A
Abandonment
The voluntary relinquishment of rights of ownership or other
interest (such as an easement) by failure to use the property,
coupled with an intent to abandon (give up the interest).
Abatement
A reduction or decrease. Usually applies to a decrease of assessed
valuation of ad valorem taxes after the assessment and levy.
Abstract
A summary, an abridgement. Before the use of photostatic copying,
public records were kept by abstracts of recorded documents.
Abstracter's Certificate
A certificate contained in an abstract which shows the time
period and scope of the search of public records done by the
abstracter.
Abstract Of Judgment
A summary of the essential provisions of a court judgment, which
when recorded in the county recorder's office, creates a lien
upon the property of the defendant in that county, both presently
owned or after acquired.
Abstract Of Title
A compilation of the recorded documents relating to a parcel
of land, from which an attorney may give an opinion as to the
condition of title. Still in use in some states, but giving
way to the use of title insurance.
Acceleration Clause
Clause used in an installment note and mortgage (or deed of
trust), which gives the lender the right to demand payment in
full upon the happening of a certain event, such as failure
to pay an installment by a certain date, change of ownership
without the lender's consent, destruction of the property, or
other event which endangers the security of the loan.
Accessibility
The location of a site in terms of how easily it may be reached
by customers. employees, carriers, and others necessary to the
intended use of the property
Accord
An agreement by which one accepts something different (usually
less) from what is owed as full satisfaction The amount owed
may be in dispute or simply accepted as full satisfaction by
the creditor or claimant. The agreement and acceptance is called
"Accord and Satisfaction."
Accretion
The gradual addition to the shore or bank of a waterway. The
land generally becomes the property of the owner of the shore
or bank, except where statutes specify otherwise.
Accrued Depreciation
(1) The amount reserved each year in the accounting system for
replacement of a building or other asset. (2) The useful life
of a property at any given time.
Acknowledgement
A written declaration by a person executing an instrument, given
before an officer authorized to give an oath (usually a notary
public), stating that the execution is of his own volition.
Acquisition Costs
Costs of acquiring property other than purchase price: escrow
fees, title insurance, lenders fees, etc.
Act Of God
Damage caused by nature (floods, winds, etc.) rather than destruction
by man.
Adjustable Rate Mortgages (ARM's)
Mortgage loans under which the interest rate is periodically
adjusted to more closely coincide with current rates. The amounts
and times of adjustment are agreed to at the inception of the
loan. Also called: Adjustable Rate Loans, Adjustable Mortgage
Loans (AML'S), Flexible Rate Loans, Variable Rate Loans.
Ad Valorem
"According to value." A method of taxation using the
value of the object taxed to determine the amount of tax. Taxes
can be either "Ad Valorem" or "Specific."
Example: A tax of $5.00 per $1000.00 of value per house is "Ad
Valorem," A tax of $5.00 per house (irrespective of value)
is "Specific."
Advance Fee
A fee charged by a broker to a seller to cover all or a portion
of the broker's costs of promoting the property. The fee is
generally credited against commissions but is not refunded if
no commissions are received. Most frequently used in connection
with large offerings which require a substantial outlay of funds
for promotion.
Agency
A relationship created when one person (the principal) delegates
to another (the agent) the right to act on his or her behalf
in business transactions.
American Land Title Association (ALTA)
A national association of title insurance companies, abstractors,
and agents. The association adopts standard title policy forms.
Amortization
Payment of a debt in equal installments of principal and interest,
rather than interest only payments.
Annual Percentage Rate (A.P.R.)
The Annual Percentage Rate is the cost of your credit as a yearly
rate. The A.P.R. considers the interest rate, points, and certain
other fees called finance charges associated with obtaining
credit.
Appraisal
An opinion of value based upon a factual analysis. Legally,
an estimation of value by two disinterested persons of suitable
qualifications.
Appraisal Methods
Generally, three major methods of appraisal: Cost Approach,
Income Approach, Market Value (comparables) Approach.
Arrears
(1) Payment made after it is due is in arrears. (2) Interest
is said to be paid in arrears since it is paid to the date of
payment rather than in advance, as is rent. Example: A rental
payment made July 1 pays the rent to August 1. An interest payment
made July 1 pays the interest to July 1.
Assumable
A mortgage loan which can be transferred to another person without
a change in the terms of the loan. VA and FHA loans are assumable,
FHLMC and FNMA are not.
Assumption of Note
Agreement by a buyer to assume the liability under an existing
note secured by a mortgage or deed of trust. The lender usually
must approve the new debtor in order to release the existing
debtor (usually the seller) from liability.
Avigation Easement
An easement over private property abutting an airport runway,
which limits the height of crops, trees, structures, etc., in
the aircraft's take off and landing path.
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B
Balloon Note
A note calling for periodic payments which are insufficient
to fully amortize the face amount of the note prior to maturity,
so that a principal sum known as a "balloon" is due
at maturity.
Balloon Payment
The unpaid principal amount of a loan due on a specific date
in the future. Usually the amount that must be paid in a lump
sum at the end of the term.
Bankrupt
One who is adjudicated a bankrupt by a court having proper jurisdiction.
