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- Abstract (of Title)
- A historical summary of all the recorded transactions that affect the title
to the property. An attorney or a title company will review an abstract of
title to determine if there are any problems affecting the title to the
property. All such problems must be cleared before the buyer can be issued a
clear and insurable title.
- Acceleration Clause
- A loan provision giving the lender the power to declare all sums owing
lender immediately due and payable upon the violation of a specific loan
provision, such as the sale of the property, or the failure to make loan
payments on time.
- Example : John sells his property to Mary who takes over John's mortgage
payments. They do not notify the lender of this transaction. The lender finds
out that the title to the property has transferred and calls the loan, since
the loan documents state that the loan is due on the sale of the property. John
is now liable to pay his lender in full.
- The addition to land through natural forces like wind or water.
- Example : deposit of soil carried by a river
- Agreement of Sale
- A written signed agreement between the seller and the purchaser in which
the purchaser agrees to buy certain real estate and the seller agrees to sell
upon terms of the agreement. Also known as contract of purchase, purchase
agreement, offer and acceptance, earnest money contract or sales agreement.
- 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.
- 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.
- This is the length of time for which the interest rate is fixed on an
adjustable. Therefore if the adjustment period is six months, then the interest
rate will remain fixed for six months, after which time it will adjust.
- A gradual paying off of a debt by periodic installments which pay principal
- 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
- 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
- Example : A transaction between a father and his son would NOT be an
an Arm's length transaction
- A local tax levied against a property for a specific purpose such as street
- 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
- Attorney In Fact
- One who is authorized to act for another under a power of attorney which
may be general or limited in scope.
- Example : John wants to sell his house but has to be out of the country for
4 months. John gives authorization to Mary to sign the grant deed to sell the
property to a buyer. Mary becomes John's Attorney In Fact.
- Balloon (payment) Mortgage
- Usually a short-term fixed-rate loan which involves small payments for a
certain period of time and one large payment for the remaining amount of the
principal at a time specified in the contract.
- Example : A balloon mortgage for $25,000 has interest only payments for 5
years at 12% ($250 per month), with the full principal of $25,000 due and
payable after 5 years.
- The financial inability to pay one's debts when due. The debtor surrenders
his assets to the bankruptcy court. An individual typically files for Chapter 7
(all debts wiped out) or Chapter 13 (establishes a payment plan to pay off
debts). A bankruptcy stays on an individual's credit report for 7 years.
- The person who receives or is to receive the benefits resulting from
- Example : The lender is named as the beneficiary on a mortgage loan.
- Example : John has a life insurance policy for $100,000 with Jane as his
beneficiary. Should John die - Jane will receive the benefits i.e. $100,000.
- Definition #1: A title insurance binder is the written commitment of
a title insurance company to insure title to the property subject to the
conditions and exclusions shown on the binder.
- Definition #2: Preliminary agreement, normally secured with earnest
money, between a buyer and a seller as an offer to purchase real estate.
- Bi-weekly Mortgage
- A mortgage which requires 1/2 the normal monthly payment every two weeks.
Over the course of the year, 26 half payments are made which is equivalent to
13 full mortgage payments. As a result of this extra payment the loan amortizes
much faster than a loan with normal monthly payments.
- Blanket Mortgage
- A mortgage covering more than one piece of property.
- Example : A developer subdivides a tract of land into lots and obtains a
blanket mortgage on the whole tract.
- 1. A debt instrument in the capital markets. The U.S. government,
corporations and municipalities use bonds to raise money. Bonds can also be
backed by mortgages. The best known bond is the 30-year treasury bond issued by
the U.S. government.
- 2. A sum of money given to a court to guarantee against a loss. For example
if there is a lien on a property, the owner may remove the lien by posting a
- Borrower (Mortgagor)
- One who applies for a loan secured by real estate and is responsible for
repaying the loan (mortgage).
- Bridge Loan
- An interim loan typically used when the buyer is unable to sell his/her
house but needs money to close the transaction on the house he/she is buying.
The bridge loan is made on the buyers current residence to finance the buyers
new residence. The loan is paid off when the buyers current residence is sold.
