South Bay Real Estate Glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Abstract
(Of Title) - A summary of the public records relating
to the title to a particular piece of land. An attorney
or title insurance company reviews an abstract of title
to determine whether there are any title defects which
must be cleared before a buyer can purchase clear, marketable,
and insurable title.
Acceleration
Clause - Condition in a mortgage that may require
the balance of the loan to become due immediately, if
regular mortgage payments are not made or for breach
of other conditions of the mortgage.
Acceptance
- The date when both parties, seller and buyer, have
agreed to and completed signing and/or initialing the
contract.
Adjustable
rate mortgage loan (ARM) - A type of alternative
mortgage instrument in which the interest rate adjusts
periodically according to a predetermined index and
margin. This adjustment results in the mortgage payment
either increasing or decreasing.
Adjustment
Period – The length of time between interest
rate changes on ARM. For example, a loan with an adjustment
period of one-year ARM, which means that the interest
rate can change once a year.
Agreement
of Sale - Known by various names, such as contract
of purchase, purchase agreement, or sales agreement
according to location or jurisdiction. A contract in
which a seller agrees to sell and a buyer agrees to
buy, under certain specific terms and conditions spelled
out in writing and signed by both parties.
Amortization
- A payment plan which enables the borrower to reduce
his debt gradually through monthly payments of principal.
Annual
percentage rate (APR) - A rate which represents
the relationship of the total finance charge (interest,
loan fees, point) to the amount of the loan.
Application
- A form used to apply for a mortgage loan and to record
pertinent information concerning a prospective mortgagor
and the proposed security.
Appraisal
- An expert judgment or estimate of the quality or value
of real estate as of a given date.
Appraised
value - An opinion of value reached by an appraiser
based upon knowledge, experience, and a study of pertinent
data.
Appraiser-
A person qualified by education, training, and experience
to estimate the value of real and personal property.
Appreciation
- An increase in value; the opposite of depreciation.
Assessment
- The process of placing a value on property for the
strict purpose of taxation. may also refer to a levy
against property for a special purpose, such as a sewer
assessment.
Assumption
of Mortgage - An obligation undertaken by the purchaser
of property to be personally liable for payment of an
existing mortgage. In an assumption, the purchaser is
substituted for the original mortgagor in the mortgage
instrument and the original mortgagor is to be released
from further liability in the assumption, the mortgagee's
consent is usually required. The original mortgagor
should always obtain a written release from further
liability if he desires to be fully released under the
assumption. Failure to obtain such a release renders
the original mortgagor liable if the person assuming
the mortgage fails to make the monthly payments. An
"Assumption of Mortgage" is often confused
with "purchasing subject to a mortgage." When
one purchases subject to a mortgage, the purchaser agrees
to make the monthly mortgage payments on an existing
mortgage, but the original mortgagor remains personally
liable if the purchaser fails to make the monthly payments.
Since the original mortgagor remains liable in the event
of default, the mortgagee's consent is not required
to a sale subject to a mortgage. Both "Assumption
of Mortgage" and "Purchasing Subject to a
Mortgage" are used to finance the sale of property.
They may also be used when a mortgagor is in financial
difficulty and desires to sell the property to avoid
foreclosure.
B
Balloon
mortgage - A mortgage with periodic installments
of principal and interest that do not fully amortize
the loan. The balance of the mortgage is due in a lump
sum at the end of the term.
Balloon
payment- The unpaid principal amount of a mortgagee
or other long-term loan due at a certain date in he
future, usually the amount that must be paid in a lump
sum at the end of the term.
Binder,
insurance - A written evidence of temporary hazard
or title coverage that only runs for a limited time
and must be replaced by a permanent policy.
Boot
- Something not of like kind received in a tax-deferred
exchange such as cash or equivalent, or net mortgage
relief.
Borrower
- One who receives funds with the expressed or implied
intention of repaying the loan in full.
Broker
- (See real estate broker)
Building
Line or Setback - Distances from the ends and/or
sides of the lot beyond which construction may not extend.
The building line may be established by a filed plat
of subdivision, by restrictive covenants in deeds or
leases, by building codes, or by zoning ordinances.
Buydown
– Permanent–prepaid interest bringing the
note rate on the loan down to a lower, permanent rate.
Temporary–prepaid interest lowering the note rate
temporarily on the loan, allowing the buyer to more
readily qualify and to increase payments as income grows.
C
Capitalization
Rate or Cap Rate - a
ratio used to estimate the value of income producing
properties. Put simply, the cap rate is the net operating
income divided by the sales price or value of a property
expressed as a percentage. Investors, lenders and appraisers
use the cap rate to estimate the purchase price for
different types of income producing properties. A market
cap rate is determined by evaluating the financial data
of similar properties which have recently sold in a
specific market. It provides a more reliable estimate
of value than a market Gross Rent Multiplier since the
cap rate calculation utilizes more of a property's financial
detail. The GRM calculation only considers a property's
selling price and gross rents. The Cap Rate calculation
incorporates a property's selling price, gross rents,
non rental income, vacancy amount and operating expenses
thus providing a more reliable estimate of value.