The bankruptcy may be voluntary (petitioned by the bankrupt)
or involuntary (petitioned by the creditors of the bankrupt).
Bankruptcy
Proceedings under federal bankruptcy statutes to relieve a debtor
(bankrupt) from insurmountable debt. The bankrupt's property
is distributed by the court to the creditors as full satisfactions
of the debts, in accordance with certain priorities and exemptions.
Voluntary bankruptcy is petitioned by the debtor for, involuntary
by the creditors.
Beneficiary
The Person who is entitled to receive funds of property under
the terms and provisions of a will, trust, insurance policy
or security instrument. In connection with a mortgage loan the
beneficiary is the lender.
Bill Of Sale
An instrument by which title to personal property is transferred
or conveyed.
Biweekly
Also known as accelerated mortgages. Biweeklies reduce interest
expense and build home equity faster than monthly payments.
Bona Fide Purchaser
A purchaser in good faith. for valuable consideration, without
notice or knowledge of adverse claims of others. Sometimes abbreviated
B.F.P.
Breach Of Warranty
In real property, the failure of the seller to pass title as
either expressed or implied (by law) in the conveyancing document.
Broker, Real Estate
One who is licensed by the state to carry on the business of
dealing in real estate. A broker may receive a commission for
his or her part in bringing together a buyer and seller, landlord
and tenant, or parties to an exchange.
Building And Loan Association
An organization for the purpose of accumulating a fund by subscription
and savings of its members, to assist them with loans for building
or purchasing real estate.
Buydown
A payment to the lender from the seller, buyer, third party,
or some combination of these, causing the lender to reduce the
interest rate during the early years of a loan. The buydown
is usually for the first 1 to 5 years of the loan.
Buy-Sell Offer
An offer by one owner of a business or real estate to buy out
the interest of another owner of the same business or real estate
(a partner or other shareholder), or to sell the offeror's interest
at the same price or proportionate price if unequal ownership.
Example: A and B each own a 112 interest in Lot 1. A offers
to buy B's interest for $10,000 or to sell A's interest to B
for $10,000. Theoretically very fair, since B has the option
to buy or sell. However, B's interest may be worth $12,000,
but B is financially unable to buy A's interest (also worth
$12,000).
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C
Califomia Land Title Association (CLTA)
A statewide association of title insurers and underwritten title
companies. The association adopts standard title policy forms.
Call
In a metes and bounds description, the angle and distance of
a given line or arc. Each call is usually preceeded by the word
then or thence. Example: N 220 E 100' (lst. call), thence N
800 E 1W (2nd. call).
Cancellation Clause
A clause in a lease or other contract, setting forth the conditions
under which each party may cancel or terminate the agreement.
The conditions may be as simple as giving notice or complex
and require payment by the party desiring to cancel.
Cap
The maximum which an adjustable rate mortgage may increase,
regardless of index changes.
Capital Assets
Assets of a permanent nature used to produce income, such as
machinery, buildings, equipment, land, etc. Must be distinguished
from inventory. A machine which makes pencils, for example,
would be a capital asset to a pencil manufacturer, but inventory
to the company whose business is to sell such machines.
Capital Gains
Gains realized from the sale of capital assets. Generally, the
difference between cost and selling price, less certain deductible
expenses. Used mainly for income tax purposes.
Carrying Charges
The costs involved in keeping a property which is intended to
produce income (either by sale or rent) but has not yet done
so.
CC and Rs (Covenants, Conditions and Restrictions)
Limitations placed on the use and enjoyment of real property.
These are found most often in condominiums and planned unit
developments.
Certificate Of Title
In areas where attorneys examine abstractor chains of title,
a written opinion, executed by the examining attorney, stating
that title is vested as stated in the abstract.
Chain of Title
A chronological list of recorded instruments tracing title to
land, from the original owner to the present owner.
Chains And Links
Measurements. In real estate measurements(surveying) a chain
is 66' long or 100 links, each link being 7.92". The measurement
may change when used in fields other than surveying.
Classified Property Tax
Property tax which varies in rate depending on the use (zoning
classification) of the property.
Clear Title
Title to property which is free from liens, defects or other
encumbrances.
Closing
(1) In real estate sales, the final procedure in which documents
are executed and/or recorded, and the sale (or loan) is completed.
(2) A selling term meaning the point at which the client or
customer is asked to agree to the sale or purchase and sign
the contract. (3) The final call in a metes and bounds legal
description which "closes" the boundaries of the property.
Closing Costs
Expenses, beyond the selling price, such as loan fees, title
fees, etc. Paid when documents are executed and/or recorded
and the sale is complete.
Closing Statement
A summary, in the form of a balance sheet, showing the amounts
of debits and credits to which each party to a real estate transaction
is entitled upon closing.
Cloud On Title
An invalid encumbrance on real property, which, if valid, would
affect the rights of the owner. For example: A sells Lot 1,
tract 1, to B. The deed is mistakenly drawn to read Lot 2 by
the recording of the erroneous deed. The cloud may be removed
by quit claim deed, or, if necessary, by court action.
Commercial Property
Property which is zoned "commercial" (for business
use). Property such as stores, restaurants, etc., falling between
residential and industrial.
