AAbstract - A history of all transactions shown in the public records affecting a particular tract of land. |
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| Acceleration - A clause in a deed of trust that allows the loan balance to be fully due and payable. | |||||||||||||
| Adjustable Rate Mortgage - A loan under which the interest rate is periodically adjusted, in accordance with some market indicator, to move closely coincide with the current rates. The extent and number of these adjustments are agreed to at the inception of the loan. | |||||||||||||
| Ad Valorem - Latin for according to valuation. Property tax is an ad valorem tax based on the assessed value of the property. | |||||||||||||
| Adverse Possession - The Possession, by one person, or land belonging to another in a manner deemed adverse to the interest of the owner. In most states, by operation of law, title to the land becomes vested in such person after a fixed number of years if the owner fails to assert their rights. | |||||||||||||
| Affidavit - A written statement made under oath before a notary public or other judicial officer. | |||||||||||||
| Agreement - A legally binding contract made between two or more persons. | |||||||||||||
| Alienation - The voluntary or involuntary act of transferring ownership, title, or interest to another. Real property is usually sold on a voluntary basis. Involuntary alienation is the act of transferring without the owner’s consent, as in foreclosure. | |||||||||||||
| ALTA (American Land Title Association) - The trade association of the title insurance industry, which has adopted certain insurance policy forms to standardize coverage on a nation basis. | |||||||||||||
| Amortization - The payment of a loan by periodic payments of principal and interest, resulting in a declining balance and eventual repayment in full. | |||||||||||||
| Amortization Schedule – A table commonly used in mortgages and installment loan, showing the payments due, the amount due in each installment, the declining principal balance, and the number of years to fully extinguish the debt. | |||||||||||||
| Appraisal - A written report from an independent third party detailing the estimated value of real estate. A market value estimate, often used to determine the collateral value in banking, may be based on replacement cost, sales of comparable property, or expected future income from income producing property. | |||||||||||||
| Appreciation – An increase in value of an asset due to a rise in market price, appraised value, or income earned compared to an earlier period. The opposite is depreciation. | |||||||||||||
| Appurtenance - A right or privilege that is a part of the ownership of property, such as a right of way to a highway across the land of another. | |||||||||||||
| Arbitration – The process of settling a dispute by hearing of opposing arguments thru an arbitrator, rather than a court of law. Arbitration can be a more expedient way of resolving disputes than formal litigation and trial before a court of law. | |||||||||||||
| Arm’s Length Transaction – A transaction carried out by unrelated or unaffiliated parties, as by a willing buyer and a willing seller, each acting in his own self-interest. Pricing based on such transactions is the basis of fair market value. | |||||||||||||
| Assessed valuation- Appraisal of real and person property y taxing authorities for computation of Ad Valorem taxes. Local property taxes are computed from an assessment ratio that sets taxes payable against a percentage of fair market value. | |||||||||||||
| Assessment - (1). The valuation of real estate for the purposes of taxes or special improvement charges. (2). The amount of taxes or special improvement charges. Special improvement charges are usually for the costs of streets, sidewalks, sewers, etc. | |||||||||||||
| Assignment – Signing over title, rights, or other interest to another person. | |||||||||||||
| Assumable mortgage - A mortgage giving the borrower the right to assign the unpaid balance of his obligation, without prepayment penalty, to another person upon sale of the mortgaged property. The buyer assumes payment of the loan at the same rate and term for the remainder of the mortgage, and the seller remains secondarily liable for the obligation. | |||||||||||||
| Assumption - A mortgage clause stating the terms under which an existing mortgage or deed of trust may be conveyed to another party. Generally, a mortgage cannot be transferred at the same rate and term without written consent of the lender. | |||||||||||||
| Attachment – A writ authorizing seizure of property after a court approved judgment in favor of a creditor. | |||||||||||||
Attorney in fact – A person named by another to act as an agent in his behalf. Assignment of this right is in writing, and is commonly referred to as a power of attorney assignment, and may be general or limited to specific acts or assets.
