Glossary

A

Abstract (of Title)

A historical summary of all the recorded transactions that affect the title to the property. An attorney or a title company will review an abstract of title to determine if there are any problems affecting the title to the property. All such problems must be cleared before the buyer can be issued a clear and insurable title.

Acceleration Clause

A loan provision giving the lender the power to declare all sums owing lender immediately due and payable upon the violation of a specific loan provision, such as the sale of the property, or the failure to make loan payments on time. Example : John sells his property to Mary who takes over John's mortgage payments. They do not notify the lender of this transaction. The lender finds out that the title to the property has transferred and calls the loan, since the loan documents state that the loan is due on the sale of the property. John is now liable to pay his lender in full.

Accretion

The addition to land through natural forces like wind or water.

Example: Soil carried by a river then deposited on land.

Acknowledgment

Formal declaration before a public official (typically a Notary Public) that one has signed a document. Required before recording real estate legal documents, such as a deeds of trust.

Acre

A measure of land equal to 43,560 square feet.

Adjustable Rate Mortgage (ARM)

Also known as a variable rate mortgage. The interest rate on these mortgages changes periodically.

Adjustment Period

The length of time for which the interest rate is fixed on an adjustable. If the adjustment period is six months, then the interest rate will remain fixed for six months, after which time it will adjust.

Agreement of Sale

A written signed agreement between the seller and the purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also known as contract of purchase, purchase agreement, offer and acceptance, earnest money contract or sales agreement.

Amortization

A gradual paying off of a debt by periodic installments which pay principal and interest.

Annual Percentage Rate (APR)

The effective rate of interest for a loan per year. This rate is typically higher than the note rate because it takes into account closing costs. This is one way to compare loan programs offered by different lenders. Caution : the APR is sometimes computed differently by different lenders and can be misleading.

Appraisal

An opinion or estimate of the value of a property at a given date.

Arm's length transaction

A transaction among parties each of who acts in his or her own best interest.

Example: A transaction between a father and his son would NOT be an Arm's length transaction.

Assessment

A local tax levied against a property for a specific purpose such as street lights.

Assumable Mortgage

A mortgage loan which allows a new home buyer to take over the obligation of making loan payments with no change in the terms of the loan. Assumable loans do not have a due-on-sale clause. The lender has to be notified and agree to the assumption. The lender may require the buyer to qualify for the loan and may charge an assumption fee. The seller should obtain a written release from the lender stating clearly that he/she is no longer liable to make mortgage payments. See also "Subject To."

Attorney In Fact

One who is authorized to act for another under a power of attorney which may be general or limited in scope.

Example: John wants to sell his house but has to be out of the country for four months. John gives authorization to Mary to sign the grant deed to sell the property to a buyer. Mary becomes John's Attorney In Fact.

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B

Balloon (Payment) Mortgage

Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.
Example : A balloon mortgage for $25,000 has interest only payments for 5 years at 12 percent ($250 per month), with the full principal of $25,000 due and payable after five years

Bankruptcy

The financial inability to pay one's debts when due. The debtor surrenders his assets to the bankruptcy court. An individual typically files for Chapter 7 (all debts wiped out) or Chapter 13 (establishes a payment plan to pay off debts). A bankruptcy stays on an individual's credit report for seven years.

Beneficiary

The person who receives or is to receive the benefits resulting from certain acts.

Example : The lender is named as the beneficiary on a mortgage loan.

Example : John has a life insurance policy for $100,000 with Jane as his beneficiary. Should John die, Jane will receive the benefits in the amount of $100,000.

Binder

1. A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder.

2. Preliminary agreement, normally secured with earnest money, between a buyer and a seller as an offer to purchase real estate.

Biweekly Mortgage

A mortgage which requires half the normal monthly payment every two weeks. Over the course of the year, twenty-six half payments are made which is equivalent to thirteen full mortgage payments. As a result of this extra payment the loan amortizes much faster than a loan with normal monthly payments

Blanket Mortgage

A mortgage covering more than one piece of property.

Example : A developer subdivides a tract of land into lots and obtains a blanket mortgage on the whole tract.

Bond

1. A debt instrument in the capital markets. The U.S. government, corporations and municipalities use bonds to raise money. Bonds can also be backed by mortgages. The best known bond is the 30-yr. treasury bond issued by the U.S. government.

2. A sum of money given to a court to guarantee against a loss. For example if there is a lien on a property, the owner may remove the lien by posting a bond.

Borrower (mortgagor, trustor)

One who applies for a loan secured by real estate and is responsible for repaying the loan (mortgage).

Bridge Loan

An interim loan typically used when the buyer is unable to sell his/her house but needs money to close the transaction on the house he/she is buying. The bridge loan is made on the buyer's current residence to finance the buyer's new residence. The loan is paid off when the buyer's current residence is sold.

Broker

See Real Estate Broker or Mortgage Broker.

Browser

Short for Web browser, a software application used to locate and display Web pages. The two most popular browsers are Microsoft Internet Explorer and Netscape Navigator.