Commingling
To mix funds held in trust with other funds. For example: A
broker or builder mixes deposits (should be in a trust account)
with his funds by putting the deposits in his general account.
Although commingling is in itself a violation for which a broker
may lose his license, it does not mean that, by commingling,
the broker or builder intended to misappropriate the funds.
Commission
Compensation due a real estate lender for acting on behalf of
the principal.
Community Property
Property acquired during a marriage by either a husband or wife,
or both, which is not separate property.
Comparables (Comps)
An abbreviation for comparable properties used for comparative
purposes in the appraisal process.
Conditional Sales Contract
A sale in which the title to property or goods remains with
the seller until the purchaser has fulfilled the terms of the
contract, usually payment in full.
Condominium
A structure of two or more units, the interior space of which
are individually owned: the balance of the property (both land
and building) is owned in common by the owners of the individual
units. The size of each unit is measured from the interior surfaces
(exclusive of paint or other finishes) of the exterior walls,
floors, and ceiling. The balance of the property is called the
common area.
Conforming
A loan that meets the guidelines set forth by Fannie Mae and
Freddie Mac in maximum loan amount, credit standards, employment
and income standards, and acceptable collateral as well as product
type and definition.
Consideration
A required element in all contracts by which something of value,
including a promise, is exchanged for the act or promise of
another.
Contingency
Action conditioned upon a certain event. Acceptance of the terms
of a contract based on something else happening or certain conditions
being met.
Conveyance
The transfer of title or an interest in real property by means
of a written instrument such as a deed of trust.
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D
Declaration Of Trust
A written acknowledgement by one holding legal title to property
that the property is held in trust for the benefit of another.
Deed
Actually, any one of many conveyancing or financing instruments,
but generally a conveyancing instrument, given to pass fee title
to property upon sale.
Deed Of Trust
An instrument used in many states in place of a mortgage. Property
is transferred to a trustee by the borrower (trustor) in favor
of the lender (beneficiary), and reconveyed upon payment in
full.
Defeasible Title
Title which is not absolute but possibly may be annulled or
voided at a later date. For example: Title conveyed to A with
condition that if A marries before age 30, title will go to
B. A's title may be good (doesn't marry) or may be defeated
(marries before 30).
Deficiency Judgment
Commonly the amount for which the borrower is personally liable
on a note and mortgage if the foreclosure sale does not bring
enough to cover the debt. Actually, the judgment is for the
total amount and not for the deficiency, the recovery from the
foreclosure sale being deducted from this amount.
Delivery
In conveyancing, the placing of the property in the actual or
constructive possession of the grantee. Usually accomplished
by delivery of a deed to the buyer, or by recording said deed.
Demand
The lender's statement of the amount due to pay off a loan.
Demand Note
A note having no date for repayment, but due on demand of the
lender.
Deposit
(1) Money given by the buyer with an offer to purchase. Shows
good faith. Also called earnest money. (2) A natural accumulation
of resources (oil, gold, etc.) which may be commercially recovered
and marketed.
Depreciation
(1) Decrease in value to real property improvements caused by
deterioration or obsolescence. (2) A loss in value as an accounting
procedure to use as a deduction for income tax purposes.
Discount Points
The fee associated with the note rate for your loan. The more
discount points you pay, the lower the rate you can buy. The
fewer you pay, the higher your rate.
Disposition of Real Estate Statement
A statement that the buyer will occupy the property being purchased
even though the buyer owns other property. The buyer states
that the other property will be sold or rented. Particulars
must be given as to any loan on the property and the equity
or rent to payment amounts.
Documentary Transfer Tax
The tax, based on sales price, less loans which are being assumed,
which is charged by the city and/or county on the transfer of
real property.
Dual Agency
The representation of opposing principals (buyer and seller)
at the same time. In brokerage many states get around this by
saying that the agent aids the buyer but is the agent of the
seller only. A problem arises if both buyer and seller pay the
broker, then full disclosure must be made. An escrow agent is
the agent of buyer and seller and usually paid by both. This
is why an escrow agent must be neutral.
Due on-Sale-Clause
A clause in a mortgage loan which gives the lender the right
to demand payment in full when the property changes ownership.
Not applicable to FHA or VA loans.
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E
Easement
A right created by grant, reservation, agreement, prescription,
or necessary implication, which one has in the land of another.
It is either for the benefit of land (appurtenant), such as
right to cross A to get to B or "in gross," such as
a public utility easement.
Easement of Necessity
An easement granted by a court when it is determined that said
easement is absolutely necessary for the use and enjoyment of
the land. Commonly given to landlocked parcels.
Egress
A term concerning a right to come and go across the land (public
or private) of another. Usually part of the term ingress and
egress.
Encumbrance, Incumbrance
A claim, lien, charge, or liability attached to and binding
real property. Any right to, or interest in, land which may
exist in one other than the owner, but which will not prevent
the transfer of fee title.
Equitable Conversion
A legal fiction applied to a land contract which treats the
vendee's (buyer's) interest as a real property interest even
though the seller holds legal title, and the seller's interest
as a security interest (personal property). This enables the
buyer to act as the "owner" of the property without
having "legal" title.
Equitable Mortgage
(1) A lien against real property (mortgage) which is enforceable
in a court of equity, but does not legally constitute a mortgage.
