties.

 

Deposit

A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”

 

Depreciation

A decline in the value of property; the opposite of appreciation. In appraisal, a loss of value in property due to all causes, including physical deterioration, functional obsolescence, and economic obsolescence.  In real estate investment, an expense deduction for tax purposes taken over the period of ownership of the income property.

 

Discount points

In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.  An added loan fee charged by a lender to make the yield on a lower-than-market-value loan competitive with higher-interest loans.

 

Discount rate

The rate of interest a commercial bank must pay when it borrows from its federal reserve bank. Consequently, the discount rate is the rate of interest the banking system carries within its own framework. Member banks may take certain promissory notes that they have received from customers and sell them to their district federal reserve bank for less than face value. With the funds received, the banks can make further loans. Changes in the discount rate may cause banks and other lenders to reexamine credit policies and conditions.

 

Dower

The legal right or interest recognized in some states that a spouse acquires in the property held or acquired by the other spouse during their marriage.

 

Down payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

 

Due-on-sale provision

A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

 

Duress

The use of unlawful constraint that forces action or inaction against a person’s will.

 

Earnest Money Deposit

An amount of money deposited by a buyer under the terms of a contract to show that he or she is serious about buying the house.

 

Easement

A right of way giving persons other than the owner access to or over a property.  A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land. An easement appurtenant passes with the land when conveyed.

 

Effective age

An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

 

Eminent domain

The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

 

Encroachment

An improvement that intrudes illegally on another’s property.  A fixture or structure, such as a wall or fence, that invades a portion of a property belonging to another.

 

Encumbrance

Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.  Any lien that may diminish the value of the property, such as a mortgage, tax, or judgment lien; easement; restriction on the use of the land; or an outstanding dower right.

 

Endorsement

The act of writing one’s name, either with or without additional words, on a negotiable instrument or on a paper attached to such instrument.

 

Equal Credit Opportunity Act (ECOA)

Federal legislation requiring lenders to make credit equally available without discrimination based on race, sex, color, religion, marital status, age, national origin, or receipt of income from public assistance.

 

Equitable title

The interest held by a vehicle under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name.

 

Equity

A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.  The interest or value that an owner has in a property over and above any mortgage indebtedness.

 

Erosion

The gradual wearing away of land by water, wind, and general weather conditions; the diminishing of property caused by the elements.

 

Errors and omissions insurance

Insurance coverage for real estate agents against claims for innocent and negligent misrepresentations.

 

Escrow

An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition (i.e. earnest money).  The closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered on the performance of certain conditions in the escrow agreement.

 

Escrow account

Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with the money that has accrued in the escrow account.

 

Escrow analysis

Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.

 

Escrow disbursements

The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

 

Estate

The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

 

Eviction

The lawful expulsion of an occupant from real property.

 

Evidence of title

A proof of ownership of property, which is commonly a certificate of title, a title insurance policy, an abstract of title with lawyer’s opinion, or a Torrens registration certificate.

 

Examination of title

The report on the title of a property from the public records or an abstract of the title.

Exchange

A transaction in which all of part of the consideration for the purchase of real property is the transfer of like-kind property. Ex. real estate for real estate.

 

Exclusive-agency listing

A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s stated terms for a commission. The owner, however, reserves the right to sell without paying anyone a commission by selling to a prospect who has not been introduced or claimed by the broker.

 

Exclusive-right-to-sell listing

A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property on the owner’s stated terms and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner, or another broker.  A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

 

Executed contract

A contract in which all parties have fulfilled their promises and thus performed the contract.

 

Execution

The signing and delivery of an instrument. Also, a legal order directing an official to enforce a judgment against the property of a debtor.

 

Executor

The person designated in a will to handle the state of the deceased. The probate court must approve any sale of property by the executor.  A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.

 

Executory contract

A contract under which something remains to be done by one of more of the parties.

 

Expenses

The short-term costs that are deducted from an investment property’s income, such as minor repairs, regular maintenance, and renting costs.

 

Expressed contract

An oral or written contract in which the parties state their terms and express their intentions in words.

 

Fair Credit Reporting Act

A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

 

Fair Housing Act of 1968

The term for Title VIII of the Civil Rights Act of 1968 as amended, which prohibits discrimination based on race, color, sex, religion, national origin, handicaps, and familial status in the sale and rental of residential property.

 

Fair market value

The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.  The price for a property that is agreed upon by both the seller and a buyer.

 

Federal Home Loan Mortgage Corporation (FHLMC)

A federally chartered corporation created to provide a secondary mortgage market for conventional loans (Freddie Mac).

Federal Housing Administration (FHA)

A federal administrative body created by the National Housing Act in 1934 to encourage improvement in housing standards and conditions, to provide an adequate home-financing system through the insurance of housing mortgages and credit, and to exert a stabilizing influence on the mortgage market.

 

Federal income tax

An annual tax based on income, including monies derived from the lease, use, or operation of real estate.

 

Federal National Mortgage Association (FNMA)

Fannie Mae” is the popular name for this federally chartered corporation, which creates a secondary market for existing mortgages. FNMA does not loan money directly, but rather buys DVA, FHA, and conventional loans.

 

Fannie Mae (FNMA)

The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds.

 

Fannie Mae’s Community Home Buyer’s Program

An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low-or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

 

Federal Housing Administration (FHA)

An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

 

Fee simple

The greatest possible interest a person can have in real estate.

 

Fee simple estate

An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

 

FHA appraisal

An FHA evaluation of a property as a security for a loan. Includes the study of the physical characteristics of the property and the surroundings, and the location of the property.

 

FHA mortgage

A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

 

Fiduciary relationship

A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, principal and agent.

 

Firm commitment

A lender’s agreement to make a loan to a specific borrower on a specific property.

 

First mortgage

The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.  A loan insured by the FHA and made by an approved lender in accordance with FHA regulations.  A mortgage that creates a superior voluntary lien on the property mortgaged relative to other charges or encumbrances against the property.