Buydown

Obtaining a lower interest rate (buying down the rate) by paying additional points to the lender. The lower rate may apply for the full duration of the loan or for just the first few years. A buydown may be used to qualify a borrower who would otherwise not qualify since a buydown results in lower payments.

Example : A very popular buydown is the 2-1 buydown. If the interest rate on the note is 9 percent, the buydown results in the rate being 7 percent (9 percent minus 2 percent) for the first year, 8 percent (9 percent minus 1 percent) for the second year, and 9 percent thereafter.

Buyer's Broker

An agent hired by a buyer to locate a property for purchase. The broker represents the buyer and negotiates with the seller's broker for the best possible deal for the buyer.

Buyer's Market

Market conditions that favor the buyer. I.e., a market in which there are more sellers than buyers. As a result, a buyer has an excess supply of homes from which to choose and can negotiate a lower price. A buyer's market may be caused by an economic slump or overbuilding.

Buying Your Home: Settlement Costs and Information (HUD guide)

A booklet that provides an overview of the lending process and is required to be given to consumers after the loan application is completed.

Bylaws

A set of regulations by which an organization conducts its business.

Example : A condominium association prepares bylaws that state the minimum number of owners to conduct a meeting to decide policies.

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C

Capital Gains

When you sell a capital asset at a profit, such as real estate, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain.

Cash Flow

The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income producing property (mortgage payment, maintenance, utilities, etc.).

Caveat Emptor

A legal term meaning "let the buyer beware." The buyer must examine the property and buy at his/her own risk.
Example : A property may be offered in an "as is" condition with no expressed or implied guarantee of quality or condition.

CC&R's - Covenants, conditions, and restrictions.

The basic rules establishing the rights and obligations of owners of real property within a condominium, townhouse, PUD, subdivision or other tract of land. An association is organized for the purpose of operating and maintaining property commonly owned by the individual owners. The association is normally made up of property owners.

Certificate of Eligibility

The document issued by the Department of Veterans Affairs to those who qualify for a VA loan which may be used to buy a house with zero down. Certificates of eligibility may be obtained by sending the form DD-214 to the local VA office along with VA form 1880.

Certificate of Occupancy

Document issued by a local governmental agency that states a property meets the local building standards for occupancy and is in compliance with public health and building codes. This document is normally required by a lender prior to closing the loan.

Certificate of Reasonable Value (CRV)

An appraisal performed by a VA approved appraiser which establishes the property's current market value. This value establishes the ceiling on the maximum VA mortgage loan principal.

Certificate of Title

An opinion rendered by an attorney as to the status of title to a property, according to the public records. This certificate does not the same level of protection as title insurance.

Chain of Title

The chronological order of conveyance of a parcel of land from the original owner to the present owner.

Example: An abstractor can research title to property going back to the date that the property was granted to the United States.

Clear Title

A marketable title, free of clouds and disputed interests. Most lenders require a clear title prior to closing.

Closing Costs

Expenses incurred by the buyer and seller in a real estate or mortgage transaction. There are two types of costs: recurring and non-recurring.

Non-recurring costs are one time transactional costs which include

• Discount and origination points
• Lender fees: underwriting, processing, document preparations, flood certificate, tax service, wire transfer, courier, etc
• Title insurance fees
• Escrow, attorney or closing agent fees
• Recording fees
• Inspection and appraisal fees
• Real estate brokerage commissions

Recurring fees are costs associated with owning the property and they recur month after month. These costs may include hazard insurance, interest, property taxes, mortgage insurance (PMI), and association fees. A pro-rated amount of these fees may have to be paid at closing including

• Pre-paid interest - interest charges from the date of closing to the end of the month
• Property taxes if due
• Hazard insurance, fire insurance or homeowners insurance has to be paid for one year
• Mortgage insurance (PMI) may be required if the loan amount is more than 80 percent of the value of the property. In the past a whole year of PMI had to be paid up-front, however in recent years many PMI companies only require on to two months up-front. Mortgage insurance premiums are normally paid every month with the loan payment
• Impound account may need money to be set up for future payments

Cloud on Title

An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title. Compare with clear title.

COFI

A monthly cost-of-funds index (COFI) reflecting the average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts. The 11th district covers Arizona, California and Nevada. The index is published on the last day of the month and reflects the cost of funds for the prior month. This rate is used by lenders to determine the index rate for some of their variable rate loan products.

Commitment

A written document provided by a lender to agreeing to make a loan on specific terms to a borrower or builder.

Condemnation

1. Taking private property for a public use with compensation to the owner under eminent domain. Used by governments to acquire land for streets, schools, freeways, etc. and by utilities to acquire necessary property.

2. Declaring a structure unfit for use because of violations in housing codes or other reasons.

Conditional Commitment

A written document provided by a lender agreeing to make a loan provided certain conditions are met prior to closing.

Conditional Sales Contract (Land Contract)

A real estate sales contract in which she seller (vendor) agrees to convey title to the buyer (vendee) after certain conditions have been met and transfer is not required within one year.(installment selling arrangement whereby the buyer may use and occupy land, but no deed is given by seller until the sales price has been paid.

