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Earl L. Huse J.D.

Earl Huses’ Real Estate Series

REAL ESTATE
AND TITLE
TERMINOLOGY
Be Prepared! Be Knowledgeable! Be Understood!

Know the Real Estate And Title Terminology used in


today’s
Complex real estate and mortgage world.

Real estate, mortgage banking and title insurance


companies have their own terminology as does many
other professions, however, some real estate terms are
often misunderstood. To better understand the terms
commonly used in these industries, the following are
some common real estate, mortgage banking and title
insurance terms and their meanings.
Throughout the entire process, first-time homebuyers, those refinancing
their homes, investors, and others will encounter a variety of unfamiliar real
state, mortgage and title terms that they are not familiar with. There are
many terms associates with purchasing real estate that are helpful to learn.

Buying and selling a home can be a trying


experience, even if it isn't your first one. By
using the following glossary you can
become knowledgeable with the commonly
used terms and make you more prepared
for the professionals and documents you'll
encounter in your real estate experiences.

Understanding real estate, banking and title


terminology can put money in your pocket, not
someone else’s! sometimes this can be
THOUSANDS of dollars. Isn’t it worth the time to
read and learn?

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REAL ESTATE AND TITLE TERMINOLOGY

A
A.L.T.A.: (American Land Title Association) an organization, comprised of title insurance
companies, which has adopted certain insurance policy forms to standardize coverage on
a national basis

A.R.M.: Adjustable Rate Mortgage. The interested rate is not fixed for the term of the
mortgage. This is a mortgage in which the interest rate is adjusted periodically based on
a pre-selected index.

ABATEMENT: A reduction or decrease. Usually applies to a decrease of assessed


valuation of ad valorem taxes after the assessment and levy.

ABONDONMENT: (1) Turning damaged property over to an insurer and claiming its full
value. (2) The elimination of an asset or property from use (3) Investments: The refusal
of a shipment, because of damage, by the person who is authorized to ship it.

ABSOLUTE GIFT: A gift of property by will, which carries with it, possession of and
complete dominion over the property: opposed to a conditional gift.

ABSOLUTE TITLE: A legal document stating that a person or other legal entity has the
unqualified right of ownership to some personal or real property.

ABSTRACT: A summary; an abridgment. Before the use of photo static copying, public
records were kept by abstracts of recorded documents.

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 summary prepared by a licensed abstractor of all documents


recorded in the public records of the political subdivision where the land is located.
An attorney or other experienced title examiner to determine the status of title reviews
an abstract in some states or areas. Virtually every abstractor today provides actual
copies of the records rather than an abstract of each document.

ABUTTING OWNER: One whose land is contiguous to (abuts) a public right of way.

ACCELERATE: An option given to lenders through an "acceleration" clause in the


mortgage or deed of trust requiring the borrower to pay the entire balance of the loan all
at once if their loan is in default.
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ACCELERATED DEATH BENEFIT RIDER (ADB): A rider added to a life insurance
policy to protect the insured against financial loss in the event of a terminal illness. An
ADB makes living benefits payable to the insured for medical expenses prior to death.
Accelerated (or living) benefits paid reduce the death benefit payable to the beneficiary
(ies) upon death.

ACCELERATED DEPRECIATION: A method of asset amortization that attempts to


equate the book value of an asset to its market value at any point in time by making
larger deductions in the earlier years of the asset's life.

ACCELERATION CLAUSE: Clause in a deed of trust or mortgage, which accelerates,


or hastens, the time when the indebtedness becomes due. For example, some deeds of
trust contain a provision (an acceleration clause) stating that the note shall become due
immediately upon the sale of the land or upon failure to pay interest or an installment of
principal and interest.

ACCEPTANCE QUALIFIED: Where the offeree accepts certain provisions of an offer but
rejects others. It is a counter offer, or, more accurately a new offer.

ACCESS RIGHT: A right to ingress and egress to and from one's property. May be
express or implied.

ACCESSION: The acquisition of title to additional real estate by its annexation to existing
property. This can be caused by man, such as the addition of fixtures to the land, or by
nature, such as alluvial deposits on the banks of a stream by accretion.

ACCOMMODATION ENDORSEMENT: (1) The guarantee given by one person (or


legal entity) to induce a bank or other lender to grant a loan to a different person (or
legal entity). 2. The banking practice whereby one bank endorses the acceptances of
another bank, for a fee, making them appropriate for purchase in the acceptance
market.

ACCOMMODATION RECORDING: Recording of instruments with the county recorder


by a title company merely as a convenience to a customer and without assumption of
responsibility for correctness or validity.

ACCORD AND SATISFACTION: A substitution of another agreement between the


parties in satisfaction of a former one, and execution of the new agreement.

ACCOUNT ACTIVITY: A summary of activity on an account. Includes: previous


balance, payments, credits, new credits extended, finance charges, late charges, and
new balance owing.

ACCOUNT ANALYSIS: Determination of the profitability of a checking account.

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ACCOUNT HISTORY: The payment history of an account over a specified period of
time, including the number of times the account was past due or over limit.

ACCOUNT: (1) Credit established under a particular name, usually by deposit, against
which withdrawals may be made. (2) A record of the financial transactions affecting a
particular phase of business. The financial transactions are dated and entered in the
account as debits or credits. (3) As used in the Electronic Fund Transfer Act, account
means a demand deposit, savings deposit, or other asset account established primarily
for personal, family or household purposes.

ACCREATION: The gradual increases in dry land by the forces of nature, as when water
deposits sediment on waterfront property. The owner of that property becomes owner of
the new soil.

ACCRUAL DATE: The date the lien holder begins to charge interest.

ACCRUED BENEFIT: Pension benefits earned (vested) based on years of service at a


company and credited to the employee using an actuarial method.

ACCRUED INTEREST: Interest that has been charged but not yet paid.

ACKNOWLEDGEMENT: A formal declaration before a duly authorized officer (such as


a notary public) by a person who has executed an instrument that such execution is his
own act and deed. An acknowledgment is necessary to entitle an instrument (with
certain specific exceptions) to be recorded, to impart constructive notice of its contents
and to entitle the instrument to be used as evidence without further proof. The certificate
of acknowledgment is attached to the instrument or incorporated therein.

ACRE: An acre of land equal to 43,560 square feet, or 4,840 square yards or 150 square
rods. There are 640 acres in a section of land and 36 sections in a township.

AD VALOREM: "According to value." A method of taxation using the value of the thing
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.

ADDENDUM: Something added. A list or other material added to a document, letter,


contractual agreement, escrow instructions, etc. (see also Amendment).

ADDITIONAL DEPOSIT: A buyer of real property will generally give a small deposit
with an offer, and a more substantial deposit after the offer has been accepted. The
second deposit is the "additional deposit."

ADJACENT: Close to. May or may not be contiguous (touching).

ADJOINING: Touching or contiguous too.


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ADJUSTABE RATE MORTGAGE (ARM): A mortgage where the interest rate is not fixed,
but changes during the life of the loan in line with movements in an indexed rate.

ADJUSTABE MORTGAGE LOANS (AML'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 Rate Mortgages (ARM'S), Flexible Rate Loans, And
Variable Rate Loans. (See also: Indexing, Rate Index).

ADJUSTMENT INTERVAL: For an adjustable rate mortgage, the time between


changes in the interest rate charged. The most common adjustment intervals are one,
three or five years

ADJUSTMENT PERIOD: For adjustable-rate loans, the period of time between interest
rate changes. For example, a mortgage with an adjustment period of one year is called
a one-year ARM, and the interest rate can change once each year.

ADMINISTRATOR: A person appointed by the probate court to carry out the


administration of a decedent's estate when the decedent has left no will. If a woman is
appointed, she is called an administratrix.

ADMINISTRATOR’S DEED: A conveyancing instrument used by an administrator to


transfer property from an estate. (See Administrator).

ADP: Automatic Data Processing

ADVERSE LAND USE: A use, which causes surrounding property to lose value, such
as an industrial development in a residential area.

ADVERSE POSSESSION: A method of acquiring title by possession under certain


conditions. Generally, possession must be actual, under claim of right, open,
continuous, notorious, exclusive, and hostile (knowingly against the rights of the owner).
Exact time (years) of possession and specific requirements (such as payment of
property taxes) vary with the statutes of each state

AFFIANT: One who makes an affidavit. Also called a deponent, although technically not
the same.

AFFIDAVID: A sworn statement in writing usually given while under oath or in the
presence of a notary

AFFIDAVIT OF ALIMONY AND CHILD SUPPORT: A sworn statement of a separated


or divorced person showing the amount (if any) of alimony or child support.

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AFFIRMATIVE EASEMENT: An easement described from the benefited estate
(dominant tenement). Also called a parcel 2 easement. The same easement described
from the burdened estate (servient tenement) would be a negative easement.

AGENCY: Any relationship in which one party (agent) acts for or represents another
(principal) under the authority of the latter agency involving real property should be in
writing, such as listings, trusts, powers of attorney, etc.

AGENCY AGREEMENT: (agency listing) - In some states, the term describing a listing
under which the broker's commission is protected against a sale by other agents but not
by a sale by the principal. Called a "not-exclusive" listing in some states.

AGENT: One who is authorized to act for or represent another (principal), usually in
business matters.

AGREED RATE: The rate that is agreed upon to be charged to the loan balance. See
also APR or Annual Percentage Rate.

AGREEMENT: A general term usually describing a common view of two or more people
regarding the rights and obligations of each with regard to a given subject. Not
necessarily a contract, although all contracts are agreements.

AGREEMENT OF SALE: A written contract entered into between the seller (vendor)
and buyer (vendee) for sale of real property (land) on an installment or deferred
payment plan. It is also known as an agreement to convey, a long form Security
Agreement, or a real estate installment contract.

ALIEN: An individual who is not a citizen or national of the United States. Aliens are
further defined as resident or nonresident depending on the situation.

ALIENATION 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. Also called a "due-on-sale" clause.

ALIENATION: Alienation occurs when title to a property passes to another party, such
as when a property is sold.

ALL- INCLUSIVE TRUST DEED (AITD): A second or junior deed of trust with a face
value of both the amount it secures and the balance due under the prior deed of trust. The
beneficiary under the All Inclusive Deed of Trust collects a payment based on its face
value and then pays the prior beneficiary.

ALL- INCLUSIVE RATE: Rate, which includes charges for title insurance, searching or
abstract fees and examination fees.

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ALLOCATION: A method for appraising a site (land) by comparing other site values as
a percentage of total value of a site (including \improvements). Property x has a total
(improved) value of $100,000. The land is worth $35,000. The term is often (and
incorrectly) used synonymously with abstraction.

ALLONGE: If there is no room on an original note for an endorsement, the


endorsement is written on a separate piece of paper. It is then permanently attached to
the original note and is called an allonge.

ALTA (American Land Title Association) - Organization composed of title insurance


firms, which sets standards for the industry, including title insurance policy forms used
on a national basis.

AMENDMENT: Changes to alter, add to, or correct part of an agreement without


changing the principal idea or essence.

AMORTIZE: Provisions for repayment of loan principal in periodic payments over a stated
period of time.