- See Real Estate Broker or
- Buy Down
- Obtaining a lower interest rate (buying down the rate) by paying additional
points to the lender. The lower rate may apply for the full duration of the
loan or for just the first few years. A buydown may be used to qualify a
borrower who would otherwise not qualify . This is because a buydown results in
lower payments which are easier to qualify for.
- Example : A very popular buydown is the 2-1 buydown. If the interest rate
on the note is 9%, the buydown results in the rate being 7% (9%-2%) for the
first year, 8% (9%-1%) for the second year, and 9% thereafter.
- Buyers Broker
- An agent hired by a buyer to locate a property for purchase. The broker
represents the buyer and negotiates with the sellers broker for the best
possible deal for the buyer.
- Buyers Market
- Market conditions that favor buyers i.e. there are more sellers than buyers
in the market. As a result buyers have ample choice of properties and may
negotiate lower prices. Buyers markets may be caused by an economic slump or
- 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.
- Capital Gains
- Profit earned from the sale of real estate. A seller may defer taxes on the
capital gain of his/her primary residence by buying a higher priced residence
within 2 years.
- Cash Flow
- The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough to pay the
expenses of the income producing property (mortgage payment, maintenance,
- Caveat Emptor
- A legal term meaning "let buyer beware". The buyer must examine
the property and buy at his/her own risk.
- Example : A property may be offered in an "as is" condition with
no expressed or implied guarantee of quality or condition.
- CC&Rs - Covenants, conditions, and restrictions.
- The basic rules establishing the rights and obligations of owners of real
property within a condominium, townhouse, PUD, subdivision or other tract of
land. An association is organized for the purpose of operating and maintaining
property commonly owned by the individual owners. The association is normally
made up of property owners.
- Certificate of Eligibility
- The document issued by the Veterans Administration to
those that qualify for a VA loan which may be used to buy a house with 0 down.
Certificates of eligibility may be obtained by sending the form DD-214 to the
local VA office along with VA form 1880.
- Certificate of Reasonable Value (CRV)
- An appraisal performed by an VA approved appraiser which establishes the
property's current market value. This value establishes the ceiling on the
maximum VA mortgage loan principal.
- Certificate of Occupancy
- Document issued by a local governmental agency that states a property meets
the local building standards for occupancy and is in compliance with public
health and building codes. This document is normally required by a lender prior
to closing the loan.
- Certificate of Title
- An opinion rendered by an attorney as to the status of title to a property,
according to the public records. This certificate does not the same level of
protection as title insurance.
- Chain of Title
- The chronological order of conveyance of a parcel of land from the original
owner to the present owner.
- Example : An abstractor can research title to property going back to the
date that the property was granted to the United States.
- Clear Title
- A marketable title, free of clouds and disputed interests. Most lenders
require a clear title prior to closing.
- 1. The act of transferring ownership of a property from seller to buyer in
accordance with a sales contract.
- 2. The time when a closing takes place.
- Closing Costs
- Expenses incurred by the buyer and seller in a real estate or mortgage
transaction. There are two types of costs : recurring and non recurring.
- Non-recurring costs are one time transactional costs which include
- 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
- Property taxes if due
- Hazard insurance, fire insurance or homeowner's insurance has to be paid
for one year
- Mortgage insurance (PMI) - may be required if the loan amount is more than
80% of the value of the property. In the past a whole year of PMI had to be
paid up front, however in recent years many PMI companies only require 1-2
months up front. Mortgage insurance premiums are normally paid every month with
the loan payment
- Impound account may need money to be set up
for future payments
- Cloud on Title
- An outstanding claim or encumbrance that, if valid, would affect or impair
the owner's title. Compare with clear title.
- A written document provided by a lender to agreeing to make a loan on
specific terms to a borrower or builder.
- 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.
- Individual ownership of a dwelling unit and an individual interest in the
common areas and facilities which serve the multi-unit project.
- Construction loan
- A short term loan to pay for the construction of buildings or homes. These
loans typically provide periodic disbursements to the builder as each stage of
the building is completed. When construction is completed a take-out or permanent loan is
used to pay off the construction loan.
- Anything of value given to induce another to enter into a contract. Earnest
money deposit on a sales contract is consideration.