Caps
- A limitation on the interest rate increase of either
the periodic or lifetime rate or both for an adjustable
rate mortgage.
Cash
Reserves - The amount of the buyer’s liquid
cash remaining after making the down payment and paying
all closing costs.
CC&R’s
– Covenants, conditions and restrictions. A document
that controls the use, requirements and restrictions
of the property.
Certificate
Of Occupancy (CO) - Written authorization given
by a local municipality that allows a newly-completed
or substantially-completed structure to be inhabited.
The issuing of a CO means that: the home is SAFE, SOUND
& SANITARY, and has matches the PLANS & SPECIFICATIONS
given to the Appraiser at the beginning of the Loan
Process.
Certificate
of Commitment – The lender’s approval
of a VA loan, which is usually good for up to six months.
Certificate
of Reasonable Value (CVR) – A document that
establishes the maximum value and loan amount or a VA
guaranteed mortgage.
Certificate
of Title - A certificate issued by a title company
or a written opinion rendered by an attorney that the
seller has good marketable and insurable title to the
property which he is offering for sale. A certificate
of title offers no protection against any hidden defects
in the title which an examination of the records could
not reveal. The issuer of a certificate of title is
liable only for damages due to negligence. The protection
offered a homeowner under a certificate of title is
not as great as that offered in a title insurance policy.
Chattel
- Personal property.
Charitable
Trust - Usually structured as a remainder trust,
is a trust that provides for a specified distribution,
at least annually, to at least one non-charitable income
recipient (typically the donor) for a period of time
specified in the trust instrument, with the remainder
interest paid to at least one charitable beneficiary.
Closing
or Close of Escrow - The day on which the formalities
of a real estate sale are concluded. The certificate
of title, abstract, and deed are generally prepared
for the closing by an attorney and this cost charged
to the buyer. The buyer signs the mortgage, and closing
costs are paid. The final closing merely confirms the
original agreement reached in the agreement of sale.
Closing
Costs - The numerous expenses which buyers and sellers
normally incur to complete a transaction in the transfer
of ownership of real estate. These costs are in addition
to price of the property and are items prepaid at the
closing day. This is a typical list:
BUYER'S EXPENSES
1.
Documentary Stamps on Notes
2.
Recording Deed and Mortgage
3.
Escrow Fees
4.
Attorney's Fee
5.
Title Insurance
6.
Appraisal and Inspection
7.
Survey Charge
SELLER'S EXPENSES
1.
Cost of Abstract
2.
Documentary Stamps on Deed
3.
Escrow Fees
4.
Real Estate Commission
5.
Recording Mortgage
6.
Survey Charge
7.
Attorney's Fee
The
agreement of sale negotiated previously between the
buyer and the seller may state in writing who will pay
each of the above costs.
Cloud
(On Title) - An outstanding claim or encumbrance
which adversely affects the marketability of title.
Commission
- Money paid to a real estate agent or broker by the
seller as compensation for finding a buyer and completing
the sale. Usually it is a percentage of the sale price--5
to 6 percent on houses, 10 percent on land.
Commitment
Period – The period during which a loan approval
is valid.
Comparative
Market Analysis (CMA) – An opinion of the
market value of a home expressed by a real estate agent
and not an appraiser.
Condemnation
- The taking of private property for public use by a
government unit, against the will of the owner, but
with payment of just compensation under the government's
power of eminent domain. Condemnation may also be a
determination by a governmental agency that a particular
building is unsafe or unfit for use.
Condominium
- Individual ownership of a dwelling unit and an individual
interest in the common areas and facilities which serve
the multi-unit project.
Consideration
– Anything of value to induce another to enter
into a contract, i.e., money, services, a promise.
Contingency
– A condition that must be satisfied before a contract
is binding. For instance, a sales agreement may be contingent
upon the buyer obtaining financing.
Construction
loan - A short-term, interim loan for financing
the cost of construction. The lender makes payments
to the builder at periodic intervals as the work progresses.
Contractor
- In the construction industry, a contractor is one
who contracts to erect buildings or portions of them.
There are also contractors for each phase of construction:
heating, electrical, plumbing, air conditioning, road
building, bridge and dam erection, and others.
Conventional
Mortgage - A mortgage loan not insured by HUD or
guaranteed by the Veterans' Administration. It is subject
to conditions established by the lending institution
and State statutes. The mortgage rates may vary with
different institutions and between States. (States have
various interest limits.)