AMORTIZED LOAN: A loan that is paid off, both interest and principal, by regular
payments that are equal or nearly equal.

AMOUNT FINANCED: The loan amount less the Prepaid Finance Charges paid at
closing. (Depending on the State and the Lender these Prepaid Finance Charges can
also be financed. They are still considered "Prepaid". The Lender adds them to the
principal amount of the loan.) Examples of a Prepaid Finance Charge are the loan
origination fee and the discount points.

ANNUAL PERCENTAGE RATE (APR): The yearly interest percentage of a loan, as


expressed by the actual rate of interest paid. For example: 6% add-on interest would be
much more than 6% simple interest, even though both would say 6%. The A.P.R. is
disclosed as a requirement of federal truth in lending statutes.

APARTMENT: One or more rooms of a building used as a place to live, in a building


containing at least one other unit used for the same purpose. Usually has, at least,
cooking facilities, a bathroom, and a place to sleep. Those who live in these units pay
rent for their use, usually on a monthly basis.

APPLICATION FEE: The fee charged by the lender to the borrower for applying for a
loan. Payment of this fee does not guarantee that a loan will be approved. Some
lenders may apply the cost of the application fee to certain closing costs.

APPRAISAL: An opinion of value based upon a factual analysis. Legally, an estimation


of value by two disinterested persons of suitable qualifications.

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APPRAISAL METHODS: Generally, three major methods of appraisal: Cost Approach,
Income Approach, Market Value (Comparables) Approach

APPRAISAL REPORT: A written report by an appraiser containing his opinion as to the


value of a property and the reasoning leading to this opinion. The factual data
supporting the opinion, such as comparables, appraisal formulas, and qualifications of
the appraiser, will also be set forth.

APPRAISED VALUE: An opinion of the value of a property at a given time, based on facts
regarding the location, improvements, etc., of the property and surroundings.

APPRAISER: One who is trained and educated in the methods of determining the value
of property through analysis of various factors, which determine said value.

APPRECIATION: An increased value of property due to either a positive improvement of


the area or the elimination of negative factors. Commonly, and incorrectly, used to
describe an increase in value due to inflation.

APPROVED ATTORNEY: An attorney whose opinion is acceptable to a title company


as the basis for issuance of a title insurance policy by the insurer. The insurer, rather
than the attorney, executes the policy.

APPURTENANCE: Anything attached to the land or used with it passing to the new
owner. Something that belongs to someone else. An example would be the right to
cross through someone else's property.

ARTICLES OF INCORPORATION: Documentation filled with the state, which sets forth
general information about a corporation. More specific rules of the corporation would be
contained in the by-laws.

AS IS: When a property is sold as is, the seller does not warrant or guarantee that the
property is free of defects. The buyer accepts the property in its present condition,
without modification.

ASSESS: To fix a value; to appraise. Most commonly used in connection with taxes.

ASSESSED VALUE: Value placed upon property for tax purposes by the tax assessor.

ASSESSMENT: Taxes or special payments owed to a municipality or association.

ASSESSORS PARCEL NUMBER: A number assigned by the county tax assessor to


identify a parcel of real property.

ASSET: Something of value that can be used to repay a debt.

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ASSIGNEE: The person to whom an agreement or contract is assigned. If you were
assigning interest in your note to an investor, that investor would be the assignee.

ASSIGNMENT OF RENTS: A procedure in which a borrower gives a lender the right to


receive the rents collected from a tenant in a house owned by the borrower.

ASSIGNMENT: The transfer of property to be held in trust or to be used for the benefit
of the creditors (lenders).

ASSIGNOR: A party who assigns or transfers something to another. If you are


assigning interest in your note to an investor, you are the assignor.

ASSUMABILITY: The provision in a mortgage (or sometimes implied by the courts)


allowing the purchase of the property from the mortgagor (the person originally borrowing
the money) to assume the rights and obligations under the original mortgage subject to
approval of the lender. Assumability and "Due-on-Sale" provisions, and their legal
implications have become quite complex since the Wallenkamp and de la Cuestate
decisions in California and the enacted "Garn Act".

ASSUMPTION: The act of conveying real property; taking title to a property with the
Buyer assuming liability for paying an existing note secured by a deed of trust against
the property.

ASSUMPTION FEE: Lender's charge for paperwork involving in processing records for a
new buyer assuming an existing loan.

ASSUMPTION OF A DEED OF TRUST: An agreement in which the buyer agrees to be


liable for payments of an existing note secured by a deed of trust.

ASSUMPTION OF MORTGAGE: Occurs when a person takes title to property and


assumes liability for the payment of an existing mortgage note and the original borrower
is released from any liability.

ATTORNEY AT LAW: An advocate, counsel, or official agent employed in preparing,


managing, and trying cases in court. Must be licensed by the state.

ATTORNEY-IN-FACT: One who is appointed to act (as agent) for another (principal)
under a power of attorney. The scope of the agent's authority is limited to that given by
the power of attorney, which may be limited to one specific act or may be broader. (See
also Power of Attorney).

AUCTION: The process of selling property at a public sale to the highest bidder. The
person conducting the sale will call out the initial asking price and each price that
anyone in the audience bids until no one will bid a higher price.

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AUTOMATIC STAY: A bankruptcy court order. When bankruptcy is filed, the
bankruptcy court will issue a court order that prevents any creditor from attempting to
collect any debt from the person who declared bankruptcy. Creditors, even though they
are owed money, may not undertake foreclosure, repossession, eviction or seizure, or
even call or write the debtor demanding payment. Instead, they must all come to the
bankruptcy court

B
BACK TITLE LETTER: In states where attorneys examine title for title insurance
purposes, a title insurance company gives this letter to an attorney, giving to said
attorney the condition of title as of a certain date. The attorney then begins his
examination as of that date. Also called a starter or back title certificate. (See also
Starter).

BACK-END-RATRIOS: Back-End Ratio is the percentage of a borrower's gross


monthly income that would cover the cost of PITI plus any other monthly debt payments
like car or personal loans and credit card debt balance is left in a checking or savings
account. This is usually found only with business loans.

BALANCE OWED ON THE LOAN: The part of the original loan that remains unpaid by
the borrower at a given point in time. This is not the same as the amount to pay off the
loan, which would include back payments and late charges.

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: A final payment that is greater than the regular scheduled payment.

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: An action filed in a federal bankruptcy court that allows a creditor to


reorganize or discharge credit obligations. A bankruptcy will temporarily stop the
foreclosure sale.

BASE LINE: (1) A survey line used in the government survey to establish township
lines. The base line runs east and west through a principal meridian (line running north
and south). (2) A horizontal elevation line used as the centerline in a survey for a
highway route.

BASE MAP: A map having background information, such as state, county, or city
boundaries, upon which more detailed data is plotted.
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BASE PROPERTY: Private property owned by a cattle owner required before a permit
will be issued to allow the cattle to graze on public land.

BASE TITLE: The result of an examination of title for the internal use of a title insurance
company. Usually covers a large area and is done in anticipation of future sales or
subdividing of the area.

BASIS POINT: A term used in relationship to interest rates. One basis point is equal to
one 100th of one percent. The difference between 7% and 7.5% is 50 basis points.

BENEFICIARY DEMAND: Written statement of payment required by a beneficiary under a


deed of trust before authorizing a Reconveyance.

BENEFICIARY: (1) Someone entitled to the benefit of a trust: (2) Someone who
receives profit from an estate, the title of which is vested in a trustee: (3) The lender on
a security of a note and deed of trust.

BENEFICIARY'S STATEMENT: Statement of a beneficiary under a deed of trust as to


principal balance due on a promissory note and other information concerning the loan.

BID: The offered amount for a property for sale at auction.

BINDER: A preliminary agreement between a buyer and seller that includes the price and
terms of the contract.

BLANKET MORTGAGE: A mortgage covering more than one property of the mortgagor,
such as a mortgage covering all the lots of a builder in a subdivision. A mortgage covering
all real property of the mortgagor, both present and future. When used in this meaning, it is
also called a "general Mortgage". This sort of loan is more common for commercial
property or "special case" loans.

BLOCK: (1) In a city, a square or rectangular area enclosed by streets. (2) in some
states, a part of a subdivision legal description, such as lot 1, block 1, tract 1. (3) a
pulley in a frame. (4) an auctioneer's platform.

BLUE PRINT: A plan of a building in such detail as to enable workmen to construct it


from the print. The name comes from the photographic process, which produces the
plan in white on a blue background.

BONA FIDE: A legal term, which refers to any actions, situations, or persons that are
honest, in good faith, and without fraud.

BONA FIDE PURCHASER: A purchaser in good faith, for valuable consideration,


without notice or knowledge of adverse claims of others. Sometimes abbreviated to
b.f.p.
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BOND: (1) An insurance agreement by which one is insured against loss by acts or
defaults of a third party. In construction, a performance bond insures that the builder will
finish his project. The insured could be a lender, purchaser, or other interested party. (2)
a method of financing long-term debt, issued by a government or private corporation,
which bears interest and has priority over stock in terms of security.

BOTTOM LAND: Low land along a river formed by alluvial deposits. Also low lying
ground such as a valley or dale.

BOUNDARY: A separation, natural or artificial, which marks the division of two


contiguous properties.

BOUNDS: Boundaries.

BRANCH: A subordinate or division office of ABC Company, as opposed to an affiliate,


agent, subsidiary or underwritten firm associated with the Company.

BREACH OF CONTRACT: A default or failure to abide by the terms of the contract.

BRIDGE FINANCING: A form of interim loan, generally made between a short-term loan
and a permanent (long term) loan, when the borrower needs to have more time before
taking the long term financing.

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.

BROKERAGE: The act of bringing together principals (buyer-seller; landlord-tenant;


etc.) For a fee or commission, rather than acting as a principal.

BUILDING CONTRACT: An agreement between an owner or lessee and a building


contractor, setting forth terms relative to the construction of a proposed structure.

BUY-DOWN: When the lender and/or the homebuilder subsidized the mortgage by
lowering the interest rate during the first few years of the loan. While the payments are
initially low, they will increase when the subsidy expires. Two disinterested persons of
suitable qualifications sometimes use these to qualify borrowers for a loan amount that
they would not otherwise qualify for but will be able to pay in subsequent years as their
income increases. With a buy-down, the seller pays an amount to the lender so that the
lender can offer a lower rate to the borrower with lower payments usually for an early
period of the loan. The seller may increase the sales price to cover the cost of the buy-
down.

BUYER: The purchaser; one who buys real estate.

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BUYER’S MARKET: A market condition favoring the buyer. In real estate, when more
homes are for sale than thee are interested buyers.

BUY-SELL-OFFER: An offer by one owner of a 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 ½ 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 inters may be worth $12,000, but
b is financially unable to buy a's interest (also worth $12,000).

BY-LAWS: Rules and regulations governing an association or corporation.

BY-PASS: A road designed to avoid or pass by a high-density area, such as a business


section of a city, in order to ease traffic congestion. Also called a belt highway.

C
C.V.R. (CERTIFICATE OF REASONABLE VALUE): An appraisal of property for the
purpose of insurance by the Veteran's Administration.