(2) A deed given as security for a debt will be held to be a
mortgage rather than a transfer of title. Also called a constructive
mortgage.
Equity
The value of a person's interest in real property after all
liens and charges have been deducted.
Equity Line Of Credit
A combination of a line of credit and equity loan. A maximum
loan amount is established based on credit and equity. A mortgage
(deed of trust) is recorded against the potential borrower's
property for said maximum loan amount. The potential borrower
has the right to borrow, as needed, up to the amount of the
mortgage.
Escalation Clause
A clause in a lease providing for an increased rental at a future
time. May be accomplished by several types of clauses, such
as (1) Fixed increase - A clause which calls for a definite,
periodic rental increase. (2) Cost of living - A clause which
ties the rent to a government cost of living index, with periodic
adjustments as the index changes. (3) Direct expense - The rent
is adjusted according to changes in the expenses of the property
paid by the lessor, such as tax increases, increased maintenance
costs, etc.
Escrow
Delivery of a deed by a grantor to a third party for delivery
to the grantee upon the happening of a contingent event, modernly,
in some states, all instruments necessary to the sale (including
funds) are delivered to a third (neutral) party, with instructions
as to their use.
Excess Condemnation
Taking by right of eminent domain, more property than actually
necessary for the intended purpose. This happens frequently,
the excess property being sold at auction after completion of
the project.
Exception
A provision in a title insurance binder or policy excludes liability
for a specified title defect or an outstanding encumbrance.
Exclusive Listing
A written contract between a property owner and a real estate
broker, whereby the owner promises to pay a fee or commission
to the broker it certain real property of the owner is sold
during a stated period, regardless of whether the broker is
or is not the cause of the sale. The broker promises to put
forth his or her best efforts to sell the property, and may
make specific promises as to advertising or other promotion
in certain instances.
Exposure
(1) The degree to which a property for sale, lease, etc., is
made noticeable (exposed) to potential buyers, tenants, etc.,
through advertising, multiple listing groups, etc. (2) The direction
in which a property faces. For example: Does a store depending
on walk-in trade face the sun in the morning when people walk
in the sun to get warm (eastern exposure), or face the sun in
the afternoon when people walk in the shade to keep cool (western
exposure).
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F
Fair Market Value
An appraisal term for the price which a property would bring
in a competitive market given a willing seller and willing buyer,
each of whom has a reasonable knowledge of all pertinent facts,
with neither being under any compulsion to buy or sell.
Fee Simple
An estate under which the owner owns a contract interest in
the property and is entitled to the unrestricted enjoyment of
the property, including the right to dispose property.
Federal Deposit Insurance Corporation (F.D.I.C.)
The federal corporation which insures against loss of deposits
in banks, up to a maximum amount.
Federal Home Loan Banks
Banks created under the Federal Home Loan Bank Act of 1932,
in order to keep a permanent supply of money available for home
financing. The banks are controlled by the Federal Home Loan
Bank Board. Savings and loans, insurance companies, and other
similar companies making long term mortgage loans may become
members of the Federal Home Loan Bank System, and thus may borrow
from one of the regional banks throughout the country.
Federal National Mortgage Association
- Fannie Mae
Fannie Mae is one of the Government Sponsered Enterprises (GSE),
yet receives no government funding or backing. It is a private
company, owned by shareholders and chartered by Congress to
purchase mortgages thereby making funds available to lenders.
It does not lend directly to borrowers; rather it buys mortgages
made by lenders.
Fee
(1) Modernly, and not in strict legal terms, synonymous with
fee simple or "ownership." (2) A charge made by a
landlord to a tenant, which is not refundable. For example:
A cleaning deposit would be refunded if the tenant left the
rented property reasonably clean. A cleaning fee would be a
charge by the landlord for cleaning the rented property and
would not be refunded regardless of the condition of the property.
FHA (Federal Housing Admininistration)
A federal agency which insures first mortgages, enabling lenders
to loan a very high percentage of the sale price.
Federal Home Loan Mortgage Corporation -
Freddie Mac
Freddie Mac is one of the Government Sponsored Enterprises (GSE),
recieving no government funding or backing. It is a stockholder-owned
corporation chartered by Congress to increase the supply of
funds that lenders could make available to borrowers. It does
not lend directly to borrowers, but buys mortgages made to borrowers.
Finance Charge
A total of all costs imposed directly or indirectly by the creditor
and payable either directly or indirectly by the customer, as
defined by the Federal Truth-In-Lending laws.
Financial Statement
An accounting statement showing assets and liabilities of a
person or company. Used generally for large loans or other instances
when the credit report (history of payment of debts) in itself
is not sufficient.
Finder's Fee
A fee paid to someone who finds a buyer or property for a broker,
buyer, etc. The term is sometimes used to attempt to pay a commission
to an unlicensed person. Generally, a finder's fee is considered
a commission and may only be paid to one who holds a real estate
license.
First Mortgage
A mortgage on property that is superior in position to any other
mortgage.
Fixed Rate Loan
A loan on which the same rate of interest is charged for the
life of the loan.