B
C |
| Capitalization - Determining present value of income property by taking the net income and discounting it by using a rate of return commonly acceptable to buyers of similar property. In the foreclosure business, your capitalization rate can be greatly enhanced by taking control of the entire property (asset) by merely buying a junior position (a percentage of the debt on the asset) and maintaining senior debt until you have sold or refinanced the property. |
| Certificate of Title - A certificate issued by a title examiner after reviewing public tax and land records stating the condition of a title to a specific piece of property listing the taxes, loans, liens and other matters affecting the title of property. |
| Chain of Title- The successive transfer of ownerships in the history of title to a specific piece of property. |
| Chattel Mortgage – A lien giving a lender a security interest in personal property, as opposed to real estate (land, buildings) pledged as collateral for repayment of a loan. |
| Claim - An adverse right or interest asserted by one party against another. Claims may arise from unpaid debts or taxes, as well as from hidden title defects such as fraud, forgery, missing heirs etc. A claim could the rights to an estate, for example, a life interest in the property of a deceased spouse, or, a owner’s right of possession, represented by a certificate of title. |
| Clear Title - Real property ownership free of liens, defects, encumbrances or claims. |
| Closing - Also called settlement. A meeting of all parties involved in a property transaction during which the transaction is consummated and all legal documents are executed. |
| Clouded Title - An irregularity, possible claim or encumbrance that, if valid, would adversely affect or impair the title or owners ability to transfer title to someone else. |
| Collateral – Security or an asset pledged as security to ensure payment of performance of an obligation. The security can be liquidated if the debt is not repaid or a default occurs. |
| Collateralization – Typically additional real estate pledged as collateral to secure a debt in part or in full. |
| Commitment - Also called binder. A document issued by a title insurance company that contains the conditions under which a policy of title insurance will be issued. Could also be used as a lenders promise to make a loan at a quoted rate during a specific time period. |
| Condemnation - (1) The taking of a private property for a public purpose, with compensation going to the owner under the right of eminent domain. Governmental units, railroads and utility companies have a right to condemn and take private property. (2) The destruction by government of private property that imperils the life, health or safety of the public. |
| Constructive Notice – Notice in a newspaper or public record presumed to be legally sufficient notice of actions taken, for example, the recording of liens. Constructive notice is distinguished from actual notice, in which a person is notified of a pending action by a letter or in person. |
| Contingent property – The property owned by a buyer who has made an offer to purchase another property upon the sale and closing of their property. |
| Conventional Loan - A loan secured by a mortgage or deed of trust for which the loan-to-value is within an acceptable range for particular lending institutions that is not insured or guaranteed by a government agency. Can be a fixed rate or adjustable rate mortgage. |
| Conveyance -The transfer of title to real property from one person to another. Also, the documentation affecting a legal transfer. |
| Covenant - A formal agreement or contract between two parties in which one party pledges to do certain things and refrain from others, such as covenants of warranty in a warranty deed. |
| Credit Bid - The minimum price set by a beneficiary in a non-judicial foreclosure. A third party bidder at a non-judicial foreclosure must offset the beneficiary’s credit bid to become the grantee in the real property. This is usually accomplished by the third party bidder bidding one dollar more than the credit bid. |
| Custom Home - A home built exactly to buyer’s specification. |
D
| Days On Market (DOM) – Number of days that a property listing has been on the market. |
| Debt Service -Cash outlay needed to meet principal and interest payments on a mortgage or other note, usually expressed as a monthly payment. |
| Dedication - The setting aside of certain land by the owner and declaring it to be for public use (e.g. streets, sidewalks and parks). |
| Deed - A document through which title, claim or ownership of property or estate is relinquished to another is affected. |
| Deed of Trust - A legal document used by a majority of states in lieu of a mortgage. Title to the property passes from seller to a trustee, who holds the mortgaged property until the mortgage has been fully paid and then releases the title to the borrower. The trustee is authorized to sell the property if the borrower defaults, paying the lender the amount of the amount of the mortgage loan and any remaining balance to the former owner. |
| Deed Restriction – A covenant contained in a deed imposing limits on the use or occupancy of the real estate or the type, size, purpose or location of improvements to be constructed on it. |
| Default – Failure to meet obligations, such as repayment of a loan by a borrower, not paying real estate tax or hazard insurance. |
| Defect - A blemish, imperfection or deficiency. A defective title is one that is irregular and faulty. |
| Deficiency Judgment – Court order authorizing a lender to collect part of an outstanding debt from foreclosure and sale of the borrower’s mortgaged property or repossession of property securing a debt, after finding that the property is worth less than the book value of the outstanding debt. |
| Department of Housing and Urban Development - The federal department is responsible for the major housing programs in the United States. |
| Department of Veterans Affairs - Housing loans to veterans by banks, savings and loans, or other lenders that are guaranteed by the VA, enabling veterans to buy a residence with little or no down payment. |
| Depreciation - Loss in value occasioned by ordinary wear and tear, destructive action of the elements, functional or economic obsolescence. A loss in the value of real estate due to any cause. |
| Device - A gift of real estate made by a will. |
| Discount point – Amount paid by a homebuyer to the lender at the outset of a mortgage, typically at loan closing, to increase the loan’s effective yield. One point equals 1% of the principal; on a $100,000 mortgage loan, one discount point is $1,000. |