CALL: A provision in a note requiring that the principal be paid on a certain date. This is
also known as the "due" or "maturity" date.

CANCELLATION CLAUSE: A stipulation in a lease or other contract which bestows


upon one or more or all of the parties to a lease the right to end the party's or parties'
obligations upon the occurrence of the situation or eventuality set forth in the said
clause.

CANCELLATION NOTICE: A notice sent by the insurance carrier to the beneficiary of


an insurance policy, stating that the policy has been canceled and is no longer active.

CAP: A number that when added to either the initial note rate or subsequent note rate
determines the maximum note rate of a loan usually for the life of the loan. (A limit on
how much the interest rate or monthly payment can change, either at each adjustment
or over the life of the mortgage). A limit on how much the interest rate or the monthly
payment can change, either at each adjustment or during the life of the mortgage.
Payment caps don't limit the amount of interest the lender is earning, so they may cause
negative amortization.

CAPITAL GAINS: Profit earned from a sale of real estate.

CAPITALIZATION RATE: The percentage (acceptable to the average buyer) used to


determine the value of income property through capitalization.

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CAPITALIZATION: Determines a present value of income property by taking the annual
net income (either known or estimated) and discounting by using a rate of return
commonly acceptable to buyers or similar properties. A method used to estimate value of
a property based on the rate of return on investment. For example: net income of a
property is $40,000 per year. Capitalizing at a rate of 10%, the property would be worth
$400,000.

CASH FLOW: In investment property, the actual cash the investor will receive after
deduction of operating expenses and debt service (loan payment) from his gross income.

CASH OUT: To take as much cash equity out of a borrower's property as possible rather
than to retain equity.

CASH RESERVE: Borrowers are required to have a cash reserve that equals two
months PITI (Principal, Interest, Taxes and Insurance) payments after the loan has
been closed (this is after closing costs and prepaid feeds are calculated).

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

CAVEAT EMPTOR: Buyer beware. The buyer must inspect the property and satisfy
himself that it is adequate for his needs. The seller is under no obligation to disclose
defects but may not actively conceal a known defect or lie if asked.

CC&R'S: (Covenants, Conditions, and Restrictions). A term used in some areas to


describe the restrictive limitations, which may be placed, on property. In other areas,
simply called "restrictions".

CEMETARY: Large parcels of land used for burying deceased persons. May be public
or private, the private usually being of a specific religious denomination.

CERTIFICATE: Writing, either from a court or other public body, giving assurances of
existing conditions or facts, and giving rights or creating obligations.

CERTIFICATE OF ELIGIBILITY: A certificate by a veteran from a Veteran's


Administration office, which states that the veteran is eligible for a V.A. insured loan. There
is a list of requirements (when and how long the veteran served, type of discharge, etc.),
which also may be obtained from the V.A. office.

CERTIFICATE OF OCCUPANCY: A certificate issued by a local governmental body


stating that the building is in a condition to be occupied.

CERTIFICATE OF SALE: A document given to the winning bidder at a foreclosure sale


stating their rights to the property once the borrowers redemption period has expired.

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CERTIFICATE OF SATISFACTION: A document signed by the Note holder and
recorded in the land records evidencing release of a deed of trust, mortgage lien on the
property.

CERTIFICATE OF TITLE: A written opinion by an attorney setting forth the status of


title to the property as shown on the public records. The certificate does not certify as to
matters not of record and affords no protection unless the author was negligent.
Compare, Title Insurance

CERTIFIED CHECK: A personal check drawn by an individual, which is certified


(guaranteed) to be good. The bank holds the funds to pay the certified check and will
not pay any other checks drawn on the account if such payment would impede payment
of the certified check. The bank also will not honor a stop payment of a certified check.

CERTIFIED COPY: A true copy, attested to be true by the officer holding the original.

CERTIFIED NOTE APPRAISING: The appraisal of individual and multiple notes. The
American Appraisal Institute of Privately Held Notes and Mortgages certify appraisers.

CHAIN OF TITLE: The series of transactions from Grantor to Grantee as evidenced in


the land records.

CHANGE OF NAME: When there is a name change of a party appearing on a


document (deed, etc.), it may be reflected in several ways, such as: (1) Mary smith, a
married woman, w.a.t.a. (Who acquired title as) Mary Jones, an unmarried woman. (2)
Mary smith, aka (also known as) Mary Jones. (3) Mary smith, formerly Mary Jones. (4)
Mary smith, alias Mary Jones. Each may be applicable in different circumstances (how
and why the name was changed).

CHAPTER 13: One of the bankruptcy chapters in the federal Bankruptcy Code. Under
Chapter 13, a wage earner can reduce debt payments through a bankruptcy court order
according to the terms of a plan approved by the bankruptcy court.

CHAPTER 7: One of the chapters in the federal Bankruptcy Code. Chapter 7 is


liquidation bankruptcy in which a debtor's nonexempt assets are gathered together and
given up or sold for the benefit of creditors in order of the creditors priority. The Texas
homestead exemption exempts a homeowner’s residence.

CHATTEL MORTGAGE: A document offering personal property other than real estate as
security for payment of debt.

CHATTEL: Personal property.

CLAIM: An assertion of some right or demand.

CLASS ACTION: A claim brought up on behalf of a group of people.


16
CLEAR TITLE: Title that is not encumbered or burdened with clouds such as
mortgages or unpaid taxes. A title that is free and clear of liens or legal questions as to
ownership of property.

CLOSE OF ESCROW: The date the documents are recorded and title passes from
Seller to Buyer. On this date, the Buyer becomes the legal owner, and title insurance
becomes effective.

CLOSING COSTS: Expenses incidental to the sale of real estate, such as loan fees, title
fees, appraisal fees, etc.

CLOSING DATE: The date upon which the buyer takes over the property and seller
receives his funds.

CLOSING SERVICE LETTER: Also known as Closing Protection Letter. A letter of


authorization from a Title Company, for an individual or agency conducting a settlement
on behalf of the Title Company and Lender which includes the execution of all
documents and disbursements of funds.

CLOSING STATEMENT: The statement, which lists the financial settlement between
buyer and seller, and also the costs each must pay. A separate statement for buyer and
seller is sometimes prepared.

CLOSING: The meeting between the buyer, seller and lender or their agents where the
property and funds legally change hands. Also called settlement. Closing costs usually
include an origination fee, discount points, appraisal fee, title search and insurance,
survey, taxes, deed recording fee, credit report and notary fees. Buyer and seller sign
papers to transfer title.

CLOUD: (See Cloud on Title).

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, tract 1. A cloud is created on lot 2 by the recording of the erroneous
deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action. Any
encumbrance or burden that adversely affects title to a property. Examples would also
include liens or unpaid taxes.

CODE: A comprehensive set of laws drawn up to cover completely a given subject.


Covers diverse subjects, such as the criminal code, and the building code.

Code of Ethics - (See Ethics).

COFI: Cost of Funds Index. An index referring to the cost lenders pay for attracting
funds. The average rate paid on savings and borrowings. Adjustable rates.
17
COINSURANCE: Ordinary coinsurance is defined as a transaction under which each of
two or more insurers assumes a designated portion of the liability for the total risk and is
liable for only such portion of any loss beginning at the first dollar of loss. (See
Reinsurance.)

COLLATERAL: By or at the side, additional or auxiliary. Mistakenly used to mean


collateral security.

COLLATERAL LOAN: A loan is guaranteed by giving the lender a claim against property
as a security debt. The claim is called a Chattel Mortgage. With a collateral loan, title is
with the borrower. (If title is with the seller, you have a "Conditional Sales Agreement".)

COLLATERAL SECURITY: Most commonly used to mean some security in addition to


the personal obligation of the borrower.

COLLATERAL: The property subject to a security interest.

COMMERCIAL PAPER: Negotiable instruments used in the course of business, such as


promissory notes, which are bought and sold (usually at a discount).

COMMISSION: An amount, usually as a percentage, paid to an agent (real estate


broker) as compensation for his services. The amount to a real estate broker is
generally a percentage of the sale price or total rental.

COMMIT WASTE: Failure to maintain property or allowing property to be used in a way


that reduces its value.

COMMITMENT: A binding contract with a title company to issue a specific title policy,
showing only those exceptions contained in the commitment and any intervening
matters after the date of the commitment and prior to the effective date of the policy.
The commitment contains all information included in the preliminary title report, plus a
list of the title company's requirements to insure the transaction. It also includes the
standard exceptions from coverage that will appear in the policy.

COMMITMENT FEE: A fee paid for a loan commitment. (See Commitment).

COMMITMENT LETTER: A formal offer by a lender stating the terms under which it
agrees to lend money to a homebuyer.

COMMON AREA: The area owned in common by the owners of condominiums or


planned unit development homes in a subdivision.

COMMON LAW: The body of laws originated and developed in England, which was
adopted by most states and still prevails if not superseded by statutes. Also referred to
as case law.
18
COMMON WALL: (See Party Wall).

COMMUNITY DRIVEWAY: A driveway that is jointly owned, used and maintained by


two or more persons. Usually, the driveway burdens a portion of each owner’s property.

COMMINITY PROPERTY: Property owned in common by a husband and wife, who


was not acquired as separate property. A classification of property peculiar to certain
states.

COMMUNITY REINVESTMENT ACT: Federal legislation of 1977 (and subsequent


amendments) for the purpose of encouraging banks and thrifts (savings and loans) to
make more loans in their local areas. The act created the national consumer
cooperative bank to make loans to local banks and thrifts for community investment
(loans) and also to guarantee certain loans made in the local community.

COMPARABLE SALES: Sales that have similar characteristics as the subject property,
used for analysis in the appraisal. Commonly called "comps".

COMPENSATING BALANCE: A covenant in a Loan Agreement requiring that a minimum

COMPOUND INTEREST: Interest compounded on both the original principal amount and
on all interest earned to date.

CONCRETE: A cement mixture containing sand and gravel, which is combined by


mixing with water, poured to a desired shape, and hardens as it dries.

CONDEMNATION: The taking of private property by the government for public use - as
for a street or a storm drain - upon making just compensation to the owner. This right or
power of government to take property for a necessary public use is called eminent
domain.

CONDEMNATION: A judicial proceeding through which a governmental body takes a


private property for a public use.

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.

CONDOMINIUM CONCERSION: The changing of rental property (two or more units) to


condominium ownership. Physical changes, as well as paperwork, may be necessary to
conform to building and safety codes.

19
CONDOMINIUM MAP (Plan): A recorded map showing the condominium units and
common area. The map includes both horizontal and vertical measurements of the
units. It is important that the map agree with the declaration of restrictions (recorded at
the same time).

CONDOMINIUM PWNER’S ASSOCIATION: (See Home Owner's Association).

CONFORMING LOANS: A mortgage loan that "conforms" to the standard of lending


institutions. These are loans that do not have special considerations for the borrower or
the loan terms. They are loans that fall into the normal standards set by FNMA or
FHLMC. (See also Non-Conforming)

CONSERVATOR: A person appointed by the court to care for the person and/or
property of an incompetent adult or an adult unable to care for their person or property
because of health.