Conversion
Clause – A provision in some ARMs that enables
homebuyers to change an ARM to a fixed rate loan, usually
after the first adjustment period. The new fixed rate
is generally set at the prevailing interest rate for
fixed rate mortgages. This conversion feature may cost
extra.
Cooperative
Housing - An apartment building or a group of dwellings
owned by a corporation, the stockholders of which are
the residents of the dwellings. It is operated for their
benefit by their elected board of directors. In a cooperative,
the corporation or association owns title to the real
estate. A resident purchases stock in the corporation
which entitles him to occupy a unit in the building
or property owned by the cooperative. While the resident
does not own his unit, he has an absolute right to occupy
his unit for as long as he owns the stock.
Co-signer-
A person who signs a legal instrument and therefore
becomes individually and jointly liable for repayment
or performance of an obligation.
Credit
report - A report to a prospective lender on the
credit standing of a prospective borrower or tenant.
Used to help determine creditworthiness.
D
Deed
- A formal written instrument by which title to real
property is transferred from one owner to another. The
deed should contain an accurate description of the property
being conveyed, should be signed and witnessed according
to the laws of the State where the property is located,
and should be delivered to the purchaser at closing
day. There are two parties to a deed: the grantor and
the grantee. (See also deed of trust, general warranty
deed, quitclaim deed, and special warranty deed.)
Deed
of Trust - Like a mortgage, a security instrument
whereby real property is given as security for a debt.
However, in a deed of trust there are three parties
to the instrument: the borrower, the trustee, and the
lender, (or beneficiary). In such a transaction, the
borrower transfers the legal title for the property
to the trustee who holds the property in trust as security
for the payment of the debt to the lender or beneficiary.
If the borrower pays the debt as agreed, the deed of
trust becomes void. If, however, he defaults in the
payment of the debt, the trustee may sell the property
at a public sale, under the terms of the deed of trust.
In most jurisdictions where the deed of trust is in
force, the borrower is subject to having his property
sold without benefit of legal proceedings. A few States
have begun in recent years to treat the deed of trust
like a mortgage.
Deposit
-The deposit money given to the seller or his agent
by the potential buyer upon the signing of the agreement
of sale to show that he is serious about buying the
house. If the sale goes through, the earnest money is
applied against the down payment. If the sale does not
go through, the earnest money will be forfeited or lost
unless the binder or offer to purchase expressly provides
that it is refundable.
Depreciation
- Depreciation is the loss in value of an asset
/ building over time due to wear and tear, physical
deterioration and age. The cost of reproducing an income
property can be recovered over the
useful life of the asset which is determined by law.
Depreciation is treated as an expense and is a line
item on an income statement. Depreciation can only be
applied to the building and not the land,
since land does not wear out over time. Residential
income property must be depreciated over a 27.5 year
period using straight line depreciation. Commercial
income property must be depreciated over 39 years using
straight line depreciation.
Default
- Failure to make mortgage payments as agreed to in
a commitment based on the terms and at the designated
time set forth in the mortgage or deed of trust. It
is the mortgagor's responsibility to remember the due
date and send the payment prior to the due date, not
after. Generally, thirty days after the due date if
payment is not received, the mortgage is in default.
In the event of default, the mortgage may give the lender
the right to accelerate payments, take possession and
receive rents, and start foreclosure. Defaults may also
come about by the failure to observe other conditions
in the mortgage or deed of trust.
Depreciation
- Decline in value of a house due to wear and tear,
adverse changes in the neighborhood, or any other reason.
Discount
Points – A loan fee charged by a lender of
FHA, VA, or conventional loans to increase the yield
on the investment. One point = 1% of the loan amount.
Documentary
Stamps - A State tax, in the forms of stamps, required
on deeds and mortgages when real estate title passes
from one owner to another. The amount of stamps required
varies with each State.
Down
payment - The amount of money to be paid by the
purchaser to the seller upon the signing of the agreement
of sale. The agreement of sale will refer to the down
payment amount and will acknowledge receipt of the down
payment. Down payment is the difference between the
sales price and maximum mortgage amount. The down payment
may not be refundable if the purchaser fails to buy
the property without good cause. If the purchaser wants
the down payment to be refundable, he should insert
a clause in the agreement of sale specifying the conditions
under which the deposit will be refunded, if the agreement
does not already contain such clause. If the seller
cannot deliver good title, the agreement of sale usually
requires the seller to return the down payment and to
pay interest and expenses incurred by the purchaser.
Draw
System - Scheduled payment of money to a builder
during the phases of home construction. Between each
draw, the appraiser must inspect the home to ensure
that construction is proceeding as planned.
Due-on-sale
Clause - A type of acceleration clause, calling
for a debt under a mortgage or deed of trust to be due
in its entirety upon transfer of ownership of the secured
property.