| Dominant Estate - The property for the benefit of which a right-of-way easement exists across another’s adjoining piece of land is said to be the dominant estate. The land across which the easement runs is said to be the servient estate. |
| Down Payment – Initial good faith deposit made by a homebuyer, indicating intention to purchase real estate offered for sale and obtains financing from a bank or mortgage company. |
| Due Diligence – The responsibility of a person or principal to act in a prudent manner in evaluating real estate and/or related title and financial matters; in essence, using the same degree of care that an ordinary person would use in making the same analysis. |
| Due On Sale - A clause in a deed of trust the demands the entire loan balance payable in full when the property is sold from the owner to another party. The loan cannot be assumed by another buyer as in an assumable mortgage. |
E
| Earnest Money - A deposit of funds by the purchaser of a piece of real estate as evidence of good faith to bind a contract. |
| Easement - A right to use all or part of the land owned by another for a specific purpose. An easement may, for example, entitle its holder to install and maintain sewer or utility lines. |
| Eminent Domain - The right of a government to take privately owned property for the public purposes under condemnation proceedings subject to payment of its fair market value. |
| Encroachment - Any building, improvement or structure located on one property (such as unpaid taxes or an unsatisfied mortgage) that constitutes or represents a burden or charge upon the property. |
| Encumbrance – A right or claim to real property that passes with title, for example, easements, judgment liens, and mortgages. An encumbrance does not hinder transfer of ownership, thought it may reduce the market value of the property. |
| Equity - The market value of real property, less any outstanding liens or mortgages. An owner’s unencumbered interest in a property. |
| Escheat - The reversion of property to the state when an owner dies leaving no legal heirs, devisees or claimants. |
| Escrow - A method of closing a real estate transaction in which all required documents and funds are placed with a disinterested third party (escrow agent) for processing and disbursement, until all conditions have been fulfilled. |
| Estate – ownership rights or claims to property, both real estate and personal property, at the time of death. The total of a person’s assets passes to his heirs, according to the terms of a will, or is disposed of at the discretion of a probate court if no will is left. |
| Estoppel - A legal doctrine that stops or prevents a person from contradicting or reneging on their previous position or previous assertions or commitments. |
| Eviction – The removal of a tenant from rental property by a law enforcement officer. It is also known as unlawful detainer, summary possession, or forcible detainer depending on the area. |
| Exception - A provision to the title insurance binder or policy that excludes liability for a specific title defect or an outstanding lien or encumbrance. |
| Execute - To sign a legal instrument. A deed is said to be executed when it is signed, sealed, witnessed and delivered. |
| Executor – Person or institution, often a trust company, named in a will to distribute the assets of a decedent. The executor assumes control of the assets of an estate, pays estate taxes, debts, and expenses. |
F
| Fair Market Value – Price at which an asset passes from a willing seller to a willing buyer, each having access to all the relevant facts and acting freely on their decision to sell or buy the asset. Also known as market value. |
| Fannie Mae (FNMA) – federal National Mortgage Association. A private corporation supervised by HUD. One of three major secondary market lending agencies. |
| Federal Home Loan Mortgage Corporation (FHLMC OR Freddie Mac)- A federal agency that purchases both conventional and federally insured first mortgages from members of the Federal Reserve System and the Federal Home Loan Bank System. |
| Federal Housing Administration (FHA) - A federal agency that insures first mortgages, enabling lenders to lend a very high percentage of the sale price. |
| Federal Tax Lien - A general lien that attaches to real property of a taxpayer. A non-judicial foreclosure will not divest a federal tax lien that is junior in priority to a foreclosure debt. After a non-judicial foreclosure a property with an attached junior federal tax lien can be redeemed by the Internal Revenue Service up to 120 days from the date of foreclosure. |
| Fee Simple - The absolute ownership of a parcel of land. The highest degree of ownership that a person can have in real estate, which give the owner unqualified ownership and full power of disposition. |
| Finance charge – A borrower’s total cost of credit, including loan interest, commitment fees, and prepaid interest, in a consumer loan. |
| First Lien/mortgage - Mortgage creating a primary lien against real property, and having priority over subsequent mortgages, which are known as junior mortgages. |
| Fiscal Year – Any 12 month period or period of 52 weeks, designated by a corporation, government agency, or any other organization as the time period for filing financial reports, balance sheets, and income statements. This period may differ from the calendar year. |
| Fixed rate mortgage - A mortgage having a rate of interest that remains the same for the life of the mortgage. |
| Fixtures -Personal property, which is attached to real property, and is legally treated as real property while it is so attached. Fixtures, not specifically excluded from an accepted offer to purchase, pass with the real estate. |
| Forbearance - The lender reframes from taking legal action against the borrower on a mortgage or deed of trust that is in default. Usually granted only when a borrower and the lender have worked out an arrangement to take care of the default at some future date. |
| Foreclosure - A legal proceeding initiated by a creditor to take possession of collateral securing a defaulted loan. Proceeds from a foreclosure sale are applied first to pay off the mortgage debt and foreclosure expenses, with the remainder, if any going to the borrower. Some states require a lender to file suit and get a judgment before seizing the real estate. Other states allow lenders to reclaim property by simply declaring the borrower has defaulted, known as the power of sale. A borrower in default has the legal right, in some states, to redeem his property, called the right of redemption, by paying the lender the balance of the outstanding debt, plus out-of-pocket expenses. |
G
| GPS – Global Positioning System is a satellite-based navigation system made up of a network of several dozens of satellites placed into orbit by the U.S. Department of Defense. |