Condominium

Individual ownership in space called a unit with an undivided interest in common in a portion of real property.

Construction loan

A short term loan to pay for the construction of buildings or homes. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.

Consideration

Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration.

Contingency

The requirement that a particular event occur before a contract is binding. For example: The sale of a home can be contingent upon the buyer obtaining financing.

Contract

An agreement between competent parties to do or not do certain things for consideration.

To have a valid contract for the sale of real estate there must be:

• an offer
• an acceptance
• competent parties
• consideration
• legal purpose
• written documentation
• description of the property
• signatures by principals or their attorney-in-fact
  
  

Contract of Sale

See Agreement of Sale

Conventional Loan

Any mortgage loan other than a VA or an FHA loan. A convention loan may be conforming or non-conforming.

Conveyance

The transfer of title of real property from one party to another.

Cooperative (Co-op)

See Stock Cooperative.

Convertible Adjustable Rate Mortgage (ARM)

Some variable loans come with options to convert to a fixed loan based on a pre-determined formula, during a given time period. For example the 1 Year T-Bill ARM may be converted to a fixed rate during the first five years on the adjustment date. One could convert during the thirteenth, twenty-fifth, thirty-seventh, forty-ninth or sixty-first month of the loan.

Credit Report

A report detailing a borrower's credit and payment history including: revolving and installment accounts; public records such as tax liens and judgments.

Credit Score

A credit score is a snapshot of a person's credit risk at a particular point in time. It is used by lenders to help determine if a borrower qualifies for a loan. There are three main credit reporting companies that issue these credit scores. Experian calls it the FICO score, TransUnion calls it Empirica, and Equifax calls it the Beacon.

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Debt Ratio

This is a loan qualifying ratio used by lenders to determine if a borrower qualifies for a loan. The debt (-to-income) ratio is calculated by taking the borrower's monthly debts, including house payments, credit cards and personal loans, and dividing it by the monthly income.

Deed

A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing.

Deed of Trust

A security instrument (document describing the rights and duties of the lender and borrower) used in real estate transactions in many states. The parties to a deed of trust are: trustee (third party), trustor (borrower), beneficiary (lender).

Deed Restriction

A clause in a deed that limits the use of land. Example : A deed might require that a road cannot be built on the land.

Default

Failure to meet legal obligations in a contract, such as the failure to make the monthly mortgage payment.

Defective Title

Any recorded instrument that would prevent a grantor/seller from giving a clear title.

Example: The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien.

Deficiency Judgment

Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc.

Depreciation

When related to the appraisal of property, depreciation is the decrease in value from any cause. When related to taxation, "book depreciation" is a steady decrease (calculated using mathematical formulas or schedules) in the owner's tax basis.

Discount Points

Fees paid to a lender to reduce the interest rate.

Documentary Tax Stamps

Stamps affixed to a deed showing the amount of transfer tax.

Dower

The rights of a widow or child to part of a deceased husband's or father's property.

Downpayment

The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs.

Example : John buys a house for $100,000 and obtains a loan for $80,000. His downpayment is $20,000.

Dragnet Clause

A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.

Due on Sale Clause

A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.

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E

Earnest Money

A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow company.

Easement

The right to use the land of another for a specific purpose. Easements may be temporary or permanent.

Example: The utility company may need an easement to run electric lines.

Eminent Domain

The right of the government or a public utility to acquire property for necessary public use by condemnation, with proper compensation to the owner.

Encroachment

A building, part of a building, or an obstruction (e.g., a fence or wall) that physically intrudes upon or overlaps the property of another.

Encumbrance

Any interest or right in real property possessed by a stranger to the title, which affects the owner's property value, but does not prevent the owner from transferring title. Encumbrances may affect title, or condition or use of the property.

Equity

The market value of real property, less the amount of any liens. Equity is often expressed as a percentage of the property value.

Equity Sharing

Joint ownership of a property between the owner/occupant and the owner/investor, that results in tax advantages for both parties. Upon sale of the property the joint owners split profits based on the percentage they own.

Escheat

The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.

Escrow

1. Delivery of a deed by a grantor to a third party for delivery to the grantee upon the occurrence of a conditional event.

2. Calif. Civil Code Sec.1057: "A grant may be deposited by the grantor with a third person, to be delivered on the performance of a condition, and, on delivery by the depositary, it will take effect. While in the possession of the third person, and subject to condition, it is called an escrow."

Executor (Executrix?feminine for Executor)

A person named in a will to carry out its provisions for the disposition of the estate.

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F

Fannie Mae-Backed Security rates

Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly.

Farmer's Home Administration (FmHA)

An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas.

Fed

Federal Reserve Bank

Federal Discount Rate

The rate that the New York Fed charges for loans to member banks.

Federal Funds Rate

The Rate banks charge each other for overnight loans.

Federal Home Loan Bank Board (FHLBB)

Provides financing to farmers.