FNMA Buydown
FNMA (Federal National Mortgage Association) accepts loans containing
a buy down provision on single family residential, owner occupied
properties. A prepayment (points) will buy a lower rate of interest
during the first one to five years of the loan. Restrictions
apply as to the amount of the buydown and rise in payment amount
as the loan progresses.
Forfiture
The taking of an individual's properly by a government, because
the individual has committed a crime. In the United States,
private property cannot be taken, except by eminent domain upon
payment of just compensation, or for nonpayment of taxes.
Full Disclosure
In real estate, revealing all the known facts which may affect
the decision of a buyer or tenant. A broker must disclose known
defects in the property for sale or lease. A builder must give
to a potential buyer the facts of his new development (are there
adequate school facilities? sewer facilities? (an airport nearby?,
etc.). A broker cannot charge a commission to buyer and seller
unless both know (disclosure) and agree.
Future Acquired Property
Property acquired after a loan or sale. For example: A loan
agreement may state that the loan is a lien on all property
presently owned or which the borrower may acquire in the future.
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Garnishment
A legal proceeding under which a person's money in control of
another (such as salary) is taken for payment of a debt. The
amount which may be taken is set by statute (usually as a percentage),
and, in most states, a judgment is necessary before garnishment.
General Lien
(1) A lien such as a tax lien or judgment lien which attaches
to all property of the debtor rather than the lien of, for example,
a trust deed, which attaches only to specific property. (2)
The right of a creditor to hold personal property of a debtor
for payment of a debt not associated with the property being
held. Must be done under an agreement since against general
precepts of law.
General Membership
A partnership made up of general partners,without special (limited)
partners.
GNMA (Government National Mortgage Association)
Options
A method of purchasing GNMA securities through "puts"
and calls." A GNMA Call Option is the right to buy GNMA
securities at a specific yield for a specified time, A Put Option
is the right to sell GNMA securities at a specific yield for
a specified time. The buyer pays for the option and may exercise
it, not exercise it, or sell it.
Graduated Payment Mortgage
A mortgage or deed or trustcalling for increasingly higher payments
over the term of the loan. This allows the buyer low beginning
payments. The payments then increase as (theoretically) the
buyer's earnings increase.
Grantee
One to whom a grant is made. The purchaser of real property.
Grantor
One who has made a grant. The seller of real property.
Grantor Grantee Index
The record of the passing of title to all the properties in
a county as kept by the county recorder's office. Property is
checked by tracing the names of the sellers and buyers (chain
of title). Title companies usually have more efficient methods
by keeping records according to property description, rather
than peoples names.
Gross Income
The scheduled (total) income, either actual or estimated, derived
from a business or property.
Gross Income Multiplier
A figure which, when multiplied by the annual gross income,
will theoretically determine the market value. A general rule
of thumb which varies with specific properties and areas.
Gross Lease
A lease which obligates the lessor to pay all or part of the
expenses of the leased property, such as taxes, insurance, maintenance.
utilities, etc.
Guarantee
Agreement to pay the debt or perform the obligation of another
in the event the debt is not paid or obligation not performed.
Differs from a surety agreement in that there must be a failure
to pay or perform before the guaranty can be in effect.
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Hidden Defect
An encumbrance on a title that is not apparent in the public
records; for example, unknown heirs, secret marriages and forged
instruments.
Holdback
Portion of a loan held back by the lender until a contingency
is met. In the sale of a home insured by VA or FHA., funds may
be held back to make necessary improvements to bring the property
to VA or FHA standards. The money to make these repairs may
not be available until closing. One and one halt to double the
estimated amount necessary is held back. If repairs are not
made in the time allowed, these funds are used to make the repairs.
In construction financing, funds are held back until, for example,
a certain percentage of a subdivision has been sold, or a certain
portion of a building has been constructed.
Holder In Due Course
A holder of a check or note who takes, for value and in good
faith, the note before it is overdue or the check without knowledge
that it has bounced, if, in fact it has.
Holding Period
The time period used by the IRS to determine along or short
term capital gain. The period during which the taxpayer owns
the capital asset.
Homestead
The dwelling (house and contiguous land) of the head of a family.
Some states grant statutory exemptions, protecting homestead
property (usually to a set maximum amount) against the rights
of creditors. Property tax exemptions (for all or part of the
tax) are also available in some states. Statutory requirements
to establish a homstead may include a formal declaration to
be recorded.
Home Warranty Insurance
Private insurance insuring a buyer against defects (usually
in plumbing, heating, and electrical) in the home he has purchased.
The period of insurance varies and both new and used homes may
be insured.
Hypothecate
To mortgage or pledge without delivery of the security to the
lender.
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Impound Account
Account held by a lender for payment of taxes, insurance, or
other periodic debts against real property. The mortgagor or
trustor pays a portion of, for example, the yearly taxes, with
each monthly payment. The lender pays the tax bill from the
accumulated funds.
Improvements
Generally, buildings, but may include any permanent structure
or other development, such as a street, utilities, etc.
Inchoate Instrument
An unrecorded instrument (such as a deed) which is valid only
between the parties and those having actual notice, but not
against "the world" as it would be after recording.
Income Averaging
A method of figuring income tax by paying tax on the average
income per year for the past five years. For example: A, a real
estate salesperson, earns $10,000 taxable income for 4 years.