E
Earnest
Money - The deposit money given to the seller or
his agent by the potential buyer upon the signing of
the agreement of sale to show that he is serious about
buying the house. If the sale goes through, the earnest
money is applied against the down payment. If the sale
does not go through, the earnest money will be forfeited
or lost unless the binder or offer to purchase expressly
provides that it is refundable.
Easement
Rights - A right-of-way granted to a person or company
authorizing access to or over the owner's land. An electric
company obtaining a right-of-way across private property
is a common example.
Eminent
domain - The right of a government to take private
property for public use upon payment of its fair value.
Encroachment
- An obstruction, building, or part of a building that
intrudes beyond a legal boundary onto neighboring private
or public land, or a building extending beyond the building
line.
Encumbrance
- A legal right or interest in land that affects a good
or clear title, and diminishes the land's value. It
can take numerous forms, such as zoning ordinances,
easement rights, claims, mortgages, liens, charges,
a pending legal action, unpaid taxes, or restrictive
covenants. An encumbrance does not legally prevent transfer
of the property to another. A title search is all that
is usually done to reveal the existence of such encumbrances,
and it is up to the buyer to determine whether he wants
to purchase with the encumbrance, or what can be done
to remove it.
Equity
- The value of a homeowner's unencumbered interest in
real estate. Equity is computed by subtracting from
the property's fair market value the total of the unpaid
mortgage balance and any outstanding liens or other
debts against the property. A homeowner's equity increases
as he pays off his mortgage or as the property appreciates
in value. When the mortgage and all other debts against
the property are paid in full the homeowner has 100%
equity in his property.
Escrow
- Funds paid by one party to another (the escrow agent)
to hold until the occurrence of a specified event, after
which the funds are released to a designated individual.
In FHA mortgage transactions an escrow account usually
refers to the funds a mortgagor pays the lender at the
time of the periodic mortgage payments. The money is
held in a trust fund, provided by the lender for the
buyer. Such funds should be adequate to cover yearly
anticipated expenditures for mortgage insurance premiums,
taxes, hazard insurance premiums, and special assessments.
Escrow
payment - That portion of a mortgagor's monthly
payment held by the lender to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other
items as they become due. Known as impounds or reserves
in some states.
Exclusive
right to sell (Listing) - A written contract giving
a licensed real estate agent the exclusive right to
sell a property for a specified time. The owner agrees
to pay a full commission to the broker even though the
owner may sell the property.
F
FHA
Loan - A loan insured by the Federal Housing Administration
(of the Department of Housing and Urban Development).
Fair
Market Value - The price at which property is transferred
between a willing buyer and a willing seller, each of
whom has a reasonable knowledge of all pertinent data
and neither of whom is under any compulsion to buy or
sell.
Federal
Home Loan Mortgage Corporation (FHLMC) - A private
corporation authorized by Congress to provide secondary
mortgage market support for conventional mortgages.
Also know as Freddie Mac.
Federal
Housing Administration (FHA) - A division of HUD.
Its main activity is the insuring of residential mortgage
loans made by private lenders. FHA does not lend money.
Federal
National Mortgage Association (FNMA) - A privately
owned corporation created by Congress to support the
secondary mortgage market. Also known as Fannie Mae.
Fee
Simple - An estate under which the owner is entitled
to unrestricted powers to dispose of the property, and
which can be left by will or inherited. The greatest
interest a person can have in real estate.
Fiduciary
- A person in a position of trust and confidence for
another.
Firm
commitment - A lender's agreement to make a loan
to a specific borrower of a specific property.
First
mortgage - A mortgage having priority over all other
voluntary liens against certain property.
Foreclosure
- A legal term applied to any of the various methods
of enforcing payment of the debt secured by a mortgage,
or deed of trust, by taking and selling the mortgaged
property, and depriving the mortgagor of possession.
Fully
Indexed Rate – The maximum interest rate on
an ARM that can be reached at the first adjustment.
G
General
Warranty Deed - A deed which conveys not only all
the grantor's interests in and title to the property
to the grantee, but also warrants that if the title
is defective or has a "cloud" on it (such
as mortgage claims, tax liens, title claims, judgments,
or mechanic's liens against it) the grantee may hold
the grantor liable.
Gift
Letter – A letter from a relative stating that
an amount will be gifted to the buyer and that said
amount is not to be repaid.
Government
National Mortgage Association (GNMA) – Called
“Ginnie Mae,” a governmental part of the secondary
market that deals in primarily in recycling VA and FHA
mortgages, particularly those that are highly leveraged.
Graduated
Payment Mortgage - Residential mortgage which has
monthly mortgage payments that start at a low level
and increase at a predetermined rate.
Grantee
- That party in the deed who is the buyer or recipient.
Grantor
- That party in the deed who is the seller or giver.