| Garnishment - Process granted by a court order by which a lender obtains, directly from a third party such as an employer, part of an employee’s salary in satisfaction of an unpaid debt. Part of the employee’s salary will be taken out each pay period until the debt is fully paid. |
| General Lien - A general lien is directed against a person’s personal assets, as opposed to a claim against just real property. A general lien can attach to all of their property. Also see specific lien. |
| General Partner – A co-owner of an unincorporated business, who holds a share of the firm’s profits or losses, and is fully liable for its debts. |
| Good Faith – Token sum of money given to indicate inters in fulfillment of a contract, called good faith money. In a real estate transaction, it is known as earnest money. |
| Government National Mortgage Association (GNMA-Ginnie Mae) - A federal association working with FHA that offers special assistance in obtaining mortgages and purchases mortgages in the secondary market. |
| Grant - To bestow or confer, with or without compensation, a gift such as land or money by one having control or authority over the gift. |
| Grantee – One to whom a grant is made. Generally the buyer. |
| Grantor - One who makes a grant. The person who executes a deed conveying property to another, or who creates a trust instrument. In a deed of trust, the party that borrows the loan proceeds from the beneficiary. |
H
| Hard Money Mortgages - A mortgage given in return for cash, rather than to secure a portion of the purchase price, as with a purchase money mortgage. In foreclosure, it is often found that owners in distress will borrow hard money in addition to their first mortgage to payoff the unpaid payments and penalties to avoid the foreclosure sale. |
| Hazard Insurance – Property insurance carrying protection against losses from fire, certain natural causes, vandalism, and malicious mischief. Homeowners are required to carry hazard insurance as a requirement for their loan. |
| Highest & Best use – The use of land and structures, which will result in the highest value. In appraisal this cannot be merely this use must be realistic in that the use must be legal and match the properties zoning for example, be physically achievable and financially feasible. |
| Home Equity Loan (HELOC) - A loan secured by equity value in a borrower’s home. Also called an equity line of credit. A home equity loan allows the homeowner to tap into the accumulated equity in his home-the difference between the current fair market value and the amount secured by a first mortgage. |
| Holding Costs – Investor’s out-of-pocket expenses, usually bank loans and real estate tax and insurance while holding an asset without rental income to offset it. |
| Homeowners Insurance - Real estate insurance protecting the owner occupied homeowner against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. Also includes coverage such as personal liability and theft of personal property away from the home vs. just coverage for the dwelling. Also, called hazard insurance. |
| HUD - The Department of Housing and Urban Development. A cabinet level department of the Federal Government responsible for the major housing programs in the United States. |
I
| Index – (1) A sorted listing in the public records of the names of parties to recorded real estate instruments, together with the book and page number of the record. (2) The listing in abstract and title plants of recorded real estate instruments grouped according to land description. (3) The sorted listing in abstract and title plants, by names of the parties of all recorded instruments that affect but do not describe particular real estate, such as judgments, power of attorney, wills and probate proceedings. Such indexes are known by various names, such as general index, judgment index and name index. |
| Inflation – An economic condition characterized by rapid rises in prices and wages .The result is diminished purchasing power, and frequently a lower rate of savings as wage earners put more of their disposable assets in consumption, and less in long-term savings. |
| Installment contact – A written agreement to pay for goods purchased, in payments of principal and interest at regularly scheduled intervals. |
| Institutional lender - A financial institution or institutional investor, rather than individuals, that invests its own funds, or funds under management, in corporate equities and debt securities, government securities, residential mortgages, commercial real estate, or mortgaged backed securities. |
| Instrument - Any written document having a legal effect that performs an agreement between two or more parties, expressing a contractual right or a right to the payment of money. Practically all documents used in credit are instruments (checks, drafts, notes). |
| Interest only note - A note where payments of interest are made with a final payment of principal due upon maturity. Many lines of credit operate this way with periodic interest payments until maturity, when the entire balance is due. |
| Intestate – Without a will, a person who dies leaving property but without providing for disposition of his or her estate in a will. A court appointed representative called an Administrator will be appointed to distribute the deceased property according to state law. |
| Involuntary lien – Judgment lien, lien for unpaid taxes or special assessment by a municipality that attaches to a real property without consent of the owner, in contrast with a Mortgage lien, which is voluntary. |
J
| Jointly and severally – A legal term for the liability of two or more individuals, who each agree to repay an obligation. A creditor holding an unpaid note has the option of suing each person individually or all of them as a group. |
| Joint tenancy – an undivided interest in property, taken by two or more joint tenants. The interest must be equal, accruing under the same conveyance, and beginning at the same tie. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased. |
| Judgment- The determination of a court regarding the rights of parties. A judgment debt of a property owner can create a lien on all of that owner’s land within a certain jurisdiction, typically the county in which the property is located. A lien against personal property is called an Attachment. |
| Judicial Foreclosure - A method of foreclosing on real property by means of court supervision. The court will determine, usually from an appraisal, a bid price below which no bids will be accepted. Court action is required rather than the power of sale. |
| Junior Mortgage - A mortgage lower in lien priority (subordinate) than an earlier mortgage on the same property. Sometimes referred to as a second or third mortgage. If the borrower defaults, holders of junior mortgages will be paid only after prior lien holders have been paid off. |
K
L