In the fifth year, A sells a shopping center and earns $100,000
taxable income. A-could take the total income for 5 years ($140,000),
divide by 5 ($28,000), and pay tax on $28,000 for the past 5
years, less what A has already paid.
Increasing And Diminishing Returns
An economic theory that an increase in capital or manpower will
not increase production proportionately (five workers may do
less than five times the work of one worker; and two workers
may do more than twice the work of one worker). When the increase
in production is proportionately greater than the addition,
there is an increasing return, when production is proportionately
less than the addition, the return diminishes.
Industrial Tax Exemption
An exemption from local property taxes granted to encourage
industries to come into an area. Has been used successfully
in the South. Usually granted for a definite period.
Inheritance Tax
A tax on the transfer of property from a deceased person: based
on the right to acquire the property rather than the property
itself.
Installment Contract
A method of purchasing by installment (usually monthly) payments.
When referring to real property, it is usually called a land
contract.
Institutional Lenders
Banks, savings and loan associations, and other businesses which
make loans to the public in the ordinary course of business,
rather than individuals, or companies which may make loans to
employees.
Insured Mortgage
A mortgage insured against loss to the mortgagee in the event
of default and a failure of the mortgaged property to satisfy
the balance owing plus costs of foreclosure. May be insured
by FHA, VA, or by private mortgage insurance companies.
Interest Cap
The maximum interest rate increase of an Adjustable Mortgage
Loan. An interest rate cap places a limit on the amount your
interest rate can increase. Intrest caps come in two versions:
- Periodic caps, which
limit the interest rate increase from one adjustment period
to the next; and
- Overall caps, which
limit the interest rate increase over the life of a loan.
Interpleader
A court action which may be filed in an existing case to be
the initial action. One holding funds which are in dispute,
but not having an interest in the funds, would file an interpleader.
For example: An escrow agent is holding a deposit of a buyer
which funds both buyer and seller claim to be entitled. Escrow
is willing to give the funds to either buyer or seller but does
not want to be liable for giving the funds to the wrong party.
The interpleader filed by the escrow agent asks the court to
determine to whom the funds should be awarded.
Interstate Land Sales
Sales of land to a buyer in another state. Because the buyer
is usually totally dependent on the seller for information regarding
the property, federal disclosure laws have been passed to aid
the buyer. The buyer also has a period (now 3 days) after signing
a purchase agreement, in which to rescind. The laws were passed
because of the large promotional land sales of the 50's and
early 60's, some of which sold worthless desert and swamp land.
IRA (Individual Retirement Account)
Savings programs available to individuals. The plans allow for
a certain amount to be deposited each year. This money is not
subject to income tax for that year or following years as long
as it is not withdrawn. The money is taxed as withdrawn upon
retirement, usually when the depositor is in a lower tax bracket.
During the life of the account, the money may be put into various
interest bearing investments. Securities dealers as well as
banking institutions now offer IRA'S.
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Joint Appraisal
An appraisal by more than one appraiser, but one which states
common conclusions of all.
Joint Tenancy
An undivided interest in property, taken by two or more joint
tenants. The interests must be equal, accruing under the same
conveyance, and beginning at the same time. 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 decision of a court of law. Money judgments, when recorded,
become a lien on real property of the defendant.
Judgment Lien
A lien against the property of a judgment debtor. An involuntary
lien.
Judgment Proof
One against whom a judgment creditor cannot collect (no assets).
If one can show he was defrauded by a "judgment proof"
real estate licensee, he may recover from the state fund in
states having such a fund.
Jumbo VA Loan
A loan for an amount greater than the allowable 100% financed
amount. It is determined by subtracting the maximum allowable
100% financed amount from the purchase price and financing 75%
of the difference. Example: maximum allowable VA Loan-$110,000.
Sale price-$130.000. Difference $20,000: 75% of the difference
is $15,000. Total jumbo loan-$110,000 plus $15.000 = $125,000.
Required down payment-$5,000.
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K
Keogh Plan
A retirement plan whereby a self-employed person may set aside
a certain portion of income (tax deferred) into a retirement
account. The money is taxable upon withdrawal at retirement
when the person's tax bracket is often lower.
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Landowner's Royalty
In oil and gas leases, the portion of the value of each barrel
of oil which goes to the property owner.
Land Residual Technique
An appraisal technique by which land value is determined by
first determining the net return attributable to the building
only, and deducting it from the total return to the property
(may be estimated), the residual amount is capitalized to find
the land value. The building value may be determined by construction
costs (new building), depreciated construction costs (it only
a few years old), or estimated present construction costs (if
an older building).
Late Charge
A penalty for failure to pay an installment payment on time.
Usually not allowed as interest for tax deductions. May or
may
not be included as usury. If not, the amount of late charge
is either set by statute or must be "reasonable."
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 must be set forth
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
Description: A description by which property can be definitely
located by reference to surveys or recorded maps. Sometimes
referred to simply as the legal.
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 the title
may actually carry no rights to the property other than a lien.