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)

Freddie Mac maintains a nationwide secondary market primarily for conventional loans originated by banks, thrift institutions and other HUD-approved lenders. Freddie Mac finances most of its operations through the sale of mortgage Participation Certificates.

Federal Housing Administration (FHA)

An agency within the U.S. Department of Housing and Urban Development (HUD). FHA offers mortgage insurance programs to protect the lender in the event of default. Because lenders are insured against loss, they can make affordable financing available to borrowers who would not otherwise qualify.

Federal National Mortgage Association (FNMA, Fannie Mae)

Provides a secondary market for FHA, VA and conventional loans. Fannie Mae issues mortgage-backed securities and guarantees timely payment their principal and interest to investors.

Federal Reserve System

The central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy.

Fee Simple (Fee Absolute or Fee Simple Absolute)

Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owners life and upon his death the property descends to the owner's designated heirs.

Fico

Fair Isaac Corporation. This credit score is reported on your Experian (formerly TRW) credit report. A FICO score is a snapshot of a person's credit risk at a particular point in time.

Fidelity Bond

An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds.

Example : A landlord employs a clerk who collects rents. To safeguard these funds during the collection process, the landlord purchases a fidelity bond the clerk.

Fiduciary

A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A real estate broker is a fiduciary for his/her clients.

Finance Charge

Interest charged by a lender.

First Mortgage

A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages. See also second mortgage.

Fixture

Personal property attached to the land in such a way as to be considered part of the real property.

Flood Insurance

An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone.

Foreclosure (Repossession)

A legal process in which the right, title and interest of a mortgagor or trustor in real property are terminated by selling the property and applying the proceeds to satisfy liens of creditors.

Framed Page

In HTML, refers to dividing the browser display area into separate sections, each of which is really a different Web page.

Free and clear

A property that has no liens.

FSBO

For sale by owner. A property for sale that is not listed with a real estate broker.

Fully indexed rate

A fully indexed rate is the value of an index plus a margin. See adjustable loans.

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G

General Warranty Deed

A deed in which the grantor (seller) agrees to the protect the grantee (buyer) against any other claim to title of the property. See also warranty deed.

Government National Mortgage Association (GNMA, Ginnie Mae)

A government corporation which guarantees mortgage-backed securities issued by approved lenders. GNMA mortgage-backed securities are considered by many to be as safe as Treasury securities.

Grantee

That party in the deed who is the buyer or recipient.

Graduated Payment Mortgage (GPM)

A trust deed or mortgage requiring increasingly higher payments during the life of the loan. Negative amortization may occur under some circumstances.

Grandfather Clause

The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible.

Grantor

That party who is the seller or the giver.

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H

Hazard Insurance (Fire Insurance, Homeowners insurance)

A type of real estate insurance providing protection against loss due to fire and other risks.

Home Page

The main page of a web site. This is usually the first page that comes up on the computer screen. Typically, the home page serves as an index or table of contents to other documents available at the site. It is also referred to as the Index page.

Home Warranty Plan

Insurance that covers appliances, heating systems, etc. Typically purchased at the time of closing.

Homeowners Association

An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.

Homestead

Status provided to a homeowner's principal residence that protects the home against certain types of judgments.

Homestead Exemption

A statutory exemption shielding real homestead property against the rights of certain creditors. Regarding taxation: an exemption reducing the assessed value of a principal residence for the purposes of calculating property tax. E.g., John's principal residence is assessed at $100,000 and the homestead exemption is $7,000. His property taxes will be based on $93,000.

Housing and Urban Development

A U.S. government agency established to implement certain federal housing and community development programs.

Housing Code

A local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

HTML

Short for Hyper Text Markup Language, the authoring language used to create documents on the World Wide Web

HUD 1

A closing document required by HUD that outlines the settlement cost of a loan. The closing agent prepares this document and sends it to the buyer upon closing.

Hypothecate

To pledge a property as security without having to give up possession of it.

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I

Impound Account

That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Improvements

Additions to raw land such as buildings, streets, etc. that add value to the land.

Income (Capitalization) Approach

An appraisal method used for the valuation of income-producing property in which net income is capitalized.

Income Property

Real estate that generates rental income. Examples: apartment buildings, office buildings and shopping centers.

Index

A statistic that indicates some current economic of financial condition. Indexes are used to make adjustments in variable rate loans.

Inflation

In economics, inflation is an increase in the general level of prices of a given kind. General inflation is a fall in the market value or purchasing power of money within an economy, and is referred to as a rise in the general level of prices.

Ingress and Egress

The right to pass through a piece of property. See Easements.

Installment Sale

1. Re. Taxation: When selling real property and receiving one or more payments in subsequent years, the taxpayer may report the sale as an installment sale. This allows the taxpayer to defer the recognition of gain over many years and save taxes.

2. Installment sale land contract. See Conditional Sales Contract.

Interest Only

An interest-only loan program is a loan program that has an interest-only payment option. The loan can be a fixed rate or variable rate program. The interest only monthly payment is the amount of the interest rate times the original loan amount divided by twelve. No principal is paid, and the loan balance does not decrease. You may pay the interest only payment amount or pay the fully amortized payment amount. The interest only payment option is only available in the initial years of the loan term. Conforming loan programs have the interest only term for ten to fifteen years. Jumbo programs vary from three years up to ten years.