- Conditions which must be satisfied before the buyer can close the purchase
of a property. Contingencies are generally outlined in the purchase contract
between the buyer and seller.
- Example : The buyer has 14 days to remove the property contingency under
the sales contract. In this case the buyer has 14 days to inspect the property
and request the seller to perform repairs. If the buyer is not satisfied with
the condition of the property or if the buyer and the seller cannot agree on
repairs, the buyer may back out of the contract with no penalty. After 14 days
the buyer no longer has the right to back out with no penalty as a result of a
problem with the condition of the property.
- An agreement between competent parties to do or not do certain things for
- Example : To have a valid contract for the sale of real estate there must
- an offer
- an acceptance
- competent parties
- legal purpose
- written documentation
- description of the property
- signatures by principals or their attorney-in-fact
- Contract of Sale
- Same as the Agreement of Sale
- Contract sale or deed
- A real estate installment selling arrangement where the buyer may occupy
the property but the seller retains the title until the agreed upon sales price
has been paid. Also known as an installment land contract.
- Example : John sells Mary a house. Mary has to put $10,000 and pay $1,000
per month for 24 months, after which time she will receive title to the
- Any mortgage loan other than a VA or an FHA loan. A convention loan may be
conforming or non-conforming.
- The transfer of title of real from one party to another.
- Co-op - cooperative
- An apartment building or a group of dwellings owned by a corporation, the
stockholders of which are the residents of the dwellings. It is operated for
their benefit by their elected board of directors. In a cooperative, the
corporation or association owns title to the real estate. A resident purchases
stock in the corporation which entitles him to occupy a unit in the building or
property owned by the cooperative. While the resident does not own his unit, he
has an absolute right to occupy his unit for as long as he owns the stock.
- Some variable loans come with options to convert them to a fixed loan based
on a pre-determined formula, during a given time period. For example the 1-year
tbill adjustable may be converted to a fixed during the first five years on the
adjustment date. The means that you could convert during the 13th, 25th, 37th,
49th and 61th months of the loan.
- Credit Report
- A report detailing a borrowers credit history including payment history on
revolving accounts (eg. credit cards) and installment accounts (e.g.. car
loan). A credit report also includes information found from public records
including tax liens and judgements.
- A written document by which title to real property is transferred from one
owner to another. The deed should contain an accurate description of the
property being conveyed, should be signed and witnessed according to the laws
of the State where the property is located, and should be delivered to the
buyer at closing.
- Deed of Trust
- Used in many states in lieu of a mortgage to secure the payment of a note.
In a deed of trust there are three parties - the borrower, the trustee, and the
lender, (or beneficiary). In such a transaction, the borrower transfers the
legal title for the property to the trustee who holds the property in trust as
security for the payment of the debt to the lender or beneficiary. If the
borrower pays the debt as agreed, the deed of trust becomes void. If, however,
he/she defaults in the payment of the debt, the trustee may sell the property
without a court proceeding.
- Deed Restriction
- A clause in a deed that limits the use of land.
- Example : A deed might require that a road cannot be built on the land.
- 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
- 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
- Decline in the value of a house due to wear and tear, obsolescence, adverse
changes in the neighborhood, or any other reason.
- Discount Points
- Fees paid to a lender to reduce the interest rate.
- Documentary Tax Stamps
- Stamps affixed to a deed showing the amount of transfer tax.
- The rights of a widow or child to part of a deceased husband's or fathers
- The amount paid for the purchase of a property in addition to the mortgage,
but not including any closing costs.
- Example : John buys a house for $100,000 and obtains a loan for $80,000.
His downpayment is $20,000.
- Due on Sale Clause
- A clause in the Deed of Trust or Mortgage that states that the entire loan
is due upon the sale of the property.
- Dragnet Clause
- A provision in a mortgage that pledges several properties as collateral. A
default in the mortgage could lead to foreclosure proceedings on any of the
properties in the dragnet.
- 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.
- 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.
- A building, a part of a building, or an obstruction (e.g.. a fence or a
wall) that physically intrudes upon or overlaps into the property of another.