| Laches – An unreasonable delay by a parting making a claim or bringing an action, so that the rights of said part are waived. Laches are not controlled by statute of limitations. |
| Leasehold - The right to possession and use of land for a fixed period of time. The lease is the agreement that creates the right. |
| Lease with option to purchase – A lease under which the lessee has the right to purchase the property. The price and terms of the purchase are typically set forth in advance for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period. |
| Legal owner – The term has come to be used as a technical difference from the equitable owner, and not as opposed to an illegal owner. The legal owner has title to the property, although may actually carry no rights to the property other than a lien. |
| Lessee - The party to whom a lease (the right to possession) is given in return for a consideration (rent). |
| Lessor - A landlord who gives a leasehold to the lessee in return for consideration. |
| Leverage – Money borrowed to increase the return on invested capital. The use of debt or securities to get a higher return on owner’s equity capital. |
| Lien – Creditor’s claim against property to secure repayment of a debt. A lien encumbers the borrower’s property pledged as security, up to the amount of the debt, and guarantees the lender’s right to collect payment through legal means. |
| Lien Priority – Lien priority is based on a first mortgage being the one recorded on title with the earliest date and recording number for that day, making it a senior loan. A junior loan would be one recorded after the senior loan even if on the same day, the recording number would follow after the senior loan. |
| Lis Pendens – Latin for a pending suit. A legal notice warning all parties that there is a lawsuit that may affect rights in certain property (real estate). |
| Listing – An agreement between an owner of real property and a real estate agent, whereby the agent agrees to secure a buyer or tenant for specific property at a certain price and terms in return for a fee or commission. |
| Loan Policy - A title insurance policy insuring a mortgagee under a mortgage, or beneficiary under a deed of trust, against loss caused by invalidity or unenforceability of a lien, or loss of priority of the mortgage or deed of trust. |
| Loan to value ratio – The relationship, expressed as a percentage, between the principal amount of a loan and the appraised value of the asset securing the financing. In a residential mortgage loan, this is the percentage value of the property the lender is willing to finance with a mortgage. |
| Location – The geographical position of real property in relation to its intended use. It is impossible to have a good or bad location without knowing the intended use. |
| Lot- Generally, any portion or parcel of real property. Usually refers to a portion of a subdivision. |
| Lot line – The boundary line of a lot in a subdivision. |
M
| Market Value - Highest price that a marketable asset will bring in an open and competitive market, assuming that both buyer and seller are informed and acting independently. Also called Fair Market Value. |
| Mechanic’s Lien – A lien on real estate created by operation of law that secures the payment of debts due to contractors who perform labor or services or furnish materials incident to the construction of buildings and improvements on the real estate. The lien remains in effect until the workmen have been paid off or a statute of limitation expires. |
| Mortgage – A debt instrument giving conditional ownership of an asset, secured by the asset being financed. The borrower gives the lender a mortgage in exchange for the right to use the property while the mortgage is in effect, and agrees to make regular payments of principal and interest. The mortgage lien is the lender’s security interest, and is recorded in title documents in public land records. |
| Mortgagee – The lender who arranges mortgage financing, collects payments, and takes a security interest in the property financed. |
| Mortgage Insurance – Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the property sale price. |
| Mortgagor – The borrower in a mortgage contract who mortgages the property in exchange for a loan and gives the title to the property to the Mortgagee. |
N
| Negative amortization – The increase in the principal of a loan, when loan payments are insufficient to pay the interest due. The unpaid interest is added to the outstanding loan balance, so the principal increases, rather than decreases, as payments are made. |
| Non-Judicial Foreclosure – A method of foreclosure that does not require court action and is under the power of sale of a mortgage. The beneficiary on a deed of trust sets the minimum bid amount, which is their credit bid. Any interested parties interested in bidding must offset the bid amount, usually by one dollar or more. The sale is usually conducted by the trustee listed on the deed of trust or a successor trustee that has been nominated. |
| Note - Also called a promissory note. A written legally binding promise to pay a sum of money, usually at a specific interest rate, for a specific period of time to a named party. |
| Notice of Default - A notice filed to show that the borrower under a mortgage or deed of trust is in default (typically, behind on payments). |
| Notice of Trustee’s Sale - An instrument that puts the grantor named on a deed of trust on notice that their real property is scheduled for a public auction. The default must be cured to prevent the sale. Notice of trustee’s sales gives the exact dollar amount in default and any additional fee’s incurred, a date, time and location that the property will be sold at public auction. |
O
| Obsolescence – An appraisal term meaning that the age of a structure may cause it to become undesirable in use or appearance and consequently lose income or value. |
| Option – A right, which acts as a continuing offer, given for consideration, to purchase or lease property at an agreed upon price and terms within a specified time. |
| Optionee – The person receiving the option in a lease option agreement. They have the right, but not the obligation, to exercise the option. |
| Optionor – The person giving or granting the option in a lease option agreement. |
| Over improvement – An improvement, excessive in cost or size in relation to land value or value of surrounding improvements. |
| Owner’s Policy - A type of title insurance insuring an owner of real estate against loss occasioned by defect in, lien against, or unmarketability of the owner’s title. This policy insures the owner rather than the lender. |
P