 

Fixed-rate mortgage

A mortgage in which the interest rate does not change during the entire term of the loan.

 

Fixture

Personal property that has been affixed in a permanent manner to real estate so that it becomes real property.

 

Flood insurance

Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

 

Foreclosure

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.  A legal procedure by which property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property either to the holder of the mortgage or to a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

 

Fraud

A misstatement of a material fact made with intent to deceive or made with reckless disregard of the truth and that actually does deceive.

 

Freehold estate

An estate in land in which ownership is for an indeterminate length of time, in contrast to a leasehold estate.

 

Functional obsolescence

The impairment of functional capacity or efficiency; the inability of a structure to perform adequately the function for which it currently is employed.

 

Funding fee

A fee required by the Department of Veterans Affairs for making a VA guaranteed loan. The funding fee is added in with the loan and then forwarded to the VA to guarantee a veteran’s loan.

 

Future interest

A person’s present right to an interest in real property that will not result in possession or enjoyment until sometime in the future, such as a reversion or right of reentry.

 

 

401(k)/403(b)

An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

 

401(k)/403(b) loan

Some 401(k)/403(b) plans allow for loans against the monies that have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.

 

Gap

A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.

 

General contractor

A construction specialist who enters into a formal construction contract with a landowner or master lessee to construct a real estate building or project. The general contractor often contracts with several subcontractors specializing in various aspects of the building process to perform individual jobs.

 

General lien

A lien on all real and personal property owned by a debtor.

 

General warranty deed

A deed that states that the title conveyed therein is good from the sovereignty of the soil to the grantee therein and that no one else can successfully claim the property. This type of deed contains several specific warranties sometimes referred to as the English Covenants of Title.

 

Government loan (mortgage)

A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

 

Government National Mortgage Association (Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)  “Ginnie Mae,” a federal agency and division of HUD that operates special assistance aspects of federally aided housing programs and participates in the secondary market through its mortgage-backed securities pools.

 

Graduated lease

Lease that provides for rent increases at set future dates.

 

Graduated payment mortgage

A mortgage loan for which the initial payments are low but increase over the life of the loan.

 

Grant

The act of conveying or transferring title to real property.

 

 

 

 

Grant deed

A type of deed that includes three basic warranties: (1) the owner warrants that she or he has the right to convey the property, (2) the owner warrants that the property is not encumbered other than with those encumbrances listed in the deed, and (3) the owner promises to convey any after-acquired title to the property. Grant deeds are popular in states that rely heavily on title insurance.

 

Grantee

A person to whom real estate is conveyed; the buyer.

 

Grantor

A person who conveys real estate by deed; the seller.

 

Gross lease

A lease or property under which a landlord pays all property charges regularly incurred through ownership, such as repairs, taxes, insurance, and operating expenses. Most residential leases are gross leases.

 

Ground lease

A lease of land only, on which the tenant usually owns a building or is required to builder her or his own building as specified in the lease. Such leases are usually long-term net leases; a tenant’s rights and obligations continue until the lease expires or is terminated through default.

 

Guaranteed sale plan

An agreement between the broker and the seller that if the seller’s real property is not sold before a certain date, the broker will purchase it for a specified price.

 

Guardian

One who guards or cares for another person’s rights and properties. A guardian has legal custody of the affairs of a minor or a person incapable of taking care of his or her own interests, called a ward.

 

Hazard insurance

Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

 

Heir

One who might inherit or succeed to an interest in land under the state law of descent when the owner dies without leaving a valid will.

 

Highest and best use

The possible use of land that will produce the greatest net income and thus develop the highest land value.

 

Holdover tenancy

A tenancy by which a lessee retains possession of a leased property after her or his lease has expired and the landlord, by continuing to accept rent from the tenant, agrees to the tenant’s continued occupancy as defined by state law.

 

Holographic will

A will that is written, dated, and signed in the handwriting of the maker.

 

Homeowner’s Association

A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements.

The HOA sets the rules and regulations for the division, community, or complex.  In a PUD project, it holds title to the common elements.

 

Homeowner’s insurance policy

A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.  An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

 

Homeowner’s warranty

A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer may request the seller to pay for this coverage as a condition of the sale, but either party can pay.

 

Homestead provision

The land and the improvements thereon designated by the owner as his or her homestead and, therefore, protected by state law, either in whole or in part, from forced sale by certain creditors of the owner.

 

Home Equity Conversion Mortgage (HECM)

Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

 

Home equity line of credit

A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

 

Home inspection

A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

 

HUD

The Department of Housing and Urban Development; regulates FHA and GNMA.

 

HUD median income

Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

 

HUD-1 settlement statement

A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.”

Implied contract

A contract under which the agreement of the parties is demonstrated by their acts and conduct.

 

Implied grant

A method of creating an easement. One party may be using another’s property for the benefit of both parties.

 

Improvement

  1. Improvements on land: any structure, usually privately owned, erected on a site to enhance the value of the property; 2. Improvements to land: usually a publicly owned structure.

 

Income approach

The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.

 

Incorporeal right

A nonpossessory right in real estate.

 

Increasing returns

The principle that applies when increased expenditures for improvements to a given parcel of land yield an increasing percentage return on investment.

 

Independent contractor

One who is retained to perform a certain act but who is subject to the control and direction of another only as to the end result, and not as to how he or she performs the act. Unlike an employee, an independent contractor pays all of his or her expenses, pays his or her income and Social Security taxes, and receives no employee benefits. Many real estate salespeople are independent contractors.

 

Index lease

Lease that allows the rent to be increased or decreased periodically, based on changes in a selected economic index.

 

Industrial property

All land and buildings used or suited for use in the production, storage, or distribution of tangible goods.

 

Installment sale

A method of reporting gain received from the sale of real estate when the sale price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can spread recognition of the reportable gain over more than one year, which may result in tax savings.

 

Insurable title

A title to land that a title company will insure.

 

Insurance

The indemnification against loss from a specific hazard or peril through a contract (called a policy) and for a consideration (called a premium).