ISP

Internet Service Provider, a company that provides access to the Internet. For a monthly fee, the service provider gives you a software package, username, password and access phone number. You can then log on to the Internet and browse the World Wide Web, and send and receive e-mail.

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J

Joint and Several Liability

A creditor can demand full repayment from any and all of those who have borrowed. Each borrower is liable for the full debt, not just the prorated share.

Joint Tenancy

Ownership of a property by two or more people, each of whom has an undivided interest with the right of survivorship.

Example: John and Mary own a house in joint tenancy. Each owns half of the entire (undivided) property. If John dies, Mary will own the entire property and vice versa.

Judgment

The decision of a court of law stating that one individual is indebted to another and fixing the amount of indebtedness. Judgments, when recorded, become a lien on real property owned by the defendant.

Judgment Lien

The claim on the property of a debtor resulting from a judgment.

Jumbo Loan

Loan size that is larger than the conforming loan limit established by the Fannie Mae or Freddie Mac.

Junior Mortgage

A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage will be paid prior to a junior mortgage.

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K

Kicker

A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.

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L

Land Contract

See Conditional Sales Contract

Leasehold Estate

Tenant's right of possession for a specific period of time under a lease agreement.

Lease with Option to Purchase

A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease

Legal Description

Legally acceptable identification of real estate by one of the following:

• the government rectangular survey
• metes and bounds
• recorded plat (lot and block number)

Lessee

A person to whom property is rented under a lease. (Tenant)

Lessor

A person who rents property to another under a lease. (Landlord)

Libor

London Interbank Offered Rates. Average London Eurodollar rates. The Libor Index rate is used in many variable loan programs.

Life Estate

An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party.

Lien

A claim against the property for the payment of a debt, judgment, mortgage or taxes.

Example : Unpaid contractors may file a mechanic's lien.

Lis Pendens

Latin for "lawsuit pending." Recorded notice that litigation is pending on a property. Most lenders will require the clearance of the Lis Pendens prior to closing.

Listing

Real Estate properties for sale are usually considered listed when a real estate agent is contracted to sell the property, using a listing agreement, and the property is posted in the multiple listing service, MLS, for that local region. It can also be in an Internet listing service online, which can be done directly by the homeowner.

Loan Application

A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.

Loan Origination Fee or Points

Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.

Loan Servicing

The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors.

Loan to Value Ratio (LTV)

The loan amount divided by the value of the property.

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M

Margin

A fixed number added to the index to compute the rate on an adjustable rate mortgage.

Marketable Title

Title that is free of liens, clouds and other legal defects and hence is readily acceptable by a buyer.

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Mechanics Lien

The right of an unpaid contractor or subcontractor to file a lien against property to recover the amount due to him/her.

Monthly Treasury Average

MTA

Mortgage

A written instrument that creates a lien upon real estate as security for the payment of a specified debt.

Mortgage Backed Security (MBS)

A bond or other financial obligation secured by a pool of mortgage loans.

Mortgage Banker

Specializes in originating and servicing loans. They generally sell their loans to investors, but may continue to service them.

Mortgage Broker

Arranges financing for a borrower by placing loans with lenders. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.

Mortgagee

The lender.

Mortgagor

The borrower.

Mortgage Insurance

See private mortgage insurance (PMI)

Mortgage Note

A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

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N

Negative Amortization

An increase in principal balance which occurs when the monthly payments do not cover all of the interest cost. The interest cost which is not covered by the payment is added to the unpaid principal balance.

Net Effective Income

The borrowers gross income minus federal income tax.

Nonconforming loan

Loans that do not comply with Fannie Mae or Freddie Mac guidelines.

Notary Public

One authorized to take acknowledgments of certain types of documents, such as deeds, contracts, and mortgages.

Note

The Note is a promissory note, which is signed with loan documents and states the loan amount, interest rate and loan terms.

Notice of default

A letter sent to the defaulting party as a reminder of the default.

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O

Offer

An expression of willingness to purchase a property at a specified price.

Offeree

One who receives the offer. When the buyer makes an offer to the seller the seller is an offeree.

Offeror

One who makes the offer. When the buyer makes an offer to the seller the buyer is an offeror.

Office of Comptroller Currency

The oldest federal financial regulatory body that oversees the nation's federally chartered banks.

Office of Thrift Supervision

The OTS charters federal thrift institutions and is the primary regulator of all federal and many state-chartered thrift institutions.

Open-end Mortgage

A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions.

Open House

A method of showing a home for sale to prospective buyers where the home is left open for inspection by those who may be interested in making a purchase.