Gross
Rent Multiplier (GRM) - a ratio that is used to
estimate the value of income producing properties. The
GRM provides a rough estimate of value. Only two pieces
of financial information are required to calculate the
Gross Rent Multiplier for a property, the sales price
and the total gross rents possible. If this information
is available for multiple sales of similar types of
income properties in a particular area, it can then
be used to estimate the market value of other similar
properties in that area. Some investors use a monthly
Gross Rent Multiplier and some use a Yearly GRM. The
monthly Gross Rent Multiplier is equal to the Sales
Price of a property divided by the potential monthly
gross income and the Yearly GRM is the Sales Price divided
by the yearly potential gross income.
H
Hazard
Insurance - Protects against damages caused to property
by fire, windstorms, and other common hazards.
Holdback
- That portion of a loan commitment not funded until
some additional requirement such as rental or completion
is attained. In construction it is a percentage of the
contractor's draw held back to provide additional protection
for the interim lender, often in an amount equal to
the contractor's profit.
Home
Inspection Report – A qualified inspector’s
report on a property’s overall condition. The report
usually included an evaluation of both the structure
and mechanical systems.
Home
Warranty Plan – Protection against failure
of mechanical systems within the property. Usually includes
plumbing, electrical, heating systems and installed
appliances.
HUD
- U.S. Department of Housing and Urban Development.
Office of Housing/Federal Housing Administration within
HUD insures home mortgage loans made by lenders and
sets minimum standards for such homes.
I
Index
- An economic measurement that is used to measure periodic
interest rate adjustments for an adjustable rate mortgage.
Installment
Sale - A sale that permits the taxpayer to prorate
the tax on the capital gain over the term of the installment
contract, provided at least one payment is received
after the tax year in which the sale occurs.
Interest
- A charge paid for borrowing money. (See mortgage note)
Interest
rate- The percentage of an amount of money which
is paid for its use for a specified time. Usually expressed
as an annual percentage.
Investor
- An person or institution investing in mortgages.
Involuntary
lien - A lien imposed against property without consent
of an owner. Examples include taxes, special assessment,
federal income tax liens, mechanics liens, and materials
liens.
J
Joint
Tenancy - An equal undivided ownership of property
by two or more persons. Upon the death of any owner,
the survivors take the decedent's interest in the property.
Jumbo
Loans – Mortgage loans that exceed the loan
amounts acceptable for sale in the secondary market;
these jumbos must be packaged and sold differently to
investors and therefore have separate underwriting guidelines.
K
Keep
Informed - Using a licensed Realtor who is kept
abreast of the latest real estate changes and practices,
will affect the bottom line.
L
Land
contract - A contract ordinarily used in connection
with the sale of property in cases where the seller
does not wish to convey title until all or a certain
part of the purchase price is paid by the buyer. This
financing vehicle is often used when property is sold
on a small down payment.
Lease
- A written document containing the conditions under
which the possession and use of real or personal property
are given by the owner to another for a stated period
and for a stated consideration.
Legal
description - A property description recognized
by law which is sufficient to locate and identify the
property without oral testimony.
Lessee
(tenant) - The person or persons holding rights
of possession and use of property under terms of a lease.
Lessor
(landlord) - The one leasing property to a lessee.
Licensed
Mortgage Broker - The licensed person who, for a
commission or a fee, brings parties together and assists
in negotiating contracts between them. A firm or individual
bringing the borrower and lender together and receiving
a commission. A mortgage broker does not retain servicing.
Lien
- A claim by one person on the property of another as
security for money owed. Such claims may include obligations
not met or satisfied, judgments, unpaid taxes, materials,
or labor.
Limited
partnership - A partnership that consists of one
or more general partners who are fully liable and one
or more limited partners who are liable only for the
amount of their investment.
Loan
- A sum of money loaned at interest to be repaid.
Loan
Commitment – A written promise to make a loan
for a specified amount on specified terms.
Loan
Points - Also known as loan origination fees and
loan discount, Loan Points are a fee charged to a borrower
by lending institutions for the privilege of obtaining
a loan. Lending institutions use loan
origination fees to generate income via lending activities.
Each point is equivalent to one percent of the amount
borrowed. Loan origination fees are usually paid up
front in cash when you obtain a loan or mortgage.
Loan
Processing - (1) A System by which a Buyer is evaluated
for loan approval. The system compares the stated income,
debt, savings and credit against documentation provided
by the buyer (or alternative Federal documents). Calculations
of Debt-To-Income, Loan-To-Value, Net Worth, Cash Reserves
and Compensating Factors are used to develop and Underwriting
Opinion. (2) The system of structuring a Buyer's financial
situation and documentation in such a way that an Underwriting
Opinion can be reached.
Loan
submission - A package of pertinent papers and documents
regarding specific property or properties. It is delivered
to a prospective lender for review and consideration
for the purpose of making a mortgage loan.