| Partial Release –A release of a portion of property covered by a mortgage. A builder will obtain a partial release as each lot is sold in a newly developed sub-division. It may be necessary to sell groups of lots in some cases to obtain a partial release. In areas where deeds of trust are used instead of mortgages, a “partial reconveyance” is the document used. |
| Per Diem – Specific amount of money a lender charges per day for the outstanding loan amount against a property. Usually applies only to the seller during a transaction to sell the property and pay the lender off. |
| Plat Map - A map dividing a parcel of land into lots, as in a subdivision. A plat book contains the plat maps for a given area. |
| Points - One percent of the amount of the loan. A lender will charge points in addition to a loan origination fee and the points are calculated into the interest of a loan. Paying additional points upon loan origination can give a borrower a lower interest rate on the loan and can be construed as paying interest in advance. |
| Portfolio – A group of assets or loans, classified by type of asset or borrower under management of an investor. |
| Portfolio lender – A lender, frequently a mortgage originator, who hold loans in portfolio until maturity (or until the loans are paid off), and does not sell loans to investors in the secondary market. |
| Possession – Being in physical control of land or personal property, whether the owner or not. Possession may be lawful or wrongful. |
| Power of Sale - A clause in a deed of trust which gives the trustee the power to sell the real property upon orders from the beneficiary if the borrower defaults. This clause is usually executed when the grantor fails to make payments on the promissory note. |
| Premium – The amount payable or cost for an insurance policy. |
| Prescriptive Easement - A right to use another’s property that is not inconsistent with the owner’s rights and which is acquired by an open, notorious, adverse and continuous use for a statutory period. |
| Principal - 1. The face amount of a loan evidencing the amount repayable, exclusive of interest, according to the terms of the note securing the obligation. 2. Primary borrower in a loan. 3. Person who appoints another to act on his behalf as agent or Attorney in Fact. |
| Probate - Legal process of settling the estate of a deceased person, specifically resolving all claims and distributing the decedent’s property. |
| Promissory Note - A written promise to pay, frequently used in installment loans and commercial loans. A promissory note is the legal evidence of a debt. |
| Property Tax - Money levied by the government against personal or real property. The amount of the tax is based on the value of the property. Called Ad Valorem tax. |
| Purchase agreement – An agreement between a buyer and sell of real property, setting forth the price and terms of the sale. |
| Purchase Money Mortgage - (1) a mortgage given from buyer to seller to secure all or a portion of the purchase price. (2) Any mortgage from which the funds are used to purchase the property. |
Q
| Qualifying ratio – Total monthly housing expenses, including repayment of principal, taxes, and insurance, as a percentage of gross monthly income. Or the borrower’s total regular monthly debt as a percentage of gross monthly income. The qualifying ratio is the lender’s rule of thumb for determining a borrower’s ability to pay. |
| Quiet title – Modernly used to describe any court action to establish ownership or remove a cloud on title. |
| Quit Claim Deed - A deed that does not imply that the grantor holds title, but that surrenders and gives to the grantee any possible interest or tights that the grantor may have in the property. |
R
| Real Estate - Also called real property. (1) Land and anything permanently affixed to the land, such as building, fences and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached. (2) May refer to rights in real property as well as the property itself. |
| Real Estate Owned – Most commonly refers to property owned by a lender from taken back from foreclosure of mortgages or deeds of trust. This property is usually for sale and not kept in the ownership of the lender. |
| Realtor - A designation given to a real estate broker or sales associate who is a member of a board associated with the National Association of Realtors. |
| Reassessment – Re-estimating the value of all property in a given area for tax assessment purposes. |
| Reconveyance - An instrument used to transfer title from a trustee to an equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a deed of trust. Also called a deed of reconveyance or release. |
| Recording - The noting in public land records of the details of a legal document (e.g., mortgage, deed of trust). When such an instrument is properly recorded, it is considered to be a matter of public record. Legally, that means that all subsequent purchasers are deemed to have constructive knowledge of that information. |
| Red Tagged – Applied to a property that is deemed inhabitable. Usually performed by government building officials. |
| Redemption Period – A time period during which a mortgage, land contract, deed of trust, etc., can be redeemed. Usually set by statute, and after judicial foreclosure. |
| Refinance - The renewing of an existing loan with the same borrower or lender. It’s common today that a borrower will refinance an existing loan with another lender that has better rates or term. |
| Reinstatement - Payment of a note, mortgage, or deed of trust etc., to bring it from default to good standing. |
| Release - An instrument releasing property from the lien of the mortgage, judgment etc. When a deed of trust is used, the instrument is called a reconveyance. In some areas, a discharge is used instead of a release. |
| Residential mortgage – Mortgage collateralized by a one to four-family dwelling, and ordinarily owner occupied. The typical mortgage loan is a Conventional Mortgage loan by a bank or thrift. |
| Restrictions - Limitations on the use of property imposed or created by deeds or other documents in the chain of title. A restriction may prohibit the placement of a trailer or the color of paint for a house. |
| Riparian Rights - The rights of owners of land bordering watercourses which relate to the water and its use. |
| Running with the land – Usually concerned with easements and covenants. Passing along with the land not the individual owners. |
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| Sale Agreement - A contract entered into between a buyer and seller, setting forth the terms, provisions and conditions of a sale of real estate. |
| Sale and Leaseback - The sale of an asset, usually real estate, and agreement to lease it back from the purchaser on a long-term basis. In commercial finance, this type of financing arrangement strengthens the seller’s balance sheet, because a capital asset is sold and converted into cash or a receivable. |