CONSOLIDATION: Combining several debts into one loan usually to reduce the annual
percentage rate or the dollar amount of payments made each month, by extending them
over a longer period of time.

CONSTRUCTION LOAN: A short-term interim loan to pay for the construction of


buildings or homes. These are usually designed to provide periodic disbursements to
the builder as he progresses. Lenders with offices local to the site of the construction
generally do these. This enables the lender or their agent to monitor the progress of the
construction.

CONSTRUCTIVE NOTICE: Notice imparted by the public records of the county when
documents entitled to recording are recorded.

CONTIGUOUS: Near or close to, whether actually touching or not. Generally refers to
actual touching or bordering on.

CONTINGENCY: Commonly, the dependence upon a stated event, which must occur
before a contract, is binding. For example: the sale of a house, contingent upon the
buyer obtaining financing.

CONTRACT: An agreement between two or more persons or entities, which creates or


modifies a legal relationship. Generally based upon offer and acceptance.

CONTRACT FOR DEED: Title to the property remains in the seller’s name while the
buyer receives equity title and possession of the property and assumes the obligation to
purchase the property. When conditions of the contract are fulfilled, legal title passes to
the purchaser.

CONTRACT SALE OR DEED: A contract between purchaser and a seller of real estate
to convey title after certain conditions
20
CONVENTIONAL ARM: An ARM that can be converted to a fixed rate mortgage under
specified conditions.

CONVENTIONAL MORTGAGE: Any mortgage that is not insured or guaranteed by the


federal government.

CONVERSION CLAUSE: A provision in some ARMs (and some balloons) that allows
you to change the ARM to a fixed-rate loan at some point during the term. Usually
conversion is allowed at the end of the first adjustment period. At the time of the
conversion, the new fixed rate is generally set at one of the rates then prevailing for
fixed rate mortgages. The conversion feature may be available at extra cost.

CONVERTIBLE: A provision that allows for an adjustable loan to be converted to a fixed


rate loan.

CONVEY: To transfer title to property from one person to another. To pass or transfer title
to another party.

CONVEYANCE: An instrument in writing, such as a deed or trust deed, used to


transfer (convey) title to property from one person to another.

COOPERATIVE: A system of individual ownership of stock in a corporation that. In turn,


owns the structure. Each owner has an exclusive right to use his individual unit and
must pay his portion of the debt encumbering the entire building. Compare,
Condominium. A type of multiple ownership in which the residents of a multiunit housing
complex own shares in the corporation that owns the property, giving each resident the
right to occupy a specific apartment or unit.

CORNOR LOT: A lot contiguous to two intersecting streets, and, for purposes of value,
having access to both streets.

CORPORATION: A general term encompassing any group of people "incorporating" by


following certain statutory procedures. Most common type of corporation is a private
one formed to carry on a business. An entity authorized by law and established by a
group of people, the stockholders, which is endowed with certain rights, privileges and
duties similar to an individual.

COST APPROACH: A method used by an appraiser to estimate replacement costs of


improvements less depreciation.

CO-TENANCY: A general term covering both joint tenancy and tenancy in common.

COTENANCY: Ownership in the same land by more than one person. See, Tenants in
Common, Joint Tenants, Tenants by the Entirety.

21
CO-TRUSTEE: One who shares the duties of trustee with one or more other trustees.

COUNTY: A political division within a state, usually encompassing one or more cities or
towns. There are exceptions such as New York City, which contains more than one
county. Louisiana uses the word Parrish instead of county; New York uses both
borough and county, as in king’s county (the borough of Brooklyn).

COVENANT: A written agreement or restriction on the use of land or promising certain


acts. Homeowner Associations often enforce restrictive covenants governing
architectural controls and maintenance responsibilities. However, land could be subject
to restrictive covenants even if there is no homeowner's association. A clause in a
mortgage that obligates or restricts the borrower and which, if violated, can result in
foreclosure.

COVENANTS, CONDITIONS AND RESTRICTIONS: Commonly called CC & R's the


term usually refers to a written recorded declaration which sets forth certain covenants,
conditions, restrictions, rules or regulations established by a subdivider or other
landowner to create uniformity of buildings and use within tracts of land or groups of
lots. The restrictions also can be established by deed. CC & R's are sometimes referred
to as private zoning.

CRAM-DOWN: A chapter 13 bankruptcy arrangement in which a plan to repay lenders


and creditors, which was developed by the debtor's attorney, is ordered into effect by
the bankruptcy court. It is crammed down on the sometimes unwilling creditors.

CREDIT: (1) The financial worthiness of a borrower. The history of whether this
borrower has met financial obligations on time in the past. (2) an accounting term
designating money received or receivable, as opposed to debit, which is money paid or
payable.

CREDIT BID: A bid on behalf of the lender at a foreclosure sale. The bid amount must
be less than or equal to the balance of the loan in default.

CREDIT RATING: lenders according to the borrower’s credit-worthiness or risk profile


rate Borrowers. Credit ratings are expressed as letter grades such as A, B, C, D or F.
These ratings are based on various factors such as a borrower's payment history,
foreclosures, bankruptcies and charge-offs. There is no exact science to rating a
borrower's credit, and different lenders may assign different grades to the same
borrower.

CREDIT REPORT: A report of an individual’s credit history prepared by a credit bureau or


consumer reporting agency and used by a lender in determining a loan applicant’s
creditworthiness.

CREDIT SCORE: Each Credit Reporting Company assigns a Credit Score to your credit
report. Lenders use these scores to determine your creditworthiness.
22
CURB CUTS: The part of a curb, which lowers to street level to form the apron of a
driveway.

CUSTODIAN: (1) One who is entrusted with the care and keepin of real or personal
property. (See also Custody). (2) a janitor.

CUSTODY: The care and keeping of property (real or personal). For example: an
escrow agent has custody of documents and funds until closing.

CUSTOMER: A buyer of good or services.

D
DAMAGES: (1) Money recoverable by one suffering a loss or injury. (2) the loss of
value to property adjoining a property taken in condemnation proceedings, rather than
the value of the property taken.

DE: Direct Endorsement (Underwriter) – FHA Approved Underwriter

DEBT: Money owing from one person to another.

DEBT SERVICE: The amount of financing (mortgage or trust deeds) on a property.

DEBTOR: One who owes a debt.

DEBT-TO-INCOME-RATIO: The ratio which results when a borrower’s monthly


payment obligation on long-term debts is divided by his or her net effective income
(FHA/VA loans) or gross monthly income (Conventional loans).

DECLARATION: (See Declaration of Restrictions; Restriction; Condominium Map)

DECLARATION OF RESTRICTIONS: A set of restrictions filed by a subdivider to cover


an entire tract or subdivision.

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.

DECREE OF DISTRIBUTION: A probate court decree, which determines how the


estate of a decedent shall be distributed.

DECREE: A judicial decision.

DEED: Written document by which an estate or interest in real property is transferred


from one person to another. The person who transfers the interest is called the
23
"grantor." The one who acquires the interest is called the "grantee." Examples of deeds
are grant deeds, administrator's deeds, executor's deeds, quitclaim deeds, etc. The
deed to use depends on the language of the deed, the legal capacity of the grantor and
other circumstances.

DEED IN LIEU OF FORECLOSURE: A deed given by an owner/borrower of a lender to


prevent the lender from bringing foreclosure proceedings. The validity of the deed
depends to some degree on "fairness" under the circumstances, and adequacy of
consideration will be considered.

DEED OF RECONVEYANCE: A document extinguishing the lien of a deed of trust issued


by the trustee, upon the written instructions of the beneficiary. (Upon payment in full of the
note, secured by the Deed of Trust.)

DEED OF TRUST OR TRUST DEED: A written document by which the title to land is
conveyed as security for the repayment of a loan or other obligation. It is a form of
mortgage. The landowner or debtor is called the "trustor." The party to whom the legal
title is conveyed (and who may be called on to conduct a sale thereof if the loan is not
paid) is the "trustee." The lender is the "beneficiary." When the loan is paid off, the
trustee is asked by the beneficiary to issue a "recon" or Reconveyance. This
Reconveyance corresponds to the release that the holder of a mortgage executes when
the mortgage is paid off.

DEED OF TRUST: The deed of trust is the document in which the borrower pledges to
property as collateral for the note. A three party security instrument conveying title to land
as security for the performance of an obligation. Also called a "Trust Deed".

DEED RESTRICTION: A restriction imposed in a deed to limit the use of the land. A
deed restriction may prevent certain type of usage or may prevent sub-division of the
land.

DEED-IN-LIEU: This is a deed given by a mortgagor grantor (borrower) to a mortgagee


grantee (Lender) to satisfy a debt and avoid foreclosure

DEFAULT JUDGMENT: A judgment entered against a party who fails to appear in court
at the scheduled time.

DEFAULT: When something you agree to is not done. An example is not making payment
on a loan when due. Some loan agreements specify the entire amount is due if any
covenants are in default. Failure to meet legal obligations in a contract.

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).

24
DEFECT: A blemish, imperfection or deficiency. A defective title is one that is irregular
and faulty.

DEFECTIVE TITLE: (1) Title to a negotiable instrument obtained by fraud. (2) Title to
real property, which lacks some of the elements necessary to transfer good title.

DEFENDANT: The person against whom a civil or criminal action is brought.

DEFERRED INTEREST: When a mortgage is written with a monthly payment that is


less than required to satisfy the note rate, the unpaid interest is deferred by adding it to
the loan balance. See negative amortization

DEFERRED MAINTENANCE: Repairs necessary to put a property in good condition. A


concern of a purchaser. An owner may have an account for such maintenance.

DEFICIENCY JUDGMENT: A court order against the mortgagor/grantor (borrower) to


pay the balance owed on a loan if the proceeds from the foreclosure sale are insufficient
to pay off the loan. If the foreclosure sale does not bring sufficient proceeds to pay the
costs of sale and the note in full, the holder of the note may obtain a judgment against
the maker for the difference.

DELINQUENCY: A situation in which a payment on a loan is overdue but not yet in


default.

DELIVERY: The final, unconditional and absolute transfer of a deed to the Grantee so
that the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not
pass title.

DEMAND NOTE: A note having no date for repayment, but due on demand of the lender.

DEMISE: A lease or conveyance for life or years. Loosely used to describe any
conveyance, whether in fee, for life, or for years.

DEMOGRAPHICS: Statistics. Commonly refers to statistical information required by


certain businesses (especially chain stores) regarding a possible new location.

DEPARTMENT OF REAL ESTATE: That department of the state government


responsible for the licensing and regulation of persons engaged in the real estate
business. The person heading the department is usually called the real estate
commissioner. Other names of the department are the division of real estate and the
real estate commission.

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.

25
DEPRECIATION: A decline in the value of property; the opposite of “appreciation.”

DESCRIPTION: The exact location of a piece of real property stated in terms of lot,
block, tract, part lot, metes and bounds, recorded instruments, or U.S. Government
survey (sectionalized). This is also referred to as legal description of property.

DEVELOPER: (1) A builder. (2) one who prepares the raw land for construction and
then sells lots to a builder.

DEVELOPMENT: A planned construction project, rather than simply the building of


unrelated buildings.