Loan-to-value
ratio - ratio is calculated by dividing the loan
balance of a property by the market value and is expressed
as a percentage. For example, a property with a loan
balance of $700,000 and a market value of $1,00,000
has a Loan-to-Value Ratio of 70%.
Lock-in
– The fixing of an interest rate or points at a
certain level, usually during the loan application process.
It is usually done for a certain period of time such
as 60 days and may require a fee or premium in the form
of a higher interest rate.
M
Margin
- The number of basis points a lender adds to the index
to determine the interest rate of an adjustable rate
mortgage.
Marketable
Title - A title that is free and clear of objectionable
liens, clouds, or other title defects. A title which
enables an owner to sell his property freely to others
and which others will accept without objection.
Mortgage
- A lien or claim against real property given by the
buyer to the lender as security for money borrowed.
Under government-insured or loan-guarantee provisions,
the payments may include escrow amounts covering taxes,
hazard insurance, water charges, and special assessments.
Mortgages generally run from 10 to 30 years, during
which the loan is to be paid off.
Mortgage
Commitment - A written notice from the bank or other
lending institution saying it will advance mortgage
funds in a specified amount to enable a buyer to purchase
a house.
Mortgage
Deed – Companion legal document to promissory
note recorded by the county enumerating the lender’s
procedure to enforce loan terms.
Mortgage
Insurance Premium - The payment made by a borrower
to the lender for transmittal to HUD to help defray
the cost of the FHA mortgage insurance program and to
provide a reserve fund to protect lenders against loss
in insured mortgage transactions. In FHA insured mortgages
this represents an annual rate of one-half of one percent
paid by the mortgagor on a monthly basis.
Mortgage
Life Insurance - A type of term life insurance often
bought by mortgagors. The amount of coverage decreases
as the mortgage balance declines. In the event that
the borrower dies while the policy is in force, the
debt is automatically satisfied by insurance proceeds.
Mortgage
Note - A written agreement to repay a loan. The
agreement is secured by a mortgage, serves as proof
of an indebtedness, and states the manner in which it
shall be paid. The note states the actual amount of
the debt that the mortgage secures and renders the mortgagor
personally responsible for repayment.
Mortgage
(Open-End) - A mortgage with a provision that permits
borrowing additional money in the future without refinancing
the loan or paying additional financing charges. Open-end
provisions often limit such borrowing to no more than
would raise the balance to the original loan figure.
Mortgagee
- The lender in a mortgage agreement.
Mortgagor
- The borrower in a mortgage agreement.
N
Negative
Amortization - Occurs when monthly payments fail
to cover the interest cost. The interest that isn't
covered is added to the unpaid principal balance, which
means that even after several payments the borrowers
could owe more than they did at the beginning of the
loan. Negative amortization can occur when an ARM has
a payment cap that results in monthly payments that
aren't high enough to cover the interest.
Note
- Promissory note to lender detailing terms of repayment
of amount borrowed.
O
Offer
- A preliminary agreement, secured by the payment of
earnest money, between a buyer and seller as an offer
to purchase real estate. A binder secures the right
to purchase real estate upon agreed terms for a limited
period of time. If the buyer changes his mind or is
unable to purchase, the earnest money is forfeited unless
the binder expressly provides that it is to be refunded.
Origination
- The process of originating mortgages. Solicitation
may be from individual borrowers, builders, or brokers.
Origination
fee - A fee or charge for the work involved in the
evaluation, preparation, and submission of a proposed
mortgage loan.
Originator
- A person who solicits builder, brokers, and others
to obtain applications for mortgage loans. origination
is the process by which the mortgage lender brings into
being a mortgage secured by real property.
P
Payment
Cap – the maximum amount the payment can adjust
in any given time frame.
PITI
(principal, interest, taxes, and insurance) - The principal
and interest payment on most loans is fixed for the
term of the loan; the tax and insurance portion may
be adjusted to reflect changes in takes or insurance
costs. Note: In cases where the buyer puts down less
than 20% of the Sales Price, Mortgage Insurance may
be required as part of the Total Monthly Payment (PITI).
Plans
and specifications - Architectural and engineering
drawings and specifications for construction of a building
or project, including a description of materials to
be used and the manner in which they are to be applied.
Plot
- A map or chart of a lot, subdivision or community
drawn by a surveyor showing boundary lines, buildings,
improvements on the land, and easements.
Points
- Sometimes called "discount points." A point
is one percent of the amount of the mortgage loan. For
example, if a loan is for $25,000, one point is $250.
Points are charged by a lender to raise the yield on
his loan at a time when money is tight, interest rates
are high, and there is a legal limit to the interest
rate that can be charged on a mortgage. Buyers are prohibited
from paying points on HUD or Veterans' Administration
guaranteed loans (sellers can pay, however). On a conventional
mortgage, points may be paid by either buyer or seller
or split between them.