Option Arm

The Option Arm loan program, commonly referred to as the negative amortized loan, has a low starting payment rate. Typically the starting rate is 1 to 2 percent. The initial monthly loan payment is calculated based on the starting rate, but the note rate will adjust to the Index plus the Margin after the first one to three months. The payment remains the same for the entire year, and is only adjusted yearly on the anniversary date. Since the interest charges may exceed the monthly payment, the interest that is not paid is added to the loan balance. This increases the loan amount, rather than decreasing the loan balance as in a fully amortized loan. Thus we have a negative amortization, or increasing loan balance, during the initial years of this loan.

Optionee

One who receives or purchases an option.

Optionor

One who gives or sells an option.

Oral Contract

A verbal agreement. Verbal agreements for the sale or use of real estate are normally unenforceable.

Origination Fee

See Loan Origination Fee.

Owner of Record

The individual named on a deed that has been recorded at the county recorders office.

Owner Occupant

A tenant of a residence who also owns the property.

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P

Package Mortgage

Mortgage covering both real and personal property.

Paper

A mortgage, deed of trust or land contract provided in lieu of cash.

Partial Release

A provision in a mortgage that allows some of the property secured to be freed from serving as collateral.

Participation Mortgage

A mortgage that allows the lender to share in part of the income or resale proceeds.

Pass-through Certificates

Interests in a pool of mortgages sold by mortgage bankers to investors. Money collected as monthly mortgage payments is distributed to those who own certificates.

Permanent Loan or Mortgage

A mortgage for a long period of time. Often referred to as the mortgage that pays off a construction loan on a completed property.

Permit

A document issued by a government regulatory authority that allows the bearer to take some specific action. An occupancy permit allows the owner of a building to occupy or rent the building.

Phishing

Email phishing, also referred to as brand spoofing or carding, is a variation on "fishing," the idea being that bait is thrown out with the hopes that while most will ignore the bait, some will be tempted into biting. An example of receiving this kind of spam email is "We have been trying to contact you regarding your loan request. Your loan is approved. Click here to complete your loan application." Another example is a request for information using a bank's website header, so it looks like it's coming from the bank, but is actually a fake.

PITI

Principal, Interest, Taxes and Insurance. Your mortgage loan payment usually includes the principal and interest amounts. When you borrow more than 80 percent of the value of your home, lenders usually require that you also pay the taxes and insurance payments with your loan payment.

Planned Unit Development (PUD)

A zoning classification that allows flexibility in the design of a subdivision. PUD's include individually owned units as well as some common space that is jointly owned.

Plat

A plan or map of a specific land area.

Plat Book

A public record containing maps of land, showing the division of the land into streets, blocks, and lots and indicating the measurements of the individual parcels.

Points

Fees paid to lenders. 1 point = 1 percent of the loan amount. On a $100,000 loan 1 point is $1000. Points may be further classified into origination points or discount points.

Portfolio Loan

A loan that is held as an investment by a bank or savings and loan, and NOT sold on the secondary market to investors.

Power of Attorney

A written document authorizing a person to act on the behalf of another person. That person does not have to be an attorney. See Attorney-In-Fact.

Prepaid Interest

Prepaid interest is the interest charged to borrowers at closing to pay for the cost of borrowing for a balance of the month. For example, if a loan closes on the 19th of the month and the first payment is due on the 1st of the following month, the lender will charge 12 days of prepaid interest.

Prepayment

Full or partial payment of the principal before the due date. This might occur if the borrower makes extra payments, sells the property, or refinances the existing loan.

Prepayment Penalty

Fees paid by the borrower if they pay the loan before its due date.

Primary Mortgage Market

Companies that originate and service mortgage loans (banks, savings & loans, credit union, mortgage bankers, institutional lenders) make up the primary mortgage market. See also secondary mortgage market.

Prime Rate

The rate offered to a bank's best customers.

Principal

The outstanding balance on a loan.

Private Mortgage Insurance (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment - as low as 2 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance payments are normally made annual or monthly. An impound account may be required.

Probate

Court process to establish the validity of the will of a deceased person.

Property Tax

A government levy based on the market value (as assessed by the county assessor's office) of the property.

Public Sale

An auction of property with notice to the general public.

Purchase Agreement

A real property agreement between a buyer and seller specifying the price and terms of the sale.

Purchase Money Mortgage

A mortgage used to finance the purchase of a property.

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Q

Quiet Title (Action)

A court action to settle a title dispute.

Quit Claim Deed

A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

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R

Realtor

A real estate professional who is a member of the National Association of Realtors.

Real Estate Broker

An individual who often owns a real estate company or is in a management position, and who is licensed to represent a buyer or a seller in a real estate transaction.

Real Estate Settlement Procedure Act (RESPA)

A law that states how mortgage lenders must treat those who apply for real estate loans on property with one to four units.

Example : A lender is required to provide a good faith estimate of closing costs within three days of an application being filed.

Recapture tax

Some government sponsored or insured programs, like HUD Low Income Housing programs, require that the buyer occupy the property and retain ownership for a specific period of time. If the buyer sells the property and in some cases moves out of the property, the tax benefits or subsidies received are recaptured, meaning charged to the homeowner. This is a penalty assessed for selling the house too early.