 

Interest

A charge made by a lender for the use of money.

 

Interim financing

A short-term loan usually made during the construction phase of a building project, often referred to as a construction loan.

 

Intestate

The condition of a property owner who dies without leaving a will. Title to such property passes to his or her heirs as provided in the state law of descent.

 

Invalid

Having no force or effect.

 

Invalidate

To render null and void.

 

Investment

Money directed toward the purchase, improvement, and development of an asset in expectation of income or profits. A good financial investment has the following characteristics: safety, regularity of yield, marketability, acceptable denominations, valuable collateral, acceptable duration, required attention, and potential appreciation.

 

Joint tenancy

A form of ownership or taking title to property which means each party owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety. The ownership of real estate by two or more parties who have been named in one conveyance as joint tenants. On the death of a joint tenant, her or his interest passes to the surviving joint tenant or tenants by the right of survivorship.

 

Joint venture

The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.

 

Judgment

A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.  The official and authentic decision of a court on the respective rights and claims of the parties to an action or suit.

 

Judgment clause

A provision that may be included in notes, leases, and contracts by which the debtor, lessee, or obligor authorizes any attorney to go into court to confess a judgment against him or her for a default in payment. Also called a cognovit.

 

Judicial foreclosure

A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

 

Jumbo loan

A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

 

Late charge

The penalty a borrower must pay when a payment is made a stated number of days after the due date.

 

Lease

A written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time. A contract between a landlord (the lessor) and a tenant (the lessee) transferring the right to exclusive possession and use of the landlord’s real property to the lessee for a specified period of time and for a stated consideration (rent).

 

Leasehold estate

A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.  A tenant’s right to occupy real estate during the term of a lease, generally considered to be a personal property interest.

 

Lease option

An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent, but an additional amount which can be applied toward the down payment on an already specified price.

 

Legal description

A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.  A description of a specific parcel of real estate sufficient for an independent surveyor to locate and identify it. The most common forms of legal description are rectangular survey, metes and bounds, and subdivision lot and block (plat).

 

Lender

A term which can refer to the institution making the loan or to the individual representing the firm. For example, loan officers are often referred to as “lenders.”

 

Lessee

The tenant who leases a property.

 

Lessor

One who leases property to a tenant

 

Leverage

The use of borrowed money to finance the bulk of an investment.

 

Levy

To assess, seize, or collect. To levy a tax is to assess a property and set the rate of taxation. To levy an execution is to seize officially the property of a person to satisfy an obligation.

 

Liabilities

A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

 

Liability insurance

Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. It may be part of a homeowner’s insurance policy.

License

A privilege or right granted to a person by a state to operate as a real estate broker or salesperson.  The revocable permission for a temporary use of land – a personal right that cannot be sold.

 

Lien

A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.  A right given by law to certain creditors to have their debt paid out of the property of a defaulting debtor, usually by means of a court sale.

 

Life cap

For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage.

 

Life estate

An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person.

 

Life tenant

A person in possession of a life estate.

 

Line of credit

An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

 

Liquid asset

A cash asset or an asset that is easily converted into cash.

 

Liquidated damages

Damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach.

 

Liquidity

The ability to sell an asset and convert it into cash at a price close to its true value.

 

Lis pendens

A public notice that a lawsuit affecting title to or possession, use, and enjoyment of a parcel of real estate has been filed in either a state or federal court.

 

Listing agreement

A contract between a landowner (as principal) and a licensed real estate broker (as agent) by which the broker is employed as agent to list and sell real estate on the owner’s terms within a given time, for which service the landowner agrees to pay a commission.

 

Listing broker

The broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the selling broker, from whose office negotiations leading to a sale are initiated. The listing broker and the selling broker may, of course, by the same person.

 

Littoral rights

  1. A landowner’s claim to use water in large lakes and oceans adjacent to her or his property. 2. The ownership rights to land bordering these bodies of water up to the high-water mark.

Loan

A sum of borrowed money (principal) that is generally repaid with interest.

 

Loan officer

Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.

 

Loan origination

How a lender refers to the process of obtaining new loans.

 

Loan servicing

After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

 

Loan-to-value (LTV)

The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

 

Lock-in

An agreement in which the lender guarantees a specified interest rate for a certain amount of time at a certain cost.

 

Lock-in period

The time period during which the lender has guaranteed an interest rate to a borrower.

 

Management agreement

A contract between the owner of income property and a management firm or individual property manager outlining the scope of the manager’s authority.

 

Margin

The difference between the interest rate and the index on an adjustable rate mortgage. The margin remains stable over the life of the loan. It is the index which moves up and down.

 

Marginal lease

A lease agreement that barely covers the costs of operation for the property.

 

Marginal real estate

Land that barely covers the costs of operation.

 

Marketable title

A good or clear salable title reasonably free from risk of litigation over possible defects.

 

Market price

The actual selling price of a property.

 

 

 

Market value

The most profitable price a property will bring in a competitive and open market under all conditions requisite to a fair sale. The price at which a buyer would buy and a seller would sell, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

 

Material defect

A specific issue with a system or component of a residential property that may have a significant, adverse impact on the value of the property, or that poses an unreasonable risk to people.  The fact that a system or component is near, at, or beyond the end of its normal, useful life is not, in itself, a material defect.

 

Maturity

The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

 

Merged credit report

A credit report which reports the raw data pulled from two or more of the major credit repositories. Contrast with a Residential Mortgage Credit Report (RMCR) or a standard factual credit report.

 

Mechanic’s lien

A statutory lien created in favor of contractors, laborers, and materialmen or material suppliers who have performed work or furnished materials in improving real property.

Metes-and-Bounds description

A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using direction and distances around the tract, back to the point of beginning.

Mill

A tax rate used by municipalities to compute property tax.

Millage rate

A property tax rate obtained by dividing the total assessed value of all the property in the tax district into the total amount of revenue needed by the taxing district. This millage rate then is applied to the taxable value of each property in the district to determine individual taxes.