Preclosing
- A transaction preceding the formal closing, often
used to settle outstanding issues (survey, pest inspection,
hazard insurance, flood insurance (if required), with
the formal closing shortly thereafter.
Prepayment
- Payment of mortgage loan, or part of it, before due
date. Mortgage agreements often restrict the right of
prepayment either by limiting the amount that can be
prepaid in any one year or charging a penalty for prepayment.
The Federal Housing Administration does not permit such
restrictions in FHA insured mortgages.
Prepayment
Penalty – A fee charged to a borrower who pays
a loan before it is due. Not allowed for FHA or VA loans.
Principal
- The basic element of the loan as distinguished from
interest and mortgage insurance premium. In other words,
principal is the amount upon which interest is paid.
Principal
balance - The outstanding balance of a loan.
Private
Annuity Trust - A specially designed trust where
the owner of real estate (or other assets) "sells"
the asset to the trust, in return for an unsecured promise,
by the trust, to make periodic payments to the seller.
Private
mortgage insurance (PMI) - Insurance written by
a private company protecting the mortgage lender against
loss by a mortgage default.
Prop
60 - Ordinarily, when the ownership of California
real property changes, the property is reassessed at
its current far market value and the new owner pays
property tax based on the reassessment. Proposition
60 created an exemption by providing that a taxpayer
who is 55 years of age or older may transfer the Proposition
13 base year assessment of his/her principle residence
to any replacement dwelling of equal or lesser value
within the same county. (See Prop
60/90 Information page)
Prop
90 - Prop 90 enables such taxpayers, in certain
circumstances, to transfer their base year value to
a replacement dwelling in another county. (See Prop
60/90 Information page)
Purchase
Agreement - Known by various names, such as contract
of purchase, purchase agreement, or sales agreement
according to location or jurisdiction. A contract in
which a seller agrees to sell and a buyer agrees to
buy, under certain specific terms and conditions spelled
out in writing and signed by both parties.
Q
Qualify
– The process where the buyer meets the requirements
as set forth by the lender when obtaining a mortgage.
Quitclaim
Deed - A deed which transfers whatever interest
the maker of the deed may have in the particular parcel
of land. A quitclaim deed is often given to clear the
title when the grantor's interest in a property is questionable.
By accepting such a deed the buyer assumes all the risks.
Such a deed makes no warranties as to the title, but
simply transfers to the buyer whatever interest the
grantor has. (See deed.)
R
Real
Estate Broker - A middle man or agent who buys and
sells real estate for a company, firm, or individual
on a commission basis. The broker does not have title
to the property, but generally represents the owner.
Realtor
- A real estate broker or an associate holding active
membership in a local real estate board affiliated with
the National Association of Realtors.
Reconveyance
- The transfer of land from one person to the immediately
preceding owner. It is used when the performance of
debt is satisfied under the terms of a deed of trust.
Redemption
period - That period of time in those states where
it is allowed in which a foreclosed mortgagor has to
buy back his property by paying principal amount and
interest and fees.
Refinancing
- The process of the same mortgagor paying off one loan
with the proceeds from another loan.
Regulation
Z – The set of rules governing consumer lending
issued by the Federal Reserve Board of Governors in
accordance with the Consumer Protection Act.
REIT
- A Real Estate Investment Trust is a business trust
which deals principally with interest in land- generally
organized to coform to the Internal Revenue Code.
Release
of lien - An instrument discharging secured property
from a lien.
Rent
with Option – A contract, which gives one the
right to lease property at a certain sum with the option
to purchase at a future date.
Restrictive
Covenants - Private restrictions limiting the use
of real property. Restrictive covenants are created
by deed and may "run with the land," binding
all subsequent purchasers of the land, or may be "personal"
and binding only between the original seller and buyer.
The determination whether a covenant runs with the land
or is personal is governed by the language of the covenant,
the intent of the parties, and the law in the State
where the land is situated. Restrictive covenants that
run with the land are encumbrances and may affect the
value and marketability of title. Restrictive covenants
may limit the density of buildings per acre, regulate
size, style or price range of buildings to be erected,
or prevent particular businesses from operating or minority
groups from owning or occupying homes in a given area.
(This latter discriminatory covenant is unconstitutional
and has been declared unenforceable by the U.S. Supreme
Court.)
Right
of survivorship - In joint tenancy, the right of
survivors to acquire the interest of a deceased joint
tenant.
Right-of-way
- A privilege operating as an easement upon land, whereby
a land owner, by grant or agreement, gives another the
right to pass over land. Also knows as easement.
S
Sale-leaseback
- A technique in which a seller deeds property to a
buyer for a consideration and the buyer simultaneously
leases the property back to the seller, usually on a
long-term basis.
Sales
Agreement - See agreement of sale.