| Sales associate – One who is licensed to work in real estate under a licensed broker. |
| Sales Comparison - An approach to appraising value of real estate by comparing the price of similar properties (comparables) recently sold. The degree of similarity (physical characteristics and locations) of the properties and the circumstances of the sale (time and terms) are the important considerations. |
| Satisfaction – Discharge of an obligation by payment of the amount due, as on a mortgage, deed of trust, or contract: or payment of a debt awarded, such as satisfaction of a judgment. Also the recorded instrument stating said payment has been made. |
| Seasoned Loan – A loan that has been on the books for a least a year and has a satisfactory payment record. Mortgage loans that have been on the books for a period longer than a year command a premium over unseasoned loans when sold on the Secondary Market. |
| Secondary Market – The market where existing loans, marketable securities, and other assets are sold to investors, either directly or through an intermediary. |
| Second Mortgage - A mortgage that does not have first lien position, a junior mortgage. A mortgage that is subordinate to the created by the first mortgage, but senior to subsequent liens. |
| Secured Loan – A loan that is collateralized by assignment of rights to property and a security interest in personal property or real property taken by the lender. |
| Security – Real or personal property pledged by a borrower, as additional protection for the lender’s interest. |
| Security deposit – Commonly a deposit of money by a tenant to a landlord to secure performance of a written or oral rental agreement. |
| Selling agent – The real estate agent obtaining the buyer rather than listing the property. The listing and selling agent may be the same person or company. |
| Senior debt – Debt that has priority of claim ahead of the other obligations. A first mortgage holder is payable before a creditor holding a second mortgage, in a foreclosure action. |
| Septic Tank – Sewage treatment system used where there is no public sewer system provided by the city. Generally found in rural areas. |
| Settlement – The conveyance or transfer of property to a purchaser, and recording of the mortgage lien on the property deed by the bank financing the transaction. Also known as, closing, the final stage in a real estate transaction. |
| Sheriff Sale - Public auction of a borrower’s assets seized in a foreclosure order obtained from a court, and carried out by a sheriff or other court officer. Assets pledged as loan collateral and secured by attachments, liens, or mortgages may be sold at public auction. |
| Short sale – A sale of property which includes some forgiveness of debt by the lender under a mortgage or deed of trust. The amount of debt forgiven may be considered income to the seller and taxable. |
| Short term capital gain – Profit from the sale of a capital asset not held long enough to qualify as a long term capital gain. Taxed as ordinary income. |
| Spec Home – A home built speculatively by a builder to ultimately attract a buyer when completed. |
| Special assessment – Lien assessed against real property by a public authority to pay costs of public improvements (sidewalks, sewers, street lights etc.), which directly benefits the property. |
| Square foot method – Determining the replacement cost of a building by finding the cost per square foot of comparable buildings and multiplying by the number of square feet of the subject property. |
| Statute – A law, which comes from a legislative body. A written law, rather than law established by court cases. |
| Statute of limitations – State laws specifying the time period within which parties taking judicial action to enforce rights must file the claims. The period of time varies on the type of claim and varies according to state jurisdiction. |
| Specific Lien - A lien against a specific parcel of land. Also, see General Lien. |
| Strategy - A long term plan of action designed to achieve a particular outcome or a goal. It is planned out ahead of time and is adaptable. |
| Subject property – The real property or real estate being appraised in an appraisal for comparison of value for a lender. Comparable sales would be used to support value of the subject property as well as replacement cost evaluation of the subject property. |
| “Subject to” clause – A clause in a deed, stating that the grantee takes title “subject to” an existing mortgage. The original mortgagor is alone responsible for any deficiency, should there by foreclosure of the mortgage. Differs from an assumption” clause, whereby the grantee “assumes” and agrees to pay the existing mortgage. |
| Subordination – To make subject or junior to. |
| Subordination agreement – An agreement by which an encumbrance is made subject (junior) to a junior encumbrance. For example: A loan on vacant land is made subject to a subsequent construction loan. |
| Supply and Demand – The economic theory that when supply exceeds demand, prices fall, and when demand exceeds supply, prices rise. |
| Survey – The measurement of the boundaries of a parcel of land, its area, and sometimes its topography. |
| Sweat equity – The substitution of a borrower’s (buyer’s) work to improve the property rather than paying cash for a down payment or services of contractor’s. |
| System – A system comprises a set of inputs, a set of processes or methods that act on the inputs, to produce a desired outcome. |
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| Tax lien – Involuntary lien on real estate for nonpayment of income taxes or property taxes. Tax liens have priority of bank liens securing the same property, placing the lender at a less than advantageous position in attempting to collect a debt from a delinquent borrower who also owes back taxes. |
| Tenancy in common – Joint ownership of property by two or more persons, without right of survivorship. This form of property ownership most often is used by partners in a business partnership, and by unrelated persons holding title to real property. Each party has an indivisible share of the property; when they die, their share is inheritable by their heirs, not the other tenant. |
| “Time is of the essence” – Clause used in contract to bind one party to perform at or by a specified time in order to bind the other part to performance. |
| Title – Legally valid claim to ownership of real property, evidenced by deed, certified by title, or bill of sale. A lender will extend Mortgage financing to a buyer only if the seller holds uncontested ownership of the property in question. |
| Title company – A firm that verifies ownership of real property often done in connection with a conveyance of real property from buyer to seller. The valid owner is determined through a thorough examination of property records in a title search. The company issues a title certificate, based on its examination. |