Lessee's Interest
In appraising the value of a lessees interest to determine the
value of a potential sublease of assignment (sale) of the lease,
the value is the market value of the property, less the interest
of the lessor. The lessor's interest would be largely determined
by the ratio of the return on the lease to the market value
without the lease.
Lien
A recorded document
which claims an interest in real property as security for
a debt owed. Such
liability may be created by contract, such as a deed of
trust, or by a court judgment.
Lien Waiver (Waiver Of Liens)
For our purposes, a waiver of mechanic's lien rights, signed
by subcontractors so that the owner or general contractor
can
receive a draw on a construction loan.
Loan Ratio
The ratio, expressed as a percentage, of the amount of
a loan to the value or selling price of real property.
Usually, the
higher the percentage, the greater the interest charged.
Maximum percentages for banks, savings and loans, or government
insured
loans, is set by statute.
Loan to Value Ratio
The ratio of the mortgage loan's principal to the property's
appraised value or its sales price, whichever is lower.
Long Term Capital Gain
Gain on the sale of a capital asset which has been held
for a specified time or longer. Long term capital gain
is taxed
at a special rate and not as ordinary income.
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Marketable Title
Title which can be readily marketed (sold) to a reasonably prudent
purchaser aware of the facts and their legal meaning concerning
liens and encumbrances.
Market Value
The highest price a willing buyer would pay and a willing seller
accept, both being fully informed, and the property exposed
for a reasonable period of time. The market value may be different
from the price a property can actually be sold for at a given
time (market price).
Market Value Approach
Appraising the value of a property by comparing the price of
similar properties (comparables) recently sold. The degree of
similarity of the properties and circumstances of the sale are
the important characteristics to consider.
Maturity
(1) Termination period of a note. For example: A 30 year mortgage
has maturity of 30 years. (2) In sales law, the date a note
becomes due.
Mechanic's Lien
A lien created by statute for the purpose of securing priority
of payment for the price or value of work performed and materials
furnished in construction or repair of improvements to land,
and which attaches to the land as well as the improvements.
Merger Of Title
A lesser interest in real property being merged (absorbed) into
a greater interest. For example: A lessee purchases the property
being leased. The interest as a lessee is merged into the interest
as an owner, thus ending the leasehold interest.
Metes and Bounds
A form of land description in which boundaries are described
by courses, directions, distances and monuments.
Mile
A linear measurement equal to 5280 feet on land and 6076 feet
across water (nautical mile).
Mortgage
(1) To hypothecate as security, real property for the payment
of a debt. The borrower (mortgagor) retains possession and use
of the property. (2) The instrument by which real estate is
hypothecated as security for the repayment of a loan.
Mortgage Banker
A company providing mortgage financing with its own funds rather
than simply bringing together lender and borrower, as does a
mortgage broker. Although the mortgage banker used its own funds,
these funds are generally borrowed and the financing is either
short term or long term, the mortgages are sold to investors
(many times insurance companies) within a short time.
Mortgage Company
A company authorized to service real estate loans, charging
a fee for this service.
Mortgagee
The party lending the money and receiving the mortgage. Some
states treat the mortgagee as the "legal" owner, entitled
to rents from the property. Other states treat the mortgagee
as a secured creditor, the mortgagor being the owner. The latter
is the more modern and accepted view.
Mortgage Insurance
Insurance written by a private mortgage insurance company (referred
to as PIC) protecting the mortgage lender against loss incurred
by a mortgage default, thus enabling the lender to lend a higher
percentage of the sale price. The Federal Government writes
this form of insurance through the FHA and the VA.
Mortgage Life Insurance
A term life insurance policy for the amount of the declining
balance of a loan secured by a mortgage or deed of trust. The
beneficiary under the policy is the mortgagee. In the event
of death (some policies also cover disability) of the insured
(mortgagor), the mortgage is paid in full.
Mortgage Servicing
Controlling the necessary duties of a mortgagee, such as collecting
payments, releasing the lien upon payment in full, foreclosing
if in default, and making sure the taxes are paid, insurance
is in force, etc. Servicing may be done by the lender or a company
acting for the lender, for a servicing fee.
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Negative Amortization
A condition created when a loan payment is less than interest
alone. Even though payments are made on time, the amount owing
increases.
Negotiable Instrument
According to the Uniform Negotiable Instruments Act, an instrument
is negotiable when it is in writing and signed, containing an
unconditional promise or order to pay a certain amount of money,
on demand, or at a definite future date, to the bearer, to order,
or to a named or certain drawee.
Net Lease
A lease requiring the tenant to pay, in addition to a fixed
rental, the expenses of the property leased, such as taxes,
insurance, maintenance, etc. In some states the terms net net,
net net net, triple net, and other such repetitions are used.
Net Worth
The difference between total assets and liabilities of an individual,
corporations, etc.
Non-conforming
Any loan that does not meet standard Fannie Mae/ Freddie Mac
guidelines.
Nonexclusive Listing
A listing under which the real estate broker has an exclusive
listing as opposed to other agents, but the owner may sell the
property without using an agent, and not be liable to pay a
commission. Also called an agency agreement.
Nonrecourse Loan
A loan not allowing for a deficiency judgment. The lender's
only recourse in the event of default is the security (property)
and the borrower is not personally liable.