- A legal right or interest in land that affects a good or clear title, and
diminishes the land's value. It can take numerous forms, such as zoning
ordinances, easement rights, claims, mortgages, liens, charges, a pending legal
action, unpaid taxes, or restrictive covenants. An encumbrance does not legally
prevent transfer of the property to another. A title search is all that is
usually done to reveal the existence of such encumbrances, and it is up to the
buyer to determine whether he wants to purchase with the encumbrance, or what
can be done to remove it.
- Equity=Property Value - Loans/Liens Against the property.
Equity is typically expressed as a percentage of the property value.
- Equity Sharing
- Joint ownership of a property between the owner/occupant and the
owner/investor, that results in tax advantages for both parties. Upon sale of
the property the joint owners split profits based on the percentage they own.
- 1. Neutral third party that handles all funds in a real estate transaction.
The buyer puts his deposit into escrow, the lender funds the loan into escrow.
Escrow pays the real estate brokers commission, pays off any loans/liens
against the property, pays real estate taxes and any other fees associated with
the transaction and sends the balance of the money to the seller.
- 2. Escrow payment - see impound account.
- The reversion of property to the state in the event that the owner dies
without leaving a will and has no legal heirs.
- Executor (Executrix - feminine for Executor)
- A person named in a will to carry out its provisions for the disposition of
- Federal National Mortgage
Association (FNMA, Fannie Mae)
- Purchases loans from lenders, securitizes them and sells FNMA mortgage
backed securities on wall street.
- Federal Home Loan Bank Board (FHLBB)
- Provides financing to farmers.
- Farmer's Home Administration (FmHA)
- An agency, within the U.S. Department of Agriculture, that administers
assistance programs for purchasers of homes and farms in small towns and rural
- Federal Home Loan Mortgage
Corporation (FHLMC, Freddie Mac)
- Purchase loans from members of the Federal Reserve and the Federal Home
Loan Bank Systems, securitizes them and sells FHLMC mortgage backed securities
on wall street.
- Federal Housing
- An agency within the U.S. Department of
Housing and Urban Development (HUD) that administers loan programs, issues
loan guarantees to make more housing available.
- Federal Reserve System
- The central federal banking system that regulates and provides services to
member commercial banks. Also has the responsibility for conducting federal
- Fee Simple (Fee Absolute or Fee Simple Absolute)
- Absolute ownership of real property; owner is entitled to the entire
property with unconditional power of disposition during the owners life and
upon his death the property descends to the owner's designated heirs.
- Fidelity Bond
- An assurance, generally purchased by an employer, to cover employees who
are entrusted with valuable property or funds.
- Example : A landlord employs a clerk who collects rents. To safeguard these
funds during the collection process, the landlord purchases a fidelity bond the
- 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
- 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.
- Improvements or personal property attached to the land so as to become a
part of the real estate. Fixtures are transferred to the buyer upon sale of the
property. To determine whether an item is a fixture include :
- Intent (was it intended to be part of the property)
- How is it fixed ?
- Is the fixture essential to the property ?
- Relationship - was the fixture intended to be a part of the tenant's
- Example : John sells his house to Mary. John wants to take the chandelier
because he states it is personal property. Mary wants the chandelier to stay
because she believes it is a fixture.
- Flood Insurance
- An insurance policy that covers property damage due to natural flooding.
Flood insurance may be required on properties in a flood zone.
- Foreclosure (Repossession)
- A legal process by which the lender forces a sale of a property because the
borrower has not met the terms of the mortgage.
- Free and clear
- A property that has no liens.
- For sale by owner. A property for sale that is not listed with a real
- Fully indexed rate
- The fully indexed rate=value of the index + margin. See
- 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
- Government National Mortgage
Association (GNMA, Ginnie Mae)
- A government agency part of HUD that buys
VA and FHA loans from lenders, securitizes them and sells Ginnie Mae securities
- That party in the deed who is the buyer or recipient.
- That party who is the seller or the giver.
- Graduated Payment Mortgage (GPM)
- A mortgage that has lower payments initially (with potential negative
amortization) which increase each year until the loan is fully amortized.
- Grandfather Clause
- The clause in a law permitting the continuation of a use, business, etc.,
which was permissible but because of a change in the law is now no longer
- Hazard Insurance (Fire Insurance, Homeowner's
- Insurance on a property against fire and other risks. A homeowner's policy
may have additional coverage for theft, liability, etc. that a fire insurance
policy may not cover.