Sales
Contract - Another name for a sales agreement, purchase
agreement, etc. Not to be confused with a land contract,
which is a conditional sales contract.
Satisfaction
of mortgage - The record able instrument given by
the lender to evidence payment in full of the mortgage
debt. Sometimes knows as a release deed.
Secondary
financing - Financing real estate with a loan, or
loans, subordinate to a first mortgage or first trust
deed.
Secondary
mortgage market- The market where existing mortgages
are bought and sold. It contrasts with the primary mortgage
market, where mortgages are just originated, and packaged
for delivery to the secondary market.
Servicing
- The duties of the mortgage lender as a loan correspondent
as specified in the servicing agreement for which a
fee is received. Consists of operational procedures
covering accounting, bookkeeping, insurance, tax records,
loan payment follow-up, delinquency loan follow-up and
loan analysis.
Severalty
Ownership – Ownership by one person only. Sole
ownership.
Special
Assessments - A special tax imposed on property,
individual lots or all property in the immediate area,
for road construction, sidewalks, sewers, street lights,
etc.
Special
Lien - A lien that binds a specified piece of property,
unlike a general lien, which is levied against all one's
assets. It creates a right to retain something of value
belonging to another person as compensation for labor,
material, or money expended in that person's behalf.
In some localities it is called "particular"
lien or "specific" lien.
Special
Warranty Deed - A deed in which the grantor conveys
title to the grantee and agrees to protect the grantee
against title defects or claims asserted by the grantor
and those persons whose right to assert a claim against
the title arose during the period the grantor held title
to the property. In a special warranty deed the grantor
guarantees to the grantee that he has done nothing during
the time he held title to the property which has, or
which might in the future, impair the grantee's title.
Survey
- A map or plat made by a licensed surveyor showing
the results of measuring the land with its elevations,
improvements, boundaries, and its relationship to surrounding
tracts of land. A survey is often required by the lender
to assure him that a building is actually sited on the
land according to its legal description.
T
Takeout
commitment - A promise to make a loan at a future
specified time. It is commonly used to designate a higher
cost, shorter term, backup commitment as a support for
construction financing until a suitable permanent loan
can be secured.
Tax
-As applied to real estate, an enforced charge imposed
on persons, property or income, to be used to support
the State. The governing body in turn utilizes the funds
in the best interest of the general public.
Tax
Lien - A claim against property for the amount of
its due and unpaid taxes.
Tenancy
- A holding of real estate under any kind of right of
title.
Tenancy
At Will - A holding of real estate that can be terminated
at the will of either the lessor or the lessee, usually
with notice.
Tenancy
by entirety - The joint ownership of property by
a husband and wife where both are viewed as one person
under common law that provides for the right of survivorship.
Tenancy
in common - In law, the type of tenancy or estate
created when real or personal property is granted, devised
or bequeathed to two or more persons, in the absence
of expressed words creating a joint tenancy. There is
no right of survivorship.
Term
- The period of time between the commencement date an
termination date of a note, mortgage, legal document,
or the contract.
Title
- As generally used, the rights of ownership and possession
of particular property. In real estate usage, title
may refer to the instruments or documents by which a
right of ownership is established (title documents),
or it may refer to the ownership interest one has in
the real estate.
Title
Insurance - Protects lenders or homeowners against
loss of their interest in property due to legal defects
in title. Title insurance may be issued to a "mortgagee's
title policy." Insurance benefits will be paid
only to the "named insured" in the title policy,
so it is important that an owner purchase an "owner's
title policy", if he desires the protection of
title insurance.
Title
Search or Examination - A check of the title records,
generally at the local courthouse, to make sure the
buyer is purchasing a house from the legal owner and
there are no liens, overdue special assessments, or
other claims or outstanding restrictive covenants filed
in the record, which would adversely affect the marketability
or value of title.
Trustee
- A party who is given legal responsibility to hold
property in the best interest of or "for the benefit
of" another. The trustee is one placed in a position
of responsibility for another, a responsibility enforceable
in a court of law. (See deed of trust.)
U
Underwriting
- The analysis and matching of risk to an appropriate
rate and term.
Unencumbered
property - A property the title to which is free
and clear.
Usury
- Charging more for the use of money than allowed by
law.
V
VA
Loans – A loan, made by a private lender that
is partially guaranteed by the veterans Administration.
Variable
rate mortgage - A mortgage agreement that allows
for adjustment of the interest rate in keeping with
a fluctuating market and terms agreed upon in the note.
W
Warranty
deed - A deed in which the grantor or seller warrants
or guarantees that good title is being conveyed, as
opposed to a quitclaim deed that contains no representation
or warrant as to the quality of title being conveyed.
Z
Zoning
Ordinances - The acts of an authorized local government
establishing building codes, and setting forth regulations
for property land usage.
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