| Title defect – Legal claim, circumstances, or other condition that makes it difficult to identify the true owner of real property or transfer title to another. Also called a cloud on title or clouded title, as when ownership has not bee recorded properly, or when secondary liens have not been removed after the obligations have been paid. |
| Title Insurance Policy - A contract of title insurance under which the insurer, in keeping with the terms of the policy, agrees to indemnify the insurance against loss arising from claims against the insured interest. |
| Title order – An order for a search of the title to some parcel of property, eventually leading to the issuance of a policy of title insurance. |
| Title Plant - A geographically filed assemblage of title information that helps in expediting title examinations, such as copies of previous attorney’s opinions, abstracts, tax searches and copies or take-offs of the public record. |
| Title search – Process of verifying the actual owner of real property by a careful review of public land records, usually conducted by a professional title abstractor. This investigation also determines whether there are any outstanding liens or encumbrances binding on the property, and results in issuance of an abstract of title by the title company. |
| Transfer tax – State tax on the transfer of real property. Based on purchase price or money changing hands. Check statutes for each state. |
| Trustee - A party in a deed of trust that holds naked legal title to the property pending the grantor paying off the underlying debt. The function of a trustee is to sell the property at a foreclosure auction if requested by the beneficiary when the debt is not paid, and to execute a reconveyance (release). |
| Trustee’s deed – A deed by a trustee under a deed of trust, issued to a purchaser at auction, pursuant to foreclosure. |
| Trustee’s sale – A sale at auction by a trustee under a deed of trust, pursuant to foreclosure. |
| Trustee’s Sale Guarantee - When the beneficiary orders the trustee to foreclosure on a grantor, the trustee must notify all junior lien holders that have an interest in the real property. Junior lien holders are given the opportunity to protect their interest before they are divested by the foreclosure. If the trustee fails to notify a junior line holder of the foreclosure, their lien position is usually secure. The trustee determines junior lien holders by purchasing a Trustee’s Sale Guarantee (TSG) from a title company. Like a title policy, a TSG provides a guarantee to the trustee and beneficiary that their report shows all junior lien holders that require notice of the foreclosure. |
| Trustor - In a deed of trust transaction this would be the borrower, also called the grantor. One who deeds his property to a trustee as security for the repayment of a loan. |
U
| Underimprovement – An improvement, which is deficient in size or quality in relation to the site on which it is built. |
| Underlying financing – A mortgage, deed of trust, or land contract prior to (underlying) another mortgage, deed of trust, or land contract which is all inclusive or wraps around it. |
| Underwriter – One who insures another. A small title company may buy insurance from a larger one (the underwriter) for all or part of the liability of its policies. |
| Unlawful detainer – The unjustifiable possession of property by one whose original entry was lawful but whose right to possession has terminated; usually a tenant or previous owner of the subject property. |
| Utility – Practical usefulness, as opposed to frivolity. |
V
| VA - Department of Veterans Affairs. Issues below market financing with little or no down payment to veterans of the U.S. armed services. Veteran loans may be paid off at any time without penalty, and are assumable by another borrower at the same rate if the borrower sells the home. |
| Vacancy factor – The estimated percentage of vacancies in a rental project or city. May be based on past records or a professional guess on new projects. Surrounding projects or cities may be used for comparison. |
| Valuable consideration – A legal term meaning any consideration sufficient to support a contract. The work “value” does not mean of great value but merely having value. |
| Value - The usefulness of an object. The monetary worth of an object. Also, see Market Value or Assessed Value. |
| Vendee - The purchaser or buyer of real property in a contract for deed or real estate contract. |
| Vendor - The seller of real property in a contract for deed or real estate contract. |
| Void - Having no legal force or binding effect. |
| Voluntary bankruptcy – Legal proceeding whereby a debtor voluntarily files a petition for relief from creditors in a federal bankruptcy court. The debtor’s property is placed in the hands of a court appointed trustee, who distributes assets to pay debts owed to creditors. |
W
| Waiver - The voluntary and intentional relinquishment of a right to property owned, claimed against another’s property, or to any legally enforceable right. |
| Warranty Deed - A deed conveying the seller’s interest in real property to the buyer. The seller, also known as the grantor, certifies that the title on the property being conveyed is free and clear of defects, liens, and encumbrances. If a third party claim is not exempted specifically, the buyer (the grantee) may sue the seller for the damages caused by the defective title. |
| Without recourse – A finance term, a mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower. |
| Wrap-around mortgage – A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgage under the wrap-around collects a payment based on its face value and then pays the first mortgagee. It is most effective when the first has a lower interest rate than the second, since the mortgagee under the wrap-around gains the difference between the interest rates, or the mortgagor under the wrap-around may obtain a lower rate than if refinancing. |
| Writ of attachment – A legal document placing a borrower’s assets under the control of a court order, for example, when a bank initiates foreclosure action for nonpayment of debt. |
X
Y
Yield - A return on a loan or investment, stated as a percentage of price.
Z
| Zero lot line – The construction of a building on any of the boundary lines of a lot. Usually built on the front line, such as a store built to the sidewalk. With increasing value in land, often times builders will build multi-plex homes (2-4 units) in one building and sell them as individual units with the interior lot line being the wall between units. |
| Zoning - Laws passed by local government regulating the size, type, structure, nature and use of land or buildings. |