DIRECT ENDORSEMENT (DE): A HUD program that enable an eligible single-family


lender to conduct the processing and the closing of FHA single-family loan application
without HUD’s prior review.

DIRECT REDUCTION MORTGAGE: An amortized mortgage. One on which principal and


interest payments are paid at the same time (usually monthly) with interest being
computed on the remaining balance.

DISCHARGE OF A LIEN: Recorded release of a lien when debt has been paid.

DISCOUNT POINTS: See Points.

DISSOLUTION: A cancellation or annulment of a contract or business associate, such


as a partnership or corporation.

DISTRICT: An area geographically set apart for a specific purpose, such as a


congressional district or drainage district. The boundaries of one may overlap the other.

DIVIDEND: A dividing into shares of a fund of money or property for distribution, as


among shareholders of a corporation. The money or property distributed is the dividend.

DIVISION WALL: (1) A wall between two buildings, but not a part of either. (2) a wall,
which divides a building into rooms. Differs from a partition in that it is load bearing.

DIVORCE: The legal dissolution of a marriage, leaving the parties with the results of the
marriage (includes alimony, child support, property settlements, etc.) Rather than an
annulment, which puts the parties in the position, they were before the marriage.

DOCUMENTARY TAX STAMP: Stamps, similar to postage stamps, affixed to a deed,


showing the amount of transfer tax paid. Most states now "stamp" the deed rather than
actually affixing a stamp.

DOMICILE: (1) A legal term signifying a place where a person has his permanent
home. The most accurate meaning is the layman's understanding of the place where a
26
person "lives", since this takes into consideration the intent of the person to make a
particular property his "home". (2) the state or country in which a corporation is
chartered (organized), such as a corporation "domiciled" in the U.S.

DONEE: One who receives a gift. (Such as in a gift letter for the down payment for the
purpose of purchasing real estate).

DONOR: One who is actually giving the gift.

DOUBLE ESCROW: Two concurrent escrows on the same property, having the same
party as buyer and seller of the property. Example: escrow 1-a buys from b. Escrow 2-a
sells the same property to c, a is using c's money to buy b's property. The process is
illegal in many states unless full disclosure is made

DOWER: A spouse's interest in the property of a deceased spouse.

DOWN PAYMENT: The part of the purchase price that the buyer pays in cash and does
not finance with a mortgage down. A buy-down can occur in all types of mortgages, not
just in adjustable rate mortgages.

DRY MORTGAGE: A lien, which places no personal liability on the mortgagor, looking
only to the property as security.

DUE DATE: The day of the month by which payments are agreed to be paid.

DUE ON SALE CLAUSE: A clause in a mortgage note, which provides that the entire loan
amount is due and payable to the lender upon the sale of the mortgaged property. It is an
effective wedge for the lender to renegotiate the interest rate, and perhaps points in the
event of sale on the mortgaged property.

DUPLEX: (1) Any building containing exactly two dwelling units. Most commonly refers
to the units, which are side by side, with a common wall and roof. (2) an apartment on
two floors

E
EARNEST MONEY DEPOSIT: Down payment made by a purchaser of real estate as
evidence of good faith; a deposit or partial payment.

EARNEST MONEY: A deposit made by the potential homebuyer to show that he or she is
serious about buying the house.

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

27
land (appurtenant), such as right to cross a to get to b, or "in gross," such as a pubic
utility easement.

EASEMENT APPURTENANT: An easement for the benefit of another parcel of land,


such as the right to cross parcel a to reach b. The easement will pass with the transfer
of property to a new owner.

EASEMENT BY PRESCRIPTION: (See Prescriptive Easement).

EASEMENT IN GROSS: An easement for the benefit of a person or company, rather


than for the benefit of another parcel of land. Commonly, such easements as for public
utilities.

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.

ECONOMIC OBSOLESCENCE: Loss of desirability and useful life of a property through


economic forces, such as zoning changes, traffic pattern changes, etc., rather than
deterioration (functional obsolescence).

EFFECTIVE AGE: Age of a structure as estimated by its condition rather than actual age.
Takes into account rehabilitation and maintenance.

EFFECTIVE DEMAND: A qualifying term meaning the ability to pay as well as desire to
buy.

EFFICIENCY: An apartment consisting of one room, sectioned into areas for a kitchen,
bedroom, etc.

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.

EMINENT DOMAIN: The power of the state to take private property for public use upon
payment of just compensation.

ENCROACHMENT: The physical intrusion of a structure or improvement on the land of


another. Examples include a fence or driveway over the property line. An overlapping or
trespassing of a structure of construction of the one property onto an adjoining property.
For example: A fence, part of a building or a driveway of one property extending onto
the adjoining property is an encroachment.

ENCUMBRANCE: An encumbrance is an outstanding claim or lien on a property. A


property with a mortgage, judgment, and tax lien is said to be encumbered. Any right or
interest in land that affects its value. Examples would include liens, easements, and
unpaid taxes.
28
END LOAN: A long-term mortgage, usually ten years or more. Also called a Permanent
Loan.

ENDORSEMENT: Assigning or transferring a lien to another person is accomplished


through the use of an endorsement. The words "PAY TO THE ORDER OF:" and then
the name of the person to whom the lien is being assigned to, is written. If there is not
enough space on the original note to write an endorsement, it is written on a separate
piece of paper that is permanently affixed to the original note. This is called an allonge.

ENTIRE TENANCY: (See Tenancy by the Entirety)

ENTITLEMENT: The VA home loan benefit is called entitlement. Entitlement for a VA


guaranteed home loan. This is also known as eligibility.

ENTITY: A separate existence or being, most commonly referring to a corporation or


other form of business, rather than an individual.

EQUAL CREDIT OPPORTUNITY ACT: A federal law that prohibits lenders from
discriminating on the basis of the borrower’s race, color, religion, national origin, age, sex,
marital status, or receipt of income from public assistance programs.

EQUITABLE LIEN: A lien enforceable in a court of equity, based on evidence of an intent


between debtor and creditor to create a lien on specific property of the debtor, but a failure
to legally create said lien.

EQUITABLE MORTGAGE: A lien against real property (mortgage), which is enforceable


in a court of equity, but does not legally constitute a mortgage. It is also a deed given as
security for a debt, which will be held for to be a mortgage rather than a transfer of title.
Also called a constructive mortgage.

EQUITABLE OWNERSHIP: Ownership by one who does not have legal title, such as a
vendee under a land contract or, technically, a trustor under a deed of trust (legal title
being in the trustee). Also called equitable title.

EQUITABLE TITLE: The present right to possession with the right to acquire legal title
once a preceding condition has been met.

EQUITY: (1) A legal doctrine based on fairness, rather than strict interpretation of the
letter of the law. (2) the market value of real property, less the amount of existing liens.
(3) any ownership investment (stocks, real estate, etc.) As opposed to investing as a
lender (bonds, mortgages, etc.).

EQUITY BUILD UP: The reduction of principal on a mortgage or deed of trust by periodic
payments, which increases (builds-up) the difference (equity) between the property value
and the amount of the lien.
29
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.

EQUITY LOAN: A loan based upon the equity in a property. The credit of the borrower
is not a major factor. (See also Personal Property Loan).

EQUITY MORTGAGE: A mortgage given in connection with borrowing money after the
borrower already owns the real estate. The borrower's "equity" in his residence is the
security for the loan.

EQUITY SHARING: A form of joint ownership between an owner/occupant and an


owner/investor. The investor takes depreciation deductions for his share of the
ownership. The occupant receives a portion of the tax write-offs for interest and taxes
and a part of his monthly payment is treated as rent. The co-owners divide the profit
upon sale of the property.

EROSION: The wearing away, over a prolonged period, of rock, earth, or other portions
of land.

ERROS AND OMISSIONS INSURANCE: Insurance covering losses caused by errors


and omissions of professions other than medicine. Used by banks, real estate
companies, escrow companies, etc.

ESCAPE CLAUSE: A way out. This is a clause in a legal document that allows a party
to avoid liability and/or the performance of contractual obligations under certain
conditions.

ESCHEAT: A reversion of property to the state in the absence of an individual owner.


Usually occurs when a property owner dies intestate, and without heirs.

ESCROW DISBURSEMENTS: The use of escrow funds to pay real estate taxes,
hazard insurance, mortgage insurance, and other property expenses as they become
due.

ESCROW INSTRUCTIONS: Instructions which are signed by both buyer and seller, and
which enable an escrow agent to carry out the procedures necessary to transfer real
property, a business, or other assignable interest.

ESCROW OFFICER: An escrow agent, who has, through experience and education,
gained a certain degree of expertise in escrow matters.

30
ESCROW: Funds that are set aside and held in trust, usually for payment of taxes and
insurance on real property. Also earnest deposits held pending loan closing. Escrow is a
deposit of valuable consideration such as money or documents with an impartial third
party. Items of value are placed in escrow to assure the successful compliance of
agreements such as a contract of sale.

ESTATE: (1) The interest or nature of the interest which one has in property, such as a
life estate, the estate of a deceased, real estate, etc. (2) a large house with substantial
grounds surrounding it, giving the connotation of belonging to a wealthy person.

ESTATE AT WILL: (See Tenant at Will).

ESTOPPEL: The prevention of one from asserting a legal right because of prior actions
inconsistent with the assertion.

ESTOPPEL CERTIFICATE: An instrument executed by the mortgagor setting forth the


status of and the balance due on the mortgage as of the date of the execution of the
certificate.

ET AL: And others.

ET CON: And husband.

ET UX: And wife.

ETHICS: With regard to professions, a code of professional standards, containing


aspects of fairness and duty to the profession and the general public.

EVICTION: The legal procedure to have a tenant forcibly removed from a dwelling.

EXAMINATION: An inspection. In title, an inspection of the chain of title from the


beginning of time to the present.

EXCEPTIONS: (1) specific items set forth in an insurance policy, which are not covered
by said policy. (2) any item specifically excluded.

EXCHANGE: A reciprocal transfer of real property, which has certain tax advantages over
a sale. Definite procedures must be followed in order to qualify the transfer as an
exchange.

EXECUTION SALE: Sale of real property under a writ of execution by a court. A judicial
mortgage foreclosure sale is in this category

EXECUTOR: One who is appointed under a will to carry out (execute) the terms of the
will.

31
EXECUTOR’S DEED: A deed issued by the executor of an estate. (See Executor).

EXTENDED COVERAGE: With reference to insurance, coverage beyond the normal


(standard) policy.

EXTENSION: A continuing under the same conditions, as opposed to a renewal, which


implies new terms or conditions.

EXTENSION AGREEMENT: An agreement that extends the life of a mortgage.

EXTERIOR WALL: The outer vertical surface of a structure, which encloses the entire
structure, and the dimensions of which are used to find the gross area of the enclosure
for appraisal purposes.

F
F.D.I.C.: (Federal Deposit Insurance Corporation. The federal Corporation, which insures
against

F.H.A.: (Federal Housing Administration). A federal agency, which insures first mortgages,
enabling lenders to loan a very high percentage of the sales price of real property.
Failure to perform provisions of a contract.