Misrepresentation

To represent falsely; to give an untrue idea of a property. May be accomplished by omission or concealment of a material fact.

Modification

Occasionally, a lender will agree to modify the terms of your mortgage without requiring you to refinance. If any changes are made, it is called a modification.

Money judgment

A court judgment ordering payment of money rather than specific performance of a certain action.

Money market

Those institutions, such as banks, savings-and-loan associations, and life insurance companies, who supply money and credit to borrowers.

Month-to-Month tenancy

A periodic tenancy – the tenant rents for one period at a time. In the absence of a rental agreement (oral or written), a tenancy generally is considered to be from month to month.

Monthly Mortgage

The monthly principal and interest that is due on the loan.

Monument

Fixed natural or artificial objects, used in metes-and-bounds description, to establish the boundaries; located at the corners.

 

Mortgage

A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds.  A conditional transfer or pledge of real estate as security for a loan. Also, the document creating a mortgage lien.

 

Mortgage banker

For a more complete discussion of mortgage banker, see “Types of Lenders.” A mortgage banker is generally assumed to originate and fund their own loans, which are then sold on the secondary market, usually to Fannie Mae, Freddie Mac, or Ginnie Mae. However, firms rather loosely apply this term to themselves, whether they are true mortgage bankers or simply mortgage brokers or correspondents.

 

Mortgage broker

A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.  A person who works with lenders and buyers/borrowers to facilitate the loan process.

 

Mortgagee

The lender in a mortgage agreement.

 

Mortgage insurance (MI)

Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Mortgages above 80% LTV that call themselves “No MI” are usually a made at a higher interest rate. Instead of the borrower paying the mortgage insurance premiums directly, they pay a higher interest rate to the lender, which then pays the mortgage insurance themselves. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

 

Mortgage insurance premium (MIP)

The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

 

Mortgage lender

An entity that loans money, acquiring a security interest in the property.

Mortgage lien

A lien or charge on a mortgagor’s property that secures the underlying debt obligations.

Mortgage life and disability insurance

A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability.

 

Mortgage types: Adjustable-rate Mortgage and Fixed-rate Mortgage

 

Mortgage Payments

The total amount of payments due over the life of the loan.

 

Mortgagor

The borrower in a mortgage agreement.  One who, having all or part of title to property, pledges that property as security for a debt; the borrower.

 

Multidwelling units

Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

 

Municipal ordinances

The laws, regulations, and codes enacted by the governing body of a municipality.

 

Mutual rescission

The act of putting an end to a contract by mutual agreement of the parties.

 

Negative amortization

Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called “deferred interest.” The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

 

Negligence

Carelessness and inattentiveness resulting in violation of trust. Failure to do what is required.

 

Net operating income

The gross income of the property minus vacancy, collection losses, and operating expenses (not including debt service).

 

Net lease

A lease requiring the tenant to pay not only rent but also costs incurred in maintaining the property, including taxes, insurance, utilities, repairs. If the tenant pays for everything, it is referred to as a triple net lease.

 

No cash-out refinance

A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is calculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage. Often referred to as a “rate and term refinance.”

 

Notarize

To certify or attest to a document, as by a notary public.

 

Notary public

A public official authorized to certify and attest to documents, take affidavits, take acknowledgments, administer oaths, and perform other such acts.

 

Note

A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.  An instrument of credit given to attest a debt.

 

Note rate

The interest rate stated on a mortgage note.

 

Notice of default

A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Offer and notification of acceptance

The two components of a valid contract; a “meeting of the minds.”

 

Officer’s deed

A deed by sheriffs, trustees, guardians, etc.

One hundred percent commission plan

 

A salesperson compensation plan by which the salesperson pays his or her broker a monthly service charge to cover the costs of office expenses and receives 100% of the commissions from the sales that he or she negotiates.

 

Open-end mortgage

A mortgage loan expandable by increments up to maximum dollar amount, all of which is secured by the same original mortgage.

 

Open listing

A listing contract under which the broker’s commission is contingent on the broker producing a “ready, willing, and able” buyer before the property is sold by the seller or another broker; the principal (owner) reserves the right to list the property with other brokers.

 

Option

The right to purchase property within a definite time at a specified price. No obligation to purchase exists, but the seller is obligated to sell if the option holder exercises the right to purchase.

 

Optionee

The party that receives and holds an option.

 

Optionor

The party that grants or gives an option.

 

Original principal balance

The total amount of principal owed on a mortgage before any payments are made.

 

Origination fee

On a government loan the loan origination fee is one percent of the loan amount, but additional points may be charged which are called “discount points.” One point equals one percent of the loan amount. On a conventional loan, the loan origination fee refers to the total number of points a borrower pays.  A processing fee issued by a lender during the creation of the loan.

 

Owner financing

A property purchase transaction in which the property seller provides all or part of the financing.

 

Ownership

The exclusive right to hold, possess or control, and dispose of a tangible or intangible thing. Ownerships may be held by a person, corporation, or governmental entity.

 

Package mortgage

A method of financing in which the purchase of the land also finances the purchase of certain personal property items.

 

Parol evidence rule

A law that states that no prior or contemporary oral or extraneously written agreement can change the terms of a contract.

 

Partial eviction

A case in which the landlord’s negligence deprives the tenant of the use of all or part of the premises.

 

Partial payment

A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

 

Participation financing

A mortgage in which the lender participates in the income of the mortgaged venture beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate.

 

Partition

The division of cotenants’ interests in real property when the parties do not all voluntarily agree to terminate the co-ownership; takes place through court procedures.

 

Partnership

An association of two or more individuals who carry on a continuing business for profit as co-owners. A partnership is regarded as a group of individuals rather than as a single entity. A general partnership is a typical form of joint venture in which each general partner shares in the administration, profits, and losses of the operation. A limited partnership is a business arrangement by which the operation is administered by one or more general partners and funded by limited or silent partners, who are by law responsible for losses only to the extent of their investment.