Notarization
The certificafion by a Notary Public that a person signing a
document has been properly identified. Notarization does not
certify the content of a document, only validity of signature.
Notice Of Cessation
A notice stating that work has stopped on a construction project.
Done to accelerate the period for filing a mechanic's lien.
Notorious Possession
A requirement for adverse possession. Possession so open (notorious)
that the owner is presumed to have notice of it and its extent.
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Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money
under the same mortgage, with certain conditions, usually as
to the assets of the mortgage.
Origination Fee
The fee that the lender charges to originate the loan, this
fee is typically 1 point.
Ownership
Rights to the use, enjoyment, and alienation of property, to
the exclusion of others. Concerning real property, absolute
rights are rare, being restricted by zoning laws, restrictions,
liens, etc.
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Partial Release
A release of a portion of property covered by a mortgage. A
subdivider will obtain a partial release as each lot is sold,
upon payment of an agreed upon amount. In areas where the subdivider
is not usually the builder, it may be necessary to sell groups
of lots to obtain a partial release. In areas where deeds of
trust are used instead of mortgages, a "partial reconveyance"
is the document used.
Participation Certificates
Mortgage securities, rather than mortgages. The advantage of
the certificate is that it is readily marketable or pledgeable.
Partition
(1) Any division of real or personal property between co-owners,
resulting in individual ownership of the interests of each.
(2) A wall, sometimes moveable, and not load-bearing, used to
divide a room or building.
Payment Cap
A maximum amount for a payment under an Adjustable Mortgage
Loan, regardless of the increase in the interest rate. If the
payment is less than the interest alone, negative amortization
is created.
Payoff
The payment in full of an existing loan or other lien.
Payoff Escrow
An escrow, specifically for the purpose of paying off an existing
lien. Usually part of an existing escrow, and called a sub escrow.
Perfecting Title
Process involving the elimination of any adverse claims against
a title.
Personal Property Loan
A loan which is secured by both real and personal property.
The minimum ratio of personal to real property is set by law.
The credit of the borrower is a major consideration in making
the loan.
PITI
Refers to principal, interest, taxes and insurance,the four
major components of a usual monthly mortgage payment.
PITI Ratio
The principal, interest, tax and insurance payment to income
ratio. Used in mortgage lending decisions.
Planned (Unit) Development (PUD)
A subdivision of five or more individually owned lots with one
or more other parcels owned in common or with reciprocal rights
in one or more other parcels. The lots are generally small,
being the exact size of the improvements, or slightly larger.
Point
One percent. When referring to mortgages or deeds of trust,
the term is used to describe the percentage of discount rather
than interest (for which the word "percent" is used).
The points are paid by the seller in FHA and VA insured loans,
and by either buyer or seller (or both) in conventional loans.
Points
A fee charged by the lender to fund a loan, in addition to and
separate from other fees charged. One point equals one percent
of the amount of the loan. Discount points are charged or are
received based on the note rate the borrower selects. Additionally
a one point origination fee is typically charged by a lender
to underwrite a residential loan.
Power of Attorney
An authority by which one person (principal) enables another
(attorney in fact) to act for him. (1) General power - Authorizes
sale, mortgaging, etc. of all property of the principal. Invalid
in some jurisdictions. (2) Special power - Specifies property,
buyers, price and terms. How specific it must be varies in each
state.
Pre-approval
When purchasing a home, it can be advantageous to get pre-approved
for a mortgage.
A pre-approval takes the prequalification process one step further.
A loan application must be completed, which is required in order
to be prequalified. The mortgage lender will review the following
information: income, debt, assets, confirmed monies available
for down payment and closing costs. A credit report will be
run and the lender will then issue a loan approval letter to
the borrower based on their review of the information.
The 'pre-approval letter' can be provided to a Realtor and/or
Seller. Typically, Realtors/Sellers prefer to work with people
they know are able to obtain sufficient loan funds to purchase
the property.
Pre-qualification
A pre-qualification is the process in which the mortgage loan
originator reviews the income, debt, assets, credit history
and confirmed monies available for down payment and closing
costs. From this information, the mortgage representative is
able to confirm the amount and type of loan available to the
borrower. The borrower receives a pre-qualification which basically
provides you with an understanding of your lending capabilities.
Prescriptive Easement
The granting of an easement by a court, based on the presumption
that a written easement was given (although none existed), after
a period of open and continuous use of land.
Principal
The sum of money outstanding upon which interest is payable.
Also refers to one who is served by an agent. Private Mortgage
Insurance (PMI): Insurance written by a private mortgage insurance
company protecting the mortgage lender against loss occasioned
by a mortgage default and foreclosure.
Private Mortgage Insurance
Insurance against a loss by a lender in the event of default
by a borrower (mortgagor). The insurance is similar to insurance
by a governmental agency such as FHA, except that it is issued
by a private insurance company. The premium is paid by the borrower
and is included in the mortgage payment.
Property Management
The branch of the real estate business dealing with the management
of property. The property may be a rented house or a large office
or industrial complex. The duties may range from merely collecting
rents to complete management of all maintenance and may also
include being leasing agent or sales agent.
Proration
The method used in dividing charges into that portion which
applies only to a party's ownership up to particular date.
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