Recession

A recession is usually defined as a fall of a country's real Gross National Product in two or more successive quarters of a year. A recession may also involve falling prices, which can lead to a depression. In a free market economy, recessions come and go at fairly regular intervals, often five to ten years, in what is known as the business cycle.

Reconveyance

When a mortgage is paid in full, the lender conveys the property back to the owner.

Recording

The act of entering into a book of public records instruments affecting title to the real property. A lender requires that a deed of trust or a mortgage be recorded to evidence the debt against the property.

Recision

The cancellation of a contract. When refinancing a mortgage on a principal residence the law gives the homeowner three days to cancel the contract.

Recourse

The right of the holder of a note secured by a mortgage or deed of trust to claim money from the borrower in default in addition to the property pledged as collateral.

Redlining

The practice of refusing to provide loans or insurance in a certain neighborhood.

Refinancing

Repaying an existing loan from the proceeds of a new loan on the same property.

Regulation Z (Reg Z)

A federal regulation requiring creditors to provide full disclosure of the terms of a loan including the terms of the loan and the annual percentage rate (APR).

Real Estate Investment Trusts (REIT)

A trust that uses investors' money to purchase and manage real estate. Investors realize some of the tax advantages in owning real estate.

Restrictive Covenants

Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer.

Reverse Mortgage

A mortgage used by the elderly that provides income as long as they live in exchange. Payments made cause the loan principal to increase.

Right of survivorship

The right of a surviving joint tenant to acquire the interest of a deceased joint owner.

Rollover Loan

A loan that is amortized over a long period of time (e.g., 30 yrs) but the interest rate is fixed for a short period (e.g., 5 yrs). The loan may be extended or rolled over, at the end of the shorter term, based on the terms of the loan.

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S

Sales Agreement or Sales Contract

See Agreement of Sale.

Savings & Loan

Depository institutions that specialize in originating, servicing and holding mortgage loans primarily on owner occupied residential property.

Secondary Mortgage Market

The market where banks, savings & loans and mortgage bankers can sell mortgages to investors like Fannie Mae or Freddie Mac.

Second Home

Also known as a vacation home. This home is different from an investment property as it is not rented, but used occasionally by the owners.

Second Mortgage

A subordinated lien, created by a mortgage loan, over the amount of a first mortgage. Second mortgages generally carry a higher rate than a first mortgage since they represent a higher risk for an investor.

Section 8 Housing

Privately owned rental units participating in the low-income rental assistance program. Landlords receive subsidies on behalf of qualified low-income tenants, allowing the tenants to pay a limited proportion of their incomes toward the rent.

Section 1031

The section of the IRS that deals with tax free exchanges of certain property. General rules for tax free exchanges are

The properties must be :

• Exchanged
• Similar
• Used for business or as an investment

Security

Property that serves as collateral for a debt.

Servicing

The act of billing, collecting payment, filing reports, managing impound accounts and handling defaults on a mortgage.

Settlement Cost (HUD guide)

See Buying Your Home: Settlement Costs and Information (HUD guide)

Settlement Statement

See HUD 1

Shared Appreciation Mortgage

A residential loan with a fixed, below-market interest rate in which the lender is entitled to a specified share of property appreciation during an agreed upon time period.

Special Assessment

A special tax imposed on property, individual lots or all property in the neighborhood to pay for improvements - street lights, sidewalks, etc.

Special Warranty Deed

The grantor does not warrant against title defects arising from conditions that existed before he/she owned the property. The seller warrants that he/she has done nothing to impair title.

Sheriff's Deed

A deed given at the sheriff's sale in the foreclosure of a mortgage.

Single Family Home (SFR)

A type of residential structure designed to include one dwelling. E.g., town home, detached unit.

Example : Town houses, detached units.

Spec House

A single family dwelling constructed by a builder in anticipation of finding a buyer.

Specific Performance

A legal action in which the court requires a party to a contract to perform their obligations under the terms of the agreement.

Stock Cooperative

A common interest development in which a corporation holds title. Stock and exclusive right to occupancy are given to individual members (stock holders) of the stock cooperative.

Standard Uniform Loan Application (Form 1003)

A standard loan application widely used in the mortgage industry.

Subdivision

A tract of land divided into lots suitable for home building purposes.

Subordination

A loan in a lower priority, for example a second mortgage is subordinate to a first.

Subject To Clause

A clause stating that the grantee takes title "subject to" an existing mortgage or trust deed. The original mortgagor remains responsible for any deficiency in the event of foreclosure. See Assumable Mortgage.

Survey

Map made by a licensed surveyor who measures land and charts its boundaries, improvements and relationship to the property surrounding it.

Sweat Equity

Value added to a property due to improvements made personally by the owner.

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Takeout Financing

A commitment to provide permanent financing upon completion of construction. The take out loan normally pays off the construction loan.

Tax Lien

Lien for nonpayment of taxes.

Tax Sale

Public sale of a property at an auction by a government authority as a result of non-payment of taxes.

Teaser Rate

A low initial interest rate on a mortgage.