 

Party wall easement

A wall that is located on or at a boundary line between two adjoining parcels for the use of the owners of both properties.

 

Payee

The party that receives payment.

 

Payment change date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM).

 

Payor

The party that makes payment to another.

 

Percentage lease

A lease commonly used for retail property in which the rental is based on the tenant’s gross sales at the premises; often stipulates a base monthly rental plus a percentage of any gross sales above a certain amount.

 

Performance bond

A binding agreement, often accompanied by surety and usually posted by one who is to perform work for another, that assures that project or undertaking will be completed as per the agreement or contract.

 

Personal assistant

An individual working for a broker or salesperson who handles non-sales-related aspects of real estate transactions. If the personal assistant is licensed, then he or she can also handle the sales-related aspects of the transaction.

 

Personal property

Any property that is not real property.  Items, called chattels, that do not fit into the definition of real property; movable objects.

 

Physical deterioration

A reduction in utility resulting from an impairment of physical condition. For purposes of appraisal analysis, it is most common and convenient to divide physical deterioration into curable and incurable components.

 

PITI

This stands for principal, interest, taxes and insurance.

 

PITI reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

 

Planned unit development (PUD)

A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. Contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

 

Plat

A map of a town, section, or subdivision indicating the location and boundaries of individual property.

 

Plat book

A book containing recorded subdivisions of land.

 

Point

A point is 1 percent of the amount of the mortgage.  A unit of measurement used for various loan charges; one point equals one percent of the amount of the loan.

 

Power of attorney

A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.  A written instrument authorizing a person (the attorney-in-fact) to act on behalf of the maker to the extent indicated in the instrument.

 

Pre-approval

A loosely used term which is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.  A statement from a lender that you possess enough means to secure a loan. It is not a commitment to lend you money.

 

Premises

The specific section of a deed that states the names of the parties, recital of consideration, operative words of conveyance, legal property description, and appurtenance provisions.

 

Prepayment

Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

 

Prepayment clause

In a mortgage, the statement of the terms on which the mortgagor may pay the entire or stated amount of the mortgage principal at some time prior to the due date.

 

Prepayment penalty

A fee that may be charged to a borrower who pays off a loan before it is due.  A charge imposed on a borrower by a lender for early payment of the loan principal to compensate the lender for interest and other charges that would otherwise be lost.

 

Pre-qualification

This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The loan officer may or may not have reviewed documentation or a credit report on the borrower.

 

Prime rate

The interest rate that banks charge to their preferred customers. Changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit. Changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of mortgage loans.

 

Principal

  1. The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage. A sum lent or employed as a fund or investment, as distinguished from its income or profits. 2. The original amount (as in a loan) of the total due and payable at a certain date. 3. A main party to a transaction – the person for whom the agent works.

 

Principal balance

The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

 

Principal, interest, taxes, and insurance (PITI)

The four components of a monthly mortgage payment on impounded loans. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

 

Priority (liens)

The order of position or time. The priority of liens generally is determined by the chronological order in which the lien documents are recorded; tax liens (like special assessments), however, have priority, even over previously recorded liens.

 

Private mortgage insurance (PMI)

Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require PMI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

 

Promissory note

A written promise to repay a specified amount over a specified period of time.

 

Public auction

A meeting in an announced public location to sell property to repay a mortgage that is in default.

 

Planned Unit Development (PUD)

A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.

 

Probate

The formal judicial proceeding to prove or confirm the validity of a will or proof of heirship and to settle the affairs of the deceased.

 

Procuring cause

The effort that brings about the desired result. Under an open listing, the broker who is the procuring cause of the sale receives the commission.

 

Property disclosure acts

State mandated seller’s property disclosure reports. These reports place the burden of defect disclosure on the seller. Agents are not required to discover property defects but are required to disclose them if they are known.

 

Property management

The operation of the property of another for compensation. Includes marketing space; advertising and rental activities; collecting, recording, and remitting rents; maintaining the property; tenant relations; hiring employees; keeping proper accounts; and rendering periodic reports to the owner.

 

Property tax

Taxes levied by the government against either real or personal property. The right to tax real property in the United States rests exclusively with the states, not with the federal government.

 

Proration

The proportional division or distribution of expenses of property ownership between two or more parties. Closing statement prorations generally include taxes, rents, insurance, interest charges, and assessments.

 

Prospectus

A printed advertisement usually in pamphlet form, presenting a new development, subdivision, business venture, or stock issue.

 

Public utility easement

A right granted by a property owner to a public utility company to erect and maintain poles, wires, and conduits on, across, or under her or his land for telephone, electric power, gas, water, or sewer installation.

 

Pur autre vie

Latin, meaning “for the life of another.” A life estate pur autre vie is a life estate measured by the life of a person other than the grantee.

 

Purchase agreement

A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

 

Purchase-money mortgage

A note secured by a mortgage or deed of trust given by a buyer, as a mortgagor, to a seller, as a mortgagee, as part of the purchase price of the real estate.

 

Purchase money transaction

The acquisition of property through the payment of money or its equivalent.

 

Qualifying

The act of determining a prospect’s financial readiness and motivation, then matching his or her needs with the available inventory.

 

Qualifying ratios

Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The “top” or “front” ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The “back” or “bottom” ratio includes housing costs as will as all other monthly debt.

 

Quitclaim deed

A conveyance by which the grantor transfers whatever interest he or she has in the real estate without warranties or obligations.

 

Rate lock

A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specified interest rate for a specified period of time at a specific cost.

 

“Ready, willing, and able” buyer

One who is prepared to buy property on the seller’s terms and is ready to take positive steps to consummate the transaction.

 

Real estate

Land; a portion of the earth’s surface extending downward to the center of the earth and upward infinitely into space, including all things permanently attached thereto, whether by nature or by man.

 

Real estate agent

A person licensed to negotiate and transact the sale of real estate.