- Homeowners Association
- An association of homeowners in a particular subdivision, planned unit
development (PUD), or condominium organized to manage the common area of the
development and to enforce the association rules and regulations.
- Status provided to a homeowner's principal residence in some states that
protects the home against judgements up to specified amounts.
- Homestead Exemption
- Available in some states - this causes the assessed value of a principal
residence to be reduced by the amount of the exemption for the purposes of
calculating property tax.
- Example : John's principal residence is assessed at $100,000 and the
homestead exemption is $7,000. His property taxes will be based on $93,000.
- Home Warranty Plan
- Insurance that covers appliances, heating systems, etc. Typically purchased
at the time of closing.
- Housing and Urban Development
- A U.S. government agency established to implement certain federal housing
and community development programs.
- Housing Code
- A local government ordinance that sets minimum standards of safety and
sanitation for existing residential buildings.
- HUD 1
- A closing document required by HUD that outlines the settlement cost of a
loan. The closing agent prepares this document and sends it to the buyer upon
- To pledge a property as security without having to give up possession of
- Additions to raw land such as buildings, streets, etc. that add value to
- Impound Account
- That portion of a borrower's monthly payments held by the lender or
servicer to pay for taxes, hazard insurance, mortgage insurance, lease
payments, and other items as they become due. Also known as reserves.
- Income Approach
- A method used by an appraiser to estimate the value of a property based on
the income it generates.
- Income Property
- Real estate that generates rental income. Examples : apartment buildings,
office buildings and shopping centers.
- A statistic that indicates some current economic of financial condition.
Indexes are used to make adjustments in
- Ingress and Egress
- The right to go in and out over a piece of property but not the right to
park on it. See also Easements.
- Installment Sale
- See land contract.
- Joint and Several Liability
- A creditor can demand full repayment from any and all of those who have
borrowed. Each borrower is liable for the full debt, not just the prorated
- Joint Tenancy
- Ownership of a property by 2 or more people, each of whom has an undivided
interest with the right of survivorship.
- Example : John and Mary own a house in joint tenancy. Each owns half of the
entire (undivided) property. If John dies, Mary will own the entire property
and vice versa.
- The decision of a court of law stating that one individual is indebted to
another and fixing the amount of indebtedness. Judgements, when recorded,
become a lien on real property owned by the defendant.
- Judgement Lien
- The claim on the property of a debtor resulting from a judgement.
- Loan size that is larger than the limit established by
Fannie Mae or
- 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.
- A payment required by a mortgage in addition to normal principal and
interest. Sometimes known as a participation loan.
- Land Contract
- A real estate installment selling arrangement whereby the buyer may use and
occupy land, but no deed is given by seller until the sales price has been
- Lease with Option to Purchase
- A lease under which the lessee has the right to purchase the property. The
option may run for a portion or for the full length of the lease
- Leasehold Estate
- Tenant's right of possession for a specific period of time under a lease
- 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)
- A person to whom property is rented under a lease. (Tenant)
- A person who rents property to another under a lease. (Landlord)
- A claim against the property for the payment of a debt, judgement, mortgage
- Example : Unpaid contractors may file a mechanic's lien.
- Life Estate
- An estate in real property for the life of a living person. The estate then
reverts back to the grantor or to a third party.
- Lis Pendens
- Latin for "lawsuit pending." Recorded notice that litigation is
pending on a property. Most lenders will require the clearance of the Lis
Pendens prior to closing.
- Loan Application
- A document required by a lender prior to loan approval. The application
includes detailed information about the borrower and the property.
- Loan origination fee or points
- Charge by a lender or broker connected with originating a loan. This is
different from discount points which are used to buy down the rate of interest.
- Loan to Value Ratio (LTV)
- The loan amount divided by the value of the property.
- Loan Servicing
- The act of collecting loan payments, handling property tax and insurance
escrows, foreclosing on defaulted loans and remitting payments to the
- A fixed number added to the index to compute the rate on an adjustable rate
- 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.
- 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.
- 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.
- The lender.
- The borrower.
- Mortgage Insurance
- See private mortgage
- 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.
- 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.