FAIR CREDIT REPORTING ACT: A federal law giving one the right to see his or her
credit report so that errors may be corrected. A lender refusing credit based on a credit
report must inform the buyer which company issued the report. The buyer may see the
report without charge if refused credit, or for a charge if just curious.

FAIR MARKET VALUE: Price that probably would be negotiated between a willing seller
and willing buyer in a reasonable time. Usually arrived at by comparable sales in the area.

FANNIE MAY: The Federal National Mortgage Association (FNMA). This is a federally
charted, public company, which purchases mortgages from lenders. It has specific
standards with respect to mortgages it will purchase (i.e., concerning loan to value,
maximum loan limits, buyer creditworthiness, etc.). Most lenders sell or intend to sell the
mortgages they make to FNMA. Loans and mortgages meeting FNMA have become
known as "qualified" or "conforming" loans.

FEDERAL FAIR HOUSING LAW: Title V111 of the Civil Rights Act which forbids
discrimination in the sale or rental of residential property because of race, color, sex,
religion or national origin.

FEDERAL HOME LOAN BANK BOARD: The board which charters and regulates federal
savings and loan associations, as well as controlling the system of Federal Home Loan
Banks.
32
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
Federal Home Loan Bank Board controls the bands.

FEDERAL REVENUE STAMP: Also called IRS stamp. A transfer of tax based on the
sales price of real estate (less remaining loans). The tax ended as a federal tax and was
taken up by most states with slight modifications in some areas.

FEDERAL SAVINGS AND LOAN ASSOCIATION: A federally charted institution for


savings and home mortgages, under the regulations of the Federal Home Loan Bank
Board.

FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION: A federal corporation


insuring against loss by depositors in a savings and loan association, in much the same
way the Federal Deposit Insurance Corporation insures against loss by depositors in a
bank.

FHA MORTGAGE INSURANCE: Requires a fee (up to 2.25 percent of the loan
amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage
insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in
monthly installments. The lower the down payment, the more years the fee must be
paid.

FHA: A mortgage that is insured by the Federal Housing Administration. Also referred to
as a “government” mortgage.

FHLMC (FREDDIE MAC): Federal Home Loan Mortgage Corporation. A federal agency
purchasing first mortgages, both conventional and federally insured, from members of the
Federal Reserve System, and the Federal Home Loan Bank System.

FIDUCIARY: Having a duty to act primarily for another's benefit. If you hire an
Attorney, for example, that attorney has a duty to act primarily for your benefit.

FIRST MORTGAGE: The mortgage on property, which is chronologically superior in

FIXED-RATE MORTGAGE: A mortgage in which the interest rate does not change during
the entire term of the loan.

FLOAT: Between the time of application and closing, a borrower may choose to bet on
interest rates decreasing by electing to float. Floating is essentially choosing not to lock
the interest rate. Since it is the borrower's responsibility to lock his or her rate before (or
at) closing, choosing to float is considered risky and may result in a higher interest rate.
Request information from your lender regarding lock procedures.

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FLOATING RATE LOAN: Interest charged, "floats" up and down with base interest rate
changes. Also known as a Variable Rate Loan. (VAR)

FLOOD INSURANCE: Insurance that compensates for physical property damage


resulting from flooding. It is required for properties located in federally designated flood
areas. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first
number indicates how much a loan may adjust at each adjustment period while the
second number indicates how much a loan may adjust over its lifetime.

FORBEARANCE: The lender’s postponement of foreclosure to give the borrower time to


catch up on overdue payments.

FORECLOSURE: Foreclosure is to deprive a mortgagor (borrower) of the right to


redeem a property after defaulting on mortgage payments. It is a legal process by which
the lender or the seller forces a sale of a mortgaged property because the borrower has
not met the terms of the mortgages. Also known as a repossession of property.

FOUR-PLEX: Most commonly a single structure designed with four separate living
units.

FRB: Federal Reserve Board

FREE & CLEAR: Ownership of property free of all indebtedness.


From wind, fire, vandalism, or other hazards.

FRONT-END-RATIO: Front-End Ratio is the percentage of a borrower's gross monthly


income (before income taxes) that would cover the cost of PITI (Mortgage Principal
Payment + Mortgage Interest Payment + Property Taxes + Homeowners Insurance). In
the case of a 28% Front-End Ratio a borrower could qualify if the proposed monthly
PITI payments were 28% or less than the borrower's gross monthly income. See also
Back-End Ratio.

FUNCTIONAL OBSOLESCENCE: The need for replacement because a structure or


equipment has become inefficient because of improvements discovered or invited since its
construction.

G
GAIN-PROFIT: Important for tax purposes when realized from the sale of a capital
asset.

GAP COMMITMENT: A commitment to loan the difference between the floor amount of
a take out loan and the full amount. The commitment is issued to enable a construction
lender to loan the full amount of a take out commitment, rather tan only the floor
amount.
34
GAP FINANCING: (1) Interim financing. (2) A loan between the floor amount and full
amount of a take out loan. (See Gap Commitment).

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 CONTRACTOR: One who contracts for the construction of an entire


building or project, rather than for a portion of the work. The general contractor hires
subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates
all work, and is responsible for payment to the said subcontractors.

GENERAL INDEX (G.I.): A title insurance company term for the books used to find liens
against individuals which may affect real property, but which are not recorded against
the property being insured, such as liens against a buyer.

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 PARTNER: A member of a partnership who has authority to bind the


partnership and share sin the profits and losses. A partnership must have at least one
general partner and may have more, as well as limited partners.

GENERAL PARTNERSHIP: A partnership made up of general partners, without special


(limited) partners. (See also Limited Partnership; Partnership).

GIFT: A voluntary transfer of property without valuable consideration.

GIFT DEED: A deed for nominal consideration.

GIFT LETTER: A letter to HUD from the donor (giver) stating that a gift of money has
been made to the buyer in order to purchase specific property The relationship of the
donor and donee is stated, as well as the amount of the gift.

GIFT TAX: A federal and sometimes a state tax on inter vivos transfers without
consideration.

GNMA (GINNI MAE): Government National Mortgage Association. A federal association,


working with F.H.A., which offers special assistance in obtaining mortgages, and
purchasing mortgages in a secondary capacity.

35
GNMA (Ginnie Mae): Government National Mortgage Association. A federal
association, working with F.H.A., which offers special assistance in obtaining
mortgages, and purchases mortgages in a secondary capacity.

GOOD FAITH: Something done with good intentions, without knowledge of fraudulent
circumstances, or reason to inquire further.

GOOD FAITH PURCHASER OR MORTGAGEE: A person who buys or lends in

GOOD FAITH OR MORTGAGE SAVINGS CLAUSE: A clause in CC & R's which


provides that " a violation thereof shall not defeat or render invalid the lien of any
mortgage or deed of trust made in good faith and for value."

GOOD WILL: A salable asset of a business, based on its reputation rather than its
physical assets.

GORE: Small parcel of land, usually triangular in shape, resulting form the failure of a
legal description to join 2 tracts. (Also called Hiatus).

GOVERNMENT LOTS: Irregularly shaped parcels of land, usually fronting on water,


which could not practically be divided into sections under government survey.

GOVERNMENT SURVEY: The survey from which our present system of townships,
sections, etc., was developed.

GRACE PERIOD: Additional time allowed performing an act or making a payment


before a default occurs.

GRADED TAX: A property tax designed to promote local development by increasing


the tax rate on land and decreasing it on improvements.

GRADUATED-PAYMENT MORTGAGE (GPM): A mortgage that starts with low monthly


payments that increases at a predetermined rate for a specific time. The initial monthly
payments are set at an amount lower than that required for full amortization of the debt.

GRANDFATHER CLAUSE: The clause in a law permitting the continuation of a use,


business, etc., which, when established, was permissible but, because of a change in
the law, is now not permissible. (See also Nonconforming Use).

GRANT DEED: One of the many types of deeds used to transfer real property. Contains
warranties against prior conveyances or encumbrances. When title insurance is
purchased, warranties in a deed are of little practical significance.
grant.

GRANT: To transfer an interest in real property; either the fee or a lesser interest, such as
an easement.
36
GRANTEE: One to whom a grant is made. Generally, the buyer. Also called the
mortgagee. If you own a note, you are the grantee or mortgagee. The grantee is the
person to whom a grant or promise is made.

GRANTOR: One who grants property or property rights. Also called the mortgagor and
debtor. If you own a note, the grantor is the person who makes payments to you. In
technical terms, it is the person who makes a

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
people's names.

GROSS MONTHLY INCOME: The total amount the borrower earns per month, not
counting any taxes or expenses. Often used in calculations to determine whether a
borrower qualifies for a particular loan.

GROWING-EQUITY MORTGAGE (GEM): A fixed-rate mortgage that provides


scheduled payment increases over an established period of time. The increased
amount of the monthly payment is applied directly toward reducing the remaining
balance of the mortgage.

GUARDIAN: A person appointed by a court to manage the person and/or property of


one who is legally incompetent to handle his/her own affairs.

H
HARD MONEY LOANS: Although the derivation is obscure, it refers to those loans which
by reason of the creditworthiness of the borrower are riskier and, therefore, have a higher
interest rate for which the "hard money lender", and the hard money lender charges higher
points than for a qualified loan.

HAZARD INSURANCE: Insurance coverage that compensates for physical damage to a


property

HOLDER IN DUE COURSE: A person or entity that obtains a note without notice of any
borrower defenses to its enforcement may enforce payment of that note in a court
despite any borrower defense or other reason for not paying.

HOLDOVER TENANT: A leaseholder that remains in possession of the real estate after
the close of a lease term. Interest Rate The rate charged for borrowed money.
Involuntary Lien a lien ordered against a property without the acceptance of the owner.

37
HOMEOWNER’S ASSOCIATION: An association of people who own homes in a given
area, formed for the purpose of improving or maintaining the quality of the area. (An
association formed by the builder of condominiums or planned developments, and
required by statute in some states. The builder's participation as well as the duties of the
association is controlled by statute).

HOMEOWNER’S INSURANCE: An insurance policy that combines personal liability


coverage and hazard insurance coverage foe a dwelling and its contents.

HOMEOWNRER’S WARRANTY: A type of insurance that covers repairs to specified


parts of a house for a specified period of time. The builder or property seller as a condition
of the sale provides it.
.
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
homestead may include a formal declaration to be recorded.

HOUSING AND URBAN DEVELOPMENT (HUD), DEPARTMENT OF: The federal


department responsible for the major housing programs in the United States, such as
F.H.A.

HOUSING EXPENSE-TO-INCOME RATIO: The ratio, expressed as a percentage,


which results when a borrower’s housing expenses are divided by his/her net effective
income (FHA/VA loans) or gross monthly income (conventional loans). Also called just
Housing Ratio, Payment-to Income Ratio and Front-End Ratio.

I
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.

IMPOUNDS: A trust type of account established by lenders for the accumulation of


borrower's funds to meet periodic payments of taxes, mortgage insurance premiums,
and/or future insurance policy premiums, required to protect their security.

INDEMNITY: Insurance against possible loss or damage. A title insurance policy is a


contract of indemnity.