 

Real estate broker

Any person, partnership, association, or corporation that sells (or offers to sell), buys (or offers to buy), or negotiates the purchase, sale, or exchange of real estate, or that leases (or offers to lease) or rents (or offers to rent) any real estate or the improvements thereon for others and for a compensation or valuable consideration. A real estate broker may not conduct business without a real estate broker’s license.

 

Real Estate Investment Trust (REIT)

Ownership of real estate by a group of individual investors who purchase certificates of ownership in a trust. The trust invests in real property and distributes the profits back to the investors free of corporate income tax.

 

Real Estate Settlement Procedures Act (RESPA)

The federal law ensuring that the buyer and seller in a real estate transaction have knowledge of all the settlement costs when the purchase of a one to four-family residential dwelling is financed by a federally related mortgage loan. Prohibits kickbacks. A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

 

Reality of consent

An element of all valid contracts. Offer and acceptance in a contract usually are taken to mean that reality of consent also is present. This is not the case, however, if any of the following are present: mistake, misrepresentation, fraud, undue influence, or duress.

 

Real property

Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.  Real property consists of land, anything affixed to it so as to be regarded as a permanent part of the land, that which is appurtenant to the land, and that which is immovable by law, including all rights and interests.

 

REALTOR®

A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of REALTORS®.

 

Recapture

In the year of sale, all depreciation or cost recovery taken on depreciable property in excess of the amount allowed by the straight-line method is subject to recapture provisions as established by the IRS, which has the effect of taxing the excess at ordinary income rates. Recapture is designed to prevent a taxpayer from taking advantage of both accelerated depreciation and capital gain treatment.

 

Receiver

The court-appointed custodian of property involved in litigation, pending final disposition of the matter before the court.

 

Reconciliation

The final step in the appraisal process in which the appraiser reconciles the estimates of value received from the market/data, cost, and income approaches to arrive at a final estimate of market value for the subject property. An accounting procedure that balances a trust account by comparing the general ledger with the combined total of the account’s individual ledger balances.

 

Recorder

The public official who keeps records of transactions that affect real property in the area. Sometimes known as a “Registrar of Deeds” or “County Clerk.”

 

Recording

The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.  The act of entering or recording documents affecting or conveying interests in real estate in the recorder’s office established in each county. Until recorded, a deed or mortgage generally is not effective against subsequent purchases or mortgage liens.

 

Recovery fund

A fund established in some states from real estate license funds to cover claims of aggrieved parties who have suffered monetary damage through the actions of a real estate licensee. To protect the public, some states mandate errors and omissions insurance as a requirement for licensure.

 

Rectangular survey system

A system established in 1785 by the federal government that provides for surveying and describing land by reference to principal meridians and base lines.

 

Redemption period

A period of time established by state law during which a property owner has the right to redeem her or his real estate from a foreclosure or tax sale by paying the sales price, interest, and costs. Many states do not have mortgage redemption laws.

 

Redlining

The illegal practice of denying loans or restricting their number for certain areas of a community.

 

Refinance transaction

The process of paying off one loan with the proceeds from a new loan using the same property as security.  The act of acquiring a new mortgage to replace the old mortgage, oftentimes advantageous to the borrower.

 

Regulation Z

A regulation of the Federal Reserve Board designed to ensure that borrowers and customers in need of consumer credit are given meaningful information with respect to the cost of credit.

 

Release

To relinquish an interest in or claim to a parcel of property.

 

Relocation service

An organization that aids a person in selling a property in one area and buying another property in another area.

 

Remaining balance

The amount of principal that has not yet been repaid.

 

Remaining term

The original amortization term minus the number of payments that have been applied.

 

Renegotiable rate mortgage

A mortgage loan that is granted for a term of 3 to 5 years and secured by a long-term mortgage of up to 30 years with the interest rate being renegotiated or adjusted each period.

 

Rent

A fixed, periodic payment made by a tenant of a property to the owner for possession and use; usually by prior agreement of the parties.

 

Rent loss insurance

Insurance that protects a landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

 

Rent schedule

A statement of proposed rental rates, determined by the owner or the property manager or both, based on a building’s estimated expenses, market supply and demand, and the owner’s long-range goals for the property.

 

Repayment plan

An arrangement made to repay delinquent installments or advances.

 

Replacement cost

The cost of construction at current prices of a building having utility equivalent to the building being appraised but built with modern materials and according to current standards, designs, and layout.

 

Replacement reserve fund

A fund set aside for replacement of common property in a condominium, PUD, or cooperative project — particularly that which has a short life expectancy, such as carpeting, furniture, etc.

 

Reproduction cost

The cost of construction at current prices of an exact duplicate or replica using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, superadequacies, and obsolescences of the subject building.

 

Recission

The withdrawal of an offer or counter-offer prior to acceptance.  The act, process of rescinding a contract.

 

Reservation in a deed

The creation by a deed to property of a new right in favor of the grantor. Usually involves an easement, a life estate, or a mineral interest.

 

Restriction

A limitation on the use of real property, generally originated by the owner or subdivider in a deed.

 

Reverse annuity mortgage

A mortgage loan that allows the owner to receive periodic payments based on the equity in the home.

 

Reversion

The remnant of an estate that the grantor holds after he or she has granted a life estate to another person; the estate will return or revert to the grantor. Also called a reverter.

Reversionary right

An owner’s right to regain possession of leased property on termination of the lease agreement.

 

Revolving debt

A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed for the amount that is actually borrowed plus any interest due.

 

Rezoning

The process involved in changing the existing zoning of a property or area.

 

Right of first refusal

A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.  A person’s right to have the first opportunity to either lease or purchase real property.

 

Right of ingress or egress

The right to enter or leave designated premises.

 

Right of survivorship

In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

 

Riparian rights

An owner’s rights in land that borders flowing water, such as a stream or river. These rights include access to and use of the water.

 

Rural development

A federal agency of the U.S. Department of Agriculture that channels credit to farmers and rural residents and communities; formerly known as the Farm Service Agency and Farmer’s Home Administration (FmHA).

 

Sale-leaseback

A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.  A transaction in which an owner sells her or his improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.