- Loans that do not comply with Fannie
Mae or Freddie Mac guidelines.
- A written instrument that acknowledges a debt and promises to pay.
- Notary Public
- One authorized to take acknowledgments of certain types of documents, such
as deeds, contracts, and mortgages.
- Notice of default
- A letter sent to the defaulting party as a reminder of the default.
- An expression of willingness to purchase a property at a specified price.
- One who receives the offer. When the buyer makes an offer to the seller the
seller is an offeree.
- One who makes the offer. When the buyer makes an offer to the seller the
buyer is an offeror.
- Office of Comptroller
- The oldest federal financial regulatory body that oversees the nation's
federally chartered banks.
- Office of
- The OTS charters federal thrift institutions and is the primary regulator
of all federal and many state-chartered thrift institutions.
- Open House
- A method of showing a home for sale to prospective buyers where the home is
left open for inspection by those who may be interested in making a purchase.
- Open End Mortgage
- A mortgage permitting the mortgagor to borrow additional money under the
same mortgage, with certain conditions.
- Origination Fee
- See Loan Origination Fee.
- One who receives or purchases an option.
- One who gives or sells an option.
- Oral Contract
- A verbal agreement. Verbal agreements for the sale or use of real estate
are normally unenforceable.
- Owner of Record
- The individual named on a deed that has been recorded at the county
- Owner Occupant
- A tenant of a residence who also owns the property.
- Package Mortgage
- Mortgage covering both real and personal property.
- 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
- 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
- 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.
- 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
- Abbreviation for principal, interest, taxes and insurance, which may be
combined in a single monthly mortgage payment.
- Planned Unit Development (PUD)
- A zoning classification that allows flexibility in the design of a
subdivision. PUDs include individually owned units as well as some common space
that is jointly owned.
- 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
- Fees paid to lenders. 1 point=1% of the loan amount. On a $100,000 loan 1
point is $1000. Points may be further classified into
origination points or discount points.
- 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.
- 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
- Prime Rate
- The lowest commercial interest rate charge by a bank on short term loans to
their most credit worthy customers. View
current prime rate.
- The outstanding balance on a loan.
- Private Mortgage Insurance
- 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
- Court process to establish the validity of the will of a deceased person.
- Purchase Money Mortgage
- A mortgage used to finance the purchase of a property.
- Property Tax
- A government levy based on the market value (as assessed by the county
assessor's office) of the property.
- Public Sale
- An auction of property with notice to the general public.
- Purchase Agreement
- See Agreement of Sale.
- Quiet Title (Action)
- A court action to settle a title dispute.
- Quit Claim Deed
- A deed which transfers whatever interest the maker of the deed may have in
the particular parcel of land. A quitclaim deed is often given to clear the
title when the grantor's interest in a property is questionable. By accepting
such a deed the buyer assumes all the risks. Such a deed makes no warranties as
to the title, but simply transfers to the buyer whatever interest the grantor
- A real estate professional who is a member of the National Association of
- 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
- Real Estate Settlement Procedure Act (RESPA)
- A law that states how mortgage lenders must treat those who apply for real
estate loans on property with 1-4 units.
- Example : A lender is required to provide a good faith estimate of closing
costs within 3 days of an application being filed.
- The practice of refusing to provide loans or insurance in a certain
- Repaying an existing loan from the proceeds of a new loan on the same
- When a mortgage is paid off in full, the lender conveys the property back
to the owner.
- 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.
- The cancellation of a contract. When refinancing a mortgage on a principal
residence the law gives the homeowner three days to cancel the contract
- 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
- 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
- Real Estate Investment Trusts (REIT)
- A trust that uses investors money to purchase and manage real estate.
Investors realize some of the tax advantages in owning real estate.
- Right of survivorship
- The right of a surviving joint tenant to acquire the interest of a deceased
- Reverse Mortgage
- A mortgage used by the elderly that provides income as long as they live in
exchange. Payments made cause the loan principal to increase.
- Rollover Loan
- A loan that is amortized over a long period of time (e.g. 30 years) but the
interest rate is fixed for a short period (e.g. 5 years). The loan may be
extended or rolled over, at the end of the shorter term, based on the terms of
- 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.