INDEX: The base number used to calculate the actual payments that will be collected on a
loan. It is a measure of interest rate changes that the lender uses to determine how much
the interest rate will change over time on an ARM. A published interest rate against which
38
lenders measure the difference between the current interest rate on an adjustable rate
mortgage and that earned by other investments (such as one, three, and five year U.S.
Treasury security yields, the monthly average interest rate on loans closed by savings
and loan institutions, and the monthly average costs-of-funds incurred by savings and
loans), which is then used to adjust the interest rate on an adjustable mortgage up or
down.

INITIAL INTEREST RATE: This refers to the original interest rate of the mortgage at the
time of closing. This rate changes for an adjustable-rate mortgage (ARM). It's also
known as "start rate" or "teaser."

INITIAL NOTE RATE: The note rate on an adjustable loan at its inception. Beware of
initial note rates that are abnormally low (less than 1% below FNMA rates for fixed
mortgages).

INSTALLMENT LOAN: A loan contract where payments are in equal installments.

INSURED DEED OF TRUST: A deed of trust insured against loss to the beneficiary in the
event of default and failure of the secured property to satisfy the balance owing plus costs
of foreclosure. (Mortgage Insurance)

INTEREST EXTRA NOTE: A note stating an equal (usually monthly) payments on


principal, plus interest. As the interest decreases (based on declining principal balance)
the total payment decreases. The amount applied to principal remains the same.

INTEREST INCLUDED NOTE: A note having equal payments (usually monthly). Interest
is figured on the declining principal balance. As the principal decreases, interest also
decreases, applying more of each payment to principal.

INTEREST ONLY LOAN: A loan on which only interest is payable during the term of the
loan, with the principal at the end of the loan term.

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.

INTEREST: Money paid for the use of money. Interest is the periodic charge for use of
credit.

INTERIM FINANCING: A construction loan made during completion of a building or a


project. A permanent loan usually replaces this loan after completion.

INTESTATE: Without leaving a will, or leaving an invalid will so that the property of the
estate passes by the laws of succession rather than by the direction of the deceased.

INVESTMENT PROPERTY: Requirements for financing investment properties include


rental schedules as well as income and expense analyses.
39
INVOLUNTARY LIEN: A lien imposed against property without consent of the owner,
e.g., taxes, special assessments, and homeowner’s association dues.

IRRRL: Interest Rate Reduction Refinancing Loan

J
JOINT TENANCY: A form of co-ownership giving each tenant equal interest and equal
rights in the property, including the right of survivorship.

JUDGEMENT: A formal decision by a court of law. A judgment can result I a lien


against property or a garnishment of wages to that a creditor may collect the debt. The
term "judgment" is also seen in real estate as it applies to an appraiser’s process in
deciding the value of property.

JUDGMENT LIEN: A lien against the property of a judgment debtor. An involuntary lien.

JUDICIAL FORECLOSURE: A foreclosure action that is executed by the court.

JUMBO LOAN: A loan, which is larger than the limits set by the FNMA or FHLMC.
Because jumbo loans cannot be funded by these two agencies, they usually carry a
higher interest rate.

JUNIOR LIEN HOLDER: A holder of a right to force the sale of property that is inferior
and subordinate to another lien holder’s right to do the same. A junior lien holder who
forces the sale of the real estate must either pay off the senior lien or make
arrangements to make payments on it to prevent it from being foreclosed. The
foreclosure of a first lien destroys the right of a junior lien-holder to foreclose, but the
foreclosure of a junior lien does not affect the right of a senior lien to foreclose.

JUNIOR LIEN: A lien, which is subordinate to a prior lien.

JUNIOR MORTGAGE: Any mortgage of lesser priority than a first mortgage.

JUNK FEES: Excess fees charged to the borrower by the lender, examples:
photocopying fee, processing fee etc.

L
LAND CONTRACT: Contract for the purchase and sale of land. Title to the land is
transferred upon execution of the contract. This means the property seller retains title
to the land until the loan is paid off. The term commonly refers to an installment
contract for the sale of land whereby a purchaser (vendee) receives the deed from an
40
owner (vendor) upon payment of a final installment. The vendor/seller finances the sale
for the buyer and retains legal title to the property as security. Equivalent terms are
"contract for deed" and "installment land contract."

LATE CHARGE: The penalty a borrower must pay when a payment is made after the due
date.

LATE PAYMENT: Payments that are made past their due dates according to the loan
documents.

LEASE: An agreement by which an owner of real property (lessor) gives the right of
possession to another (lessee), for a specified period of time (term) and for a specified
consideration (rent).

LEGAL DESCRIPTION: A technical description of real estate by government survey,


metes and bounds, or lot numbers of a recorded plat. It also includes descriptions of
any easements or reservations.

LENDER: Any person or entity advancing funds, which are to be repaid. A general term
encompassing all mortgagees, and beneficiaries under deeds of trust.

LESSEE: The person who makes lease payments. One who has right of possession
and use of a property under the terms of a lease.

LESSOR: The person who receives lease payments. One who leases property.

LEVY: To seize goods or property to satisfy a debt.

LIBOR: The rate on dollar-denominated deposits, also known as Eurodollars, traded


between banks in London. A Eurodollar is a dollar deposited in a bank in a country where
the currency is not the dollar.

LIEN: An encumbrance against property for money, either voluntary or involuntary. All
liens are encumbrances but all encumbrances are not liens.

LIFETIME CAP: A provision of an ARM that limits the total increase in interest rates over
the life of the loan.

LIMITED PARTNERSHIP: Used in many real estate syndications; a partnership


consisting of one or more general partners who conduct the business and are
responsible (liable) for losses, and one or more special (limited) partners, contributing
capital and liable only up to the amount contributed.

LINE OF CREDIT: A lending limit is established and a borrower can obtain funds to the
limit at any time.

41
LIQUIDATION APPRAISAL: An estimate of the value of property when it is sold quickly
in a forced sale. Usually, this figure is lower than fair market value for a regularly
conducted sale.

LIQUIDITY: Amount of assets that are readily convertible to cash.

LIS PENDENS: A recorded notice that tells the world that a lawsuit is in progress, the
outcome of which could affect the title to a particular piece of land.

LOAN COMMITMENT: See Commitment Letter.

LOAN FEE: A fee or charge for the work involved in the evaluation, preparation, and
submission of a proposed mortgage loan. Also known as an Origination Fee.

LOAN MODIFICATION: A procedure in which a loan's terms, such as the interest rate,
monthly payment or term, are altered with the approval of a lender.

LOAN POLICY: A title insurance policy insuring a mortgage, or beneficiary under a


deed of trust, against loss caused by invalid title in the borrower, or loss of priority of the
mortgage or deed of trust.

LOAN SERVICING: The collection of mortgage payments from borrowers and related
responsibilities of a loan servicer. Loans like the 3/1 and 5/1 adjustable, which have an
initial fixed period, are quoted with 3 numbers as in 2/6/3, which would mean that the
first adjustment might be as much as 3%, subsequent adjustments are capped at 2%
each, and the lifetime cap is 6%.

LOAN-TO-VALUE RATIO: The ratio of all loans (mortgages), including the one being
applied for, to the appraised value (or selling price, whichever is less) of the property.

LOCK-IN: A written agreement guaranteeing the homebuyer a specified interest rate


provided the loan is closed within the set period of time. The lock-in also usually specifies
the number of points to be paid at closing.
loss of deposits in banks.

M
MARGIN: The fixed number, expressed in basis points, that when added to the index
determines the note rate on a loan.

MCAW: Mortgage Credit Analysis Worksheet

MCRV: Master Certificate Of Reasonable Value

42
MECHANICS LIEN: A lien placed against real property for work done on the property. The
lien can pass from buyer to seller and the sales contract should include a rider clause
specifying any mechanics liens after title passes when a mechanic lien can be filed and 90
days is typical.

METES & BOUNDS: A term used in describing land by setting forth all the boundary
lines together with their uncompensated improvement.
might cause health problems.

MIP: Mortgage Insurance Premium – It is insurance from FHA to the lender against
incurring a loss on account of the borrower’s default.

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 that originates mortgages exclusively for resale in the
secondary market.

MORTGAGE BROKER: An individual or company that for a fee acts as intermediary


between borrowers and lenders.

MORTGAGE INSURANCE PREMIUM: The fee paid by a borrower to the FHA or a


private insurer for mortgage insurance. Commonly referred to as MIP.

MORTGAGE INSURANCE: See Private Mortgage Insurance. Commonly referred to as


PMI.

MORTGAGE NOTE: The document, which evidences the debt of the mortgage. The
mortgage device is a lien.

MORTGAGEE: The party lending the money and receiving the mortgage (Lender).

MORTGAGEE’S TITLE INSURANCE: See Loan Policy

MORTGAGOR: The party who borrows the money and gives the mortgage (Borrower).

MOTION TO LIFT STAY: A formal request to a bankruptcy court to dissolve an


automatic stay that prevents a lender from foreclosing. Once the motion is granted, the
lender may proceed to foreclose unless the borrower can keep up the payments.

N
NEGATIVE AMORTIZATION: The increase in a loan balance resulting from scheduled
payments being less than what is necessary to reduce or keep a loan balance even.
43
NEGATIVE EQUITY: A position in which a borrower owes more on property than the
property is worth.

NET WORTH: Differences between total assets and total liabilities.

NON-ACCELERATION LETTER: A letter from a junior lien holder to a senior lien


holder requesting the senior lien holder not accelerate the loan should you keep it
current during a foreclosure.

NON-ASSUMPTION CLAUSE: A statement in a mortgage contract forbidding the


assumption of the mortgage without the prior approval of the lender.

NONCONFORMING USE: A property, which does not conform to the zoning of the
area. Usually, the property was built in conformity and then the zoning was changed.

NON-CONFORMING: Non-Conforming loans are those that need special consideration.


These are usually loan types or applicants that do not fall under the guidelines of FNMA
or FHLMC. For example: The normal loan amount is $240,000 or less, if a JUMBO loan
is requested for more than that amount it is non-conforming. Or, in the case of a higher
LTV the norm is 75% to 80% LTV if you want an LTV higher than the norm it is non-
conforming. If a customer does not qualify under FNMA or FHLMC standards there are
other non-conforming loan types in which they may qualify. For example: If the borrower
cannot prove his or her income and needs to go with a no-income qualifier program it is
non-conforming.

NON-JUDICIAL FORECLOSURE: The non-judicial process of foreclosure is used


when a power of sale clause exists in a mortgage or deed of trust. A "power of sale"
clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes
the sale of property to pay off the balance on a loan in the event of the their default.

NOTE RATE: The base rate of interest that will determine the effective cost of the loan to
the borrower not withstanding any other rates, such as qualifying or payment rate.

NOTE: A written document, which is a recognized legal evidence of debt, promising


payment of a specific sum or money on a certain date.

NOTICE OF DEFAULT: Letter sent to a defaulting party as a reminder of the default. It


may state a grace period and the penalties for failing to cure the default.

NOTICE OF RESCISSION: A document that is used to cancel a notice of default and


declare that the default has been corrected.