 

Sales contract

A contract containing the complete terms of the agreement between buyer and seller for the sale of a particular parcel or parcels of real estate.

 

Salesperson

A person who has passed the salesperson’s licensing examination and is licensed to work only on behalf of a licensed broker and who may be allowed to manage an office.  A person who performs real estate activities while employed by or associated with a licensed real estate broker.

 

Satisfaction

A document acknowledging the payment of a debt. Once filed, the collateral pledged (mortgage) is returned to the mortgagor for a “mortgage burning party.”

 

Second mortgage

A mortgage that has a lien position subordinate to the first mortgage.  An additional mortgage on a property.

 

Secondary market

The buying and selling of existing mortgages, usually as part of a “pool” of mortgages.

 

Secured loan

A loan that is backed by collateral.

 

Security

The property that will be pledged as collateral for a loan.

 

Self-proving will

A will in which the witnesses give their testimony at the time of signing. This testimony is preserved in a notarized affidavit to eliminate the problem of finding the witnesses at the maker’s death and to assist in the probating procedure.

 

Seller carry-back

An agreement in which the owner of a property provides financing, often in combination with an assumable mortgage.

 

Separate property

The real property owned by a husband and wife prior to their marriage.

 

Servicer

An organization that collects principal and interest payments from borrowers and manages borrowers’ escrow accounts. The servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

 

Servicing

The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

 

Servient tenement

The land on which an easement exists in favor of an adjacent property; also called a servient estate.

 

Setback

The amount of space local zoning regulations require between a lot line and building line.

 

Settlement statement

See HUD1 Settlement Statement

 

Severalty

The ownership of real property by one person only; also called sole ownership.

 

Short sale

A sale of secured property that produces less money than is owed to the lender, but in order to expedite the sale and avoid foreclosure expense, the lender releases its interest so the property can be sold.

 

Situs

The personal preference of people for one area of land over another, not necessarily based on objective facts and knowledge.

 

Sovereignty of the soil

The beginning of the record of ownership of land by conveyance from the sovereign or the state. Historically, this is known also as a patent.

 

Special assessment

A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.

 

Special warranty deed

A deed in which the grantor warrants or guarantees the title only against defects arising during the period of his or her tenure and ownership of the property and not against defects existing before that time, generally using the language “by, through, or under the grantor but not otherwise.”

 

Specific lien

A lien affecting or attaching only to a certain, specific parcel of land or piece of property.

 

Specific performance suit

A legal action brought in a court of equity in special cases to compel a party to carry out the terms of a contract. The basis for an equity court’s jurisdiction in breach of a real estate contract is that land is unique, and mere legal damages would not adequately compensate the buyer from the seller’s breach.

 

Sponsoring broker

A duly licensed real estate broker who employs a salesperson. Under law, the broker is responsible for the acts of her or his salespeople.

 

Squatter’s rights

Those rights acquired through adverse possession. By “squatting” on land for a certain statutory period under prescribed conditions, one may acquire title by limitations. If an easement only is acquired, instead of the title to the land itself, one has title by prescription, or easement by prescription.

 

Statute of frauds

The part of a state law that requires certain instruments, such as deeds, real estate sales contracts, and certain leases to be in writing to be legally enforceable.

 

Statute of limitations

That law pertaining to the period of time within which certain actions must be brought to court.

 

Statutory lien

A lien imposed on property by statute, for example, a tax lien; in contrast to a voluntary lien, which an owner places on his or her own real estate, for example, a mortgage lien.

 

Steering

The illegal practice of channeling home seekers to particular areas or avoiding specific areas, either to maintain or to change the character of an area, or to create a speculative situation.

 

Stigmatized property

A property regarded by some as undesirable because of events that have occurred on the property, like murder or suicide, or present paranormal activities. Sometimes, proximity to undesirable property causes a property to become stigmatized, too.

 

Straight-line method

A method of calculating depreciation for tax purposes computed by dividing the adjusted basis of a property less its estimated salvage value by the estimated number of years of remaining useful life.

 

Subagency

An agent appoints a subagent to help the agent in a specified transaction and to act on the principal’s behalf.

 

Subdivision

A housing development that is created by dividing a tract of land into individual lots for sale or lease.  A tract of land divided by the owner, known as the subdivider, into blocks, building lots, and streets according to recorded subdivision plat that must comply with local ordinances and regulations.

 

Subletting

T  he leasing of premises by a lessee to a third party for part of the lessee’s remaining term.

 

Subordination

A relegation to a lesser position usually in respect to a right or security.

 

Subordination agreement

An agreement that changes the order of priority of liens between two creditors.

 

Subordinate financing

Any mortgage or other lien that has a priority that is lower than that of the first mortgage.

 

Subrogation

The substitution of one creditor for another, with the substituted person succeeding to the legal rights and claims of the original claimant. Subrogation is used by title insurers to acquire the right the sue from the injured party to recover any claims they have paid.

 

Suit for possession

A court suit initiated by a landlord to evict a tenant from leased premises after the tenant has breached one of the terms of the lease or has held possession of the property after the expiration of the lease.

 

Suit for specific performance

A legal action brought by either a buyer or a seller to enforce performance of the terms of a contract.

 

Suit to quiet title

A legal action intended to establish or settle the title to a particular property, especially when there is cloud on the title.

 

Summation appraisal

An approach under which value equals estimated land value plus reproduction costs of any improvements after depreciation has been subtracted.

 

 

Supply

The amount of goods available in the market to be sold at given price. The term often is coupled with demand.

 

Surety bond

An agreement by an insurance or bonding company to be responsible for certain possible defaults, debts, or obligations contracted for by an insured party; in essence, a policy insuring one’s personal and/or financial integrity. In the real estate business, a surety bond generally is used to ensure that a particular project will be completed at a certain date or that a contract will be performed as stated.

 

Survey

A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.  The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and positions of buildings on a lot, including the determination of any existing encroachments or easements.