- 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 :
- Used for business or as an investment
- Property that serves as collateral for a debt.
- The act of billing, collecting payment, filing reports, managing impound
accounts and handling defaults on a mortgage.
- Settlement Cost (HUD guide)
- A booklet that provides an overview of the lending process and is required
to be given to consumers after the loan application is completed.
- Settlement Statement
- See HUD 1
- Special Assessment
- A special tax imposed on property, individual lots or all property in the
neighborhood to pay for improvements - street lights, sidewalks, etc.
- Special Warranty Deed
- The grantor does not warrant against title defects arising from conditions
that existed before he/she owned the property. The seller warrants that he/she
has done nothing to impair title.
- Shared Appreciation Mortgage
- A residential loan with a fixed interest rate that is below market, with
the lender entitled to a specified share of appreciation of the property over
an agreed upon time interval.
- Sheriff's Deed
- A deed given at the sheriff's sale in the foreclosure of a mortgage.
- Single Family Housing (SFR)
- A type of residential structure designed to include one dwelling.
- Example : Town houses, detached units.
- Spec House
- A single family dwelling constructed by a builder in anticipation of
finding a buyer.
- Specific Performance
- A legal action in which the court requires a party to a contract to perform
the terms of the contract when the party has refused to fulfill its
- Standard Uniform Loan Application (Form 1003)
- standard loan application widely used in the mortgage industry.
- A tract of land divided into lots suitable for home building purposes.
- A loan in a lower priority, for example a second mortgage is subordinate to
- Subject To (Purchasing subject to a
- The buyer agrees to make payments on the existing mortgage, without
notifying the lender. The seller remains liable for making payments on the loan
if the buyer does not make the mortgage payment. The buyer is not personally
liable for mortgage payments, but must make payments to keep the property. See
also Assumable Mortgage
- 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.
- 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.
- 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
- 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
- Tenancy for Years
- Created by a lease for a fixed term, such as 6 months, 2 years, etc.
- Tenancy in Common
- Ownership of a property by 2 or more persons, each of whom has an undivided
interest, without the right of survivorship. Upon the death of one of the
owners, the ownership share of the deceased is inherited by the beneficiary
designated on the owner's will.
- Tenancy in Severalty
- Ownership of property by one person.
- Time is of the Essence
- Legal phrase in a contract requiring all references to specific dates and
times noted in the contract be interpreted exactly.
- Time Share
- A form of property ownership under which a property is held by a number of
people, each with the right of possession for a specified time interval. Time
sharing is used mostly for vacation properties.
- Evidence that the owner of the property is in lawful possession. Evidence
- 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.
- A parcel of land, generally held for subdividing.
- Transfer Tax
- Tax paid to the city, county, state or other government entity upon sale of
- 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.
- 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.
- 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
- Unincumbered Property
- Real estate with free and clear title.
- Unimproved Property
- Land that has received no development.
- Unrecorded Deed
- A document that transfers title from the grantor to the grantee without
recording (i.e. providing public notice).
- Charging a rate of interest greater than that permitted by law.
- Vacation Home
- See second home.
- Home loan guaranteed by the U.S. Veterans Administration,
enabling a veteran to buy a home with no money down.
- 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.
- The voluntary renunciation, abandonment, or surrender of some claim, right,
- Mortgage bankers and other financial institutions make loans that are then
periodically sold on the secondary market. After the loan is made but before it
is sold - the loan is said to be in the lenders warehouse.
- Warranty Deed
- A deed conveying the title to a property with a warranty of a clear
- Wraparound Mortgage
- A loan arrangement whereby the existing loan is retained an a new loan is
added to the property.
- Example : The seller sells his/her property for $200,000. The buyer puts
$80,000 down. The seller has an existing loan balance of $100,000 for a
remaining period of 25 years at an interest rate of 6%. The seller then makes a
wraparound mortgage to the buyer, (where the seller acts as a lender) for
$120,000 at 8%. The seller has to continue making payments on his old loan.
They buyer has to pay the seller on the new loan. The buyer may at a later date
refinance the property and close both loans.
- Zero Lot Line
- A form of housing where individual units are on separate lots, but are
attached to one another. Example : PUD, townhouse.
- 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.