NOTICE OF RIGHT TO CANCEL: A 3-day business period (72 hours), during which
time the borrower can cancel the transaction. In the mortgage industry applies to
refinance transactions only. During this period, funds cannot be disbursed pending the
44
decision of the borrower. This regulation is part of the Truth in Lending Act, Regulation
Z. Under certain emergency circumstances, this requirement may be waived.

NOTICE OF SALE: A notice giving specific information about the loan in default and the
proceedings about to take place. This notice must be recorded with the county where
property is located and advertised as stated in the security document or as dictated by
state law.

O
OBLIGEE: One to whom an obligation (promise) is owned.

OBLIGOR: One who legally binds (obligates) oneself, such as the maker of a
promissory note.

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.

ORDER: A request for a title insurance commitment.

ORIGINAL COST: The purchase price of property, paid by the present owner. The
present owner may or may not be the first owner.

ORIGINATION FEE: A fee made by the lender for making a real estate loan. Usually a
percentage of the amount loaned, such as one percent.

OUTSTANDING: Unpaid.

OWNER FINANCING: A property purchase transaction in which the property seller


provides all or part of the financing, such as seller carried second trust deed.

OWNER’S POLICY: A policy of title insurance usually insuring an owner of real estate
against loss occasioned by defects in, liens against or unmarketability of the owner's
title.

OWNER’S TITLE INSURANCE: Title insurance for the owner of property, rather than a
lien holder.

P
P.I.T.I.: Stands for Principal, Interest, Taxes and Insurance. The components of a monthly
mortgage payment.

45
PACKAGE MORTGAGE: Mortgage covering both real and personal property.

PAR: Pricing for mortgage loan that involves neither discount nor premium. i.e. "0".

PARCEL: Any area of land contained within a single description.

PARTIAL PAYMENTS: Payments that are less than the full payment the borrower
owes on a loan.

PARTNERSHIP: An association of two or more persons who have contracted to join in


business and share the profits.

PARTY WALLS: A wall generally erected on a property boundary or between two lots
for the common benefit and use of the property owners on either side.

PATENT: A conveyance of title to land by the Federal or State Government.

PAYEE: The person to whom a payment is made.

PAYER OR PAYOR: The person who makes a payment. The payer pays the payee.

PAYMENT CAP: A provision some ARMs limiting the amount by which a borrower’s
payments may increase regardless of any interest rate increase; may result in negative
amortization.

PAYMENT CHANGE DATE: The date when a new monthly mortgage payment amount
takes effect on an adjustable rate mortgage (ARM) or a graduated payment adjustable
rate mortgage (GPARM). Generally, the payment change date occurs in the month
immediately after the adjustment date.

PERMANENT BUYDOWN: A mortgage with a below market interest rate made by a


lender in return for an interest rate subsidy in the form of additional discount points paid
by the builder, seller or buyer.

PERSONAL LOAN: An unsecured loan.

PERSONAL PROPERTY LOAN: A loan, which is secured by both real and personal
property. Law sets the minimum ratio of personal to real property. The credit of the
borrower is a major consideration in making the loan. (See also Equity Loan).

PERSONAL PROPERTY: Property other than real property consisting of things


temporary or movable.

PIGGYBACK LOAN: A loan made jointly by two or more lenders on the same property
under one mortgage or trust deed.

46
PITI - A payment that combines Principal, Interest, Taxes, and Insurance.

P.I.Q.: A title term referring to Property In Question.

PLANNED UNIT DEVELOPMENT (PUD): A project or subdivision that consists of


common property that is owned and maintained by an owners’ association for the benefit
and use of the individual unit owners.

PLAT: A plan, map or chart of a tract or town site dividing a parcel of land into lots.

PLEDGE: To pledge you actually have to deliver an item to guarantee repayment of a


loan. Examples are savings passbooks, life insurance policies, or stock certificates as
security.

POINTS: Points are a cost frequently charged on mortgages. Payment time is typically the
day you actually obtain mortgage money. The Internal Revenue Service has ruled points
are deductible as interest expense in the year paid. Points can be charged on any type of
loan. Points are expressed as a percent, i.e., 2 points which is expressed as a decimal .02.
Two points on a $40,000 loan is (.02 times 40,000) or $800.00. Points are usually
collected at closing and may be paid by the borrower or the home seller, or may be split
between them.

POSTING: The act of placing a legal notice, such as a notice specifying the date, time
and place of a foreclosure sale, on public display in the proper place for such notices.

POSTPONEMENT: To put off to a later time. In the case of a foreclosure sale, this is
generally done by announcement at the original sale or by posting notices establishing
the new date and time the foreclosure sale will take place.

POWER OF ATTORNEY: A written instrument (document) duly signed and executed by


an owner of property that authorizes an agent to act on behalf of the owner.

POWER OF SALE CLAUSE: The clause in a deed of trust or mortgage, by which the
borrower pre-authorizes the sale of a house to pay off the balance on a loan in the
event of the borrower's default. Usually a trustee conducts the sale, although in some
states the sheriff or constable does this.

PRE,PRELIM OR PRELIMINARY REPORT: A written report issued by a title company,


preliminary to issuing title insurance, which shows the recorded condition of title of the
property in question. See Commitment.

PREPAIDS: Fees collected at closing to cover items such as setting up escrow accounts
for property taxes, homeowner’s insurance, and mortgage insurance premiums.

PREPAYMENT CLAUSE: A clause in a mortgage that gives a mortgagor the privilege


of paying the mortgage indebtedness before it becomes due.
47
PREPAYMENT PENALTY: A penalty under a note, mortgage, or deed of trust, imposed
when the loan is paid before it’s due.

PRE-QUALIFICATION: The process of determining how much money a prospective


homebuyer will be eligible to borrow before a loan is applied for.

PRESCROPTIVE 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.

PRIME INTEREST RATE: The rate of interest charged most favored by commercial
customers of banks. The rate of interest charged other commercial customers is
expressed as a percent or points (1% equals one point) over prime.

PRINCIPAL: Amount of money borrowed. Otherwise stated, principal is amount of debt


minus interest. Principal is the amount of debt on which interest is calculated.

PRIORITY: The order of preference, rank or position of the various liens and
encumbrances affecting the title to a particular parcel of land. Usually, the date and time
of recording determine the relative priority between documents

PRIORITY INSPECTION: A title term referring to the type of inspection made in


connection with insuring a new construction loan. In making the inspection of the
property, the Title Company must be assured that the work of improvement had not yet
begun when the lender's deed of trust was recorded.

PRIVATE MORTGAGE INSURANCE. P.M.I.: "Private Mortgage Insurance". This is


insurance for the mortgagee (lender) to have the mortgage or a portion of the mortgage
paid in the event the borrower defaults. The borrower usually pays the premium. The
premium is usually a percentage of the loan amount, paid both at closing and annually
thereafter.

PROCESSOR: One who prepares documents to facilitate closing.

PRO-RATE: To divide in proportionate shares, such as taxes, interest, rent or other items
which buyer and seller share as of time of closing.

PUBLIC DOMAIN: Land owned by the government and belonging to the community at
large.

PUBLIC RECORDS: The transcriptions in a recorder's office of instruments, which have


been recorded, include the indexes pertaining to them.

PURCHASE AND SALES AGREEMENT: A written contract signed by the buyer and
seller stating the terms and conditions under which a property will be sold.
48
PURCHASE MONEY MORTGAGE: A mortgage given to obtain the loan to pay for all or
part

Q
QUALIFYING RATE: An arbitrary number used in determining the monthly payment used
in the debt ratio calculations.

QUALIFYING RATIOS: Guidelines applied by the lenders to determine how large a loan
to grant a homebuyer.

QUIET TITLE: To free the title to a piece of land from the claims of other persons by
means of a court action called a "quiet title" action. The court decree obtained is a "quiet
title" decree.

QUITCLAIM DEED: A deed operating as a release; intended to pass any title, interest, or
claim which the grantor may have in the property, but not containing any warranty of a
valid interest or title in the grantor.

R
RADON: An invisible, odorless gas found in some homes that in sufficient concentrations

RATE-LOCK: See Lock-in.

RATIO: The qualifying ratio of the borrower's fixed monthly expenses to his gross
monthly income. Ratios are expressed as two numbers like 28/36 where 28 would be
the Front-End Ratio and 36 would be the Back-End Ratio.

REAL ESTATE OWNED: (REO Property acquired by a lender through foreclosure and
held in inventory; commonly referred to as REO.

REAL ESTATE PROCEDURES ACT: RESPA is a federal law that allows consumers to
review information on known or estimated settlement costs once after application and
once prior to or at a settlement. The law requires lenders to furnish the information after
application only.

REAL ESTATE SALES PROFESSIONAL: A person licensed to negotiate and transact


the sale of real estate on behalf of the property owner.

REAL ESTATE SETTLEMENT PROCEDURES ACT: A consumer protection law that


requires lenders to give borrowers advance notice of closing costs.

49
REAL PROPERTY: Land, buildings and anything attached to land or buildings. Buildings
are attached to land and are considered real property.

REALTOR: A real estate broker or an associate holding active membership in a local


real estate board affiliated with the National Association of Realtors.

RECASTING: Restructuring a loan with a new interest rate and term. It may be the
same loan from the same lender, but the terms change. FHA has a formal procedure to
recast loans to assist homebuyers to stay in their houses.

RECESSION: Cancellation of a contract.

RECONVEYANCE: An instrument used to transfer title from a trustee to the equitable


owner of real estate, when title is held as collateral security for a debt. Most commonly
used upon payment in full of a trust deed. Also called a deed of Reconveyance or
release.

RECORDING: Filing documents affecting real property as a matter of public record,


giving notice to future purchasers, creditors, or other interested parties. Recording is
controlled by statute and usually requires the witnessing and notarizing of an instrument
to be recorded.

RECORDING FEES: Money paid to the lender for recording a home sale with the local
authorities, thereby making it part of the public records.

REDEMPTION: The right of a mortgagor to redeem property by paying a debt before


sale at foreclosure; the right of an owner to reclaim his or her property after it has been
sold to settle claims for unpaid taxes.

REFINANCE: Revision of the payment schedule of existing debt.

REGULATION Z: Federal Reserve regulation issued under the Truth-In-Lending Law,


which requires that a credit purchaser be advised in writing of all costs connected with the
credit portion of the purchase. -Residence appraised for $200,000

REINSURANCE: A contract which one insurer makes with another to protect the first
insurer, wholly or partially, against loss or liability by reason of a risk under a separate
and distinct contract as insurer of a third party. Reinsurance differs from coinsurance in
that, in the case of reinsurance, only one insurer has a direct contractual relationship
with the insured, and that insurer (commonly referred to as the "lead insurer")
purchases reinsurance in order to lessen or spread the risk. The "lead insurer" will
assume a risk up to a limit (the amount of which is referred to as the "retention") and
any loss, which exceeds this limit, would be borne by the reinsures. In the case of
coinsurance, each coinsurer has a direct contractual relationship with the insured, and
the risk is shared in agreed-upon proportions from the first dollar of loss.

50
RELEASE OF LIABILITY: The document that relieves a person who is obligated to pay