Tenancy at Sufferance

Tenancy established when a person who had been a lawful tenant wrongfully remains in possession of property after expiration of a lease.

Tenancy at Will

A license to use or occupy land and buildings at the will of the owner. The tenant may decide to leave the property at any time or must leave at the landlords will.

Tenancy by the Entirety

A form of ownership by husband and wife whereby each owns the entire property. In event of the death of one, the survivor owns the property without probate.

Tenancy for Years

Created by a lease for a fixed term, such as 6 months, 2 years, etc.

Tenancy in Common

Ownership of a property by 2 or more persons, each of whom has an undivided interest, without the right of survivorship. Upon the death of one of the owners, the ownership share of the deceased is inherited by the beneficiary designated on the owner's will.

Tenancy in Severalty

Ownership of property by one person.

Time Share

A form of property ownership under which a property is held by a number of people, each with the right of possession for a specified time interval. Time sharing is used mostly for vacation properties.

Time is of the Essence

Legal phrase in a contract requiring all references to specific dates and times noted in the contract be interpreted exactly.

Title

Evidence that the owner of the property is in lawful possession. Evidence of ownership.

Title Insurance

An insurance policy which protects the insured against loss arising from defects in title. Title insurance policies are typically obtained for the buyer and the lender.

Title Report

A document indicating the current state of title. The report includes information on the current ownership, outstanding deeds of trust or mortgages, liens, easements, covenants, restrictions, and any defects.

Title Search

An examination of the public records to determine the ownership and encumbrances affecting the property.

Town House

Residence which normally has 2 or more floors and is attached to other similar units. Town houses are commonly found in planned unit developments (PUDs) and condominiums.

Tract

A parcel of land, generally held for subdividing.

Transfer Tax

Tax paid to the city, county, state or other government entity upon sale of a property.

Treasury Bill

Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of three months, six months and one year. Each Treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate). The rate determines the T-bill Index rate, which is used in many variable rate loan programs.

Triple-Net Lease

One in which the tenant pays all operating expense of the property. The landlord receives the net rent.

Trust Account

A separate bank account maintained by a broker or escrow company to handle all money collected for clients. A broker may not commingle these funds with his/her own funds.

Trust Deed

See Deed of Trust.

Trustee

A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

Truth in Lending

See Regulation Z.

Two-Step Mortgage

A mortgage in which the borrower receives a fixed rate for a specified number of years (most often 5 or 7), and then receives a new interest rate based on the terms in the note.

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Underwriting

The decision whether to make a loan to a potential home buyer based on credit, income, employment history, assets, etc.

Undivided Interest

An ownership right to use and possess a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Unimproved Property

Land that has received no development.

Unencumbered Property

Real estate with free and clear title.

Unrecorded Deed

A document that transfers title from the grantor to the grantee without recording (i.e. providing public notice).

Usury

Charging a rate of interest greater than that permitted by law.

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Vacation Home

See second home.

VA Loan

Home loan guaranteed by the U.S. Veterans Administration, enabling a veteran to buy a home with no money down.

Variable Rate Mortgage

See Adjustable Rate Mortgage

Verification of Deposit (VOD)

A document signed by the borrower's bank or other financial institution verifying the account balance and history.

Verification of Employment

A document signed by the borrower's employer verifying his/her starting date, job title, salary and probability of continued employment.

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Waiver

The voluntary renunciation, abandonment, or surrender of some claim, right, or privilege.

Warehousing

Mortgage bankers and other financial institutions make loans that are then periodically sold on the secondary market. After the loan is made but before it is sold, the loan is said to be in the lender's warehouse.

Warranty Deed

A deed conveying the title to a property with a warranty of a clear marketable title.

Web Portal

Commonly referred to as simply a portal, a Web site or service that offers a broad array of resources and services, such as e-mail, forums, search engines, and on-line shopping malls. The first Web portals were online services, such as AOL, that provided access to the Web, but by now most of the traditional search engines have transformed themselves into Web portals to attract and keep a larger audience.

Wraparound Mortgage

A loan arrangement whereby the existing loan is retained and a new loan is added to the property.
Example : The seller sells his/her property for $200,000. The buyer puts $80,000 down. The seller has an existing loan balance of $100,000 for a remaining period of twenty-five years at an interest rate of 6 percent. The seller then makes a wraparound mortgage to the buyer, (where the seller acts as a lender) for $120,000 at 8 percent. The seller has to continue making payments on his old loan. They buyer has to pay the seller on the new loan. The buyer may at a later date refinance the property and close both loans.

WYSIWYG

What You See Is What You Get. Computer software may display data on the computer screen with a format and color scheme that is different when you print the page or when you view it in a Web browser. Software that is WYSIWYG will print and look the same as what you see on the screen in the WYSIWYG.

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Zero Lot Line

A form of housing where individual units are on separate lots, but are attached to one another. Example: PUD, townhouse.

Zoning

Areas may be zoned to specify use of a property i.e. residential, commercial, agricultural. These zoning ordinances are normally enforced by the city or the county.

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