 

Sweat equity

Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

 

Syndicate

A combination of two or more persons or firms to accomplish a joint venture of mutual interest. Syndicates dissolve when the specific purpose for which they were created has been accomplished.

 

Taxation

The process by which a government or municipal quasi-public body raises monies to fund its operation.

 

Tax lien

A charge against property created by the operation of law. Tax liens and assessments take priority over all other liens.

 

Tax rate

The rate at which real property is taxed in a tax district or county.

 

Tax sale

A court-ordered sale of real property to raise money to cover delinquent taxes.

 

Tenancy at sufferance

The tenancy of a lessee who lawfully comes into possession of a landlord’s real estate but who continues to occupy the premises improperly after her or his lease rights have expired.

 

Tenancy at will

An estate that gives the lessee the right to possession until the estate is terminated by either party; the term of this estate is indefinite.

 

Tenancy by the entirety

The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. On the death of one spouse, the survivor becomes the owner of the property.

 

 

Tenancy in common

As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.  A form of co-ownership by which each owner holds an undivided interest in real property as if he or she were the sole owner. Each individual has the right to partition. Unlike a joint tenancy, there is no right of survivorship between tenants in common, and owners may have unequal interests.

 

Tenant

One who holds or possesses lands or tenements by any kind of right of title.

 

Tenement

Everything that may be occupied under a lease by a tenant.

 

Termination (lease)

The cancellation of a lease by the action of either party. A lease may be terminated by expiration of the term, surrender and acceptance, constructive eviction by lessor, or option, when provided in the lease for breach of covenants.

 

Termination (listing)

The cancellation of a broker-principal employment contract. A listing may be terminated by death or insanity of either party, expiration of listing period, mutual agreement, sufficient written notice, or the completion of performance under the agreement.

 

Testate

Having made and left a valid will.

 

Testator

A will maker

 

Third-party origination

A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

 

“Time is of the essence”

A phrase in a contract that requires the performance of a certain act within a stated period of time.

 

Title

A legal document evidencing a person’s right to or ownership of a property.

 

Title company

A company that specializes in examining and insuring titles to real estate.

 

Title insurance

Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.  Insurance designed to indemnify the holder for loss sustained by reason of defects in a title, up to and including the policy limits.

 

Title search

A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.  A title company’s review of the deed and the (potential) claims upon it.

 

Torrens system

A method of evidencing title by registration with the proper public authority, generally called the registrar.

 

Township

The principal unit of the rectangular survey system. A township is a square with six-mile sides and an area of 36 square miles.

 

Township lines

The horizontal lines running at six-mile intervals parallel to the base lines in the rectangular survey system.

 

Trade fixtures

The articles installed by a tenant under the terms of a lease and removable by the tenant before the lease expires.

 

Transfer of ownership

Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property “subject to” the mortgage, the assumption of the mortgage debt by the property purchaser, and any exchange of possession of the property under a land sales contract or any other land trust device.

 

Transfer tax

State or local tax payable when title passes from one owner to another.

 

Treasury index

An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.

 

Trust

A fiduciary arrangement by which property is conveyed to a person or institution, called a trustee, and held and administered on behalf of another person, called a beneficiary.

 

Trust deed

An instrument used to create a lien by which the trustor conveys his or her title to a trustee, who holds it as security for the benefit of the note holder (the lender).

 

Trustee

One who as agent for others handles money or holds title to their land

 

Trustee’s deed

A deed executed by a trustee conveying land held in a trust to the beneficiary.

 

Truth-in-Lending

A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.

 

 

Two-step mortgage

An adjustable-rate mortgage (ARM) that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the amortization term.

 

Two-to four-family property

A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

 

Trustee

A fiduciary who holds or controls property for the benefit of another.

 

Unearned increment

An increase in the value of a property caused by increased population, development, or demand for which the owner is not responsible.

 

Uniform Commercial Code

A codification of commercial law, adopted in most states, that attempts to make uniform laws relating to commercial transactions, including chattel mortgages and bulk transfers. Security interests in chattels are created by an instrument known as a security agreement.

 

Uniform Residential Appraisal Report (URAR)

Standard Fannie Mae Form used by appraisers.

 

Uniform Residential Loan Application Report (URLA)

Standard Fannie Mae Form used by loan originators.

 

Unilateral contract

A one-sided contract by which one party makes a promise to induce a second party to do something. The second party is not legally bound to perform; if the second party does comply, however, the first party is obligated to keep the promise.

 

Unity of ownership

The four unities traditionally needed to create a joint tenancy – unity of title, time, interest, and possession.

 

Urban renewal

The acquisition of run-down city areas for purposes of redevelopment.

 

Useful life

In real estate investment, the number of years a property will be useful to the investors.

 

Usury

The practice of charging more than the rate of interest allowed by law.

 

Valid contract

A contract that complies with all the essential elements on a contract and is binding and enforceable on all parties to it.

 

Valid lease

An enforceable lease that has the following essential parts: lessor and lessee with contractual capacity, offer and acceptance, legality of object, description of the premises, consideration, signatures, and delivery. Leases for more than one year also must be in writing.

 

Value

The present worth of future benefits arising from the ownership of real property. To have value, a property must have utility, scarcity, effective demand, and transferability.

 

Variable rate mortgage

A mortgage loan that contains an interest rate provision related to a selected index. Under this provision, the interest rate may be adjusted annually either up or down.

 

Variance

An exception from the zoning ordinances; permission granted by zoning authorities to build a structure or conduct a use that is expressly prohibited by zoning ordinance.

 

VA mortgage

A mortgage that is guaranteed by the Department of Veterans Affairs (VA).

 

Vested

Having the right to use a portion of a fund such as an individual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.

 

Veterans Administration (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

 

Writ of attachment

The method by which a debtor’s property is placed in the custody of the law and held as security, pending the outcome of a creditor’s suit.

 

 

Terms related to real estate auctions can be found at the

National Association of REALTORS® website:   

 

https://www.nar.realtor/auction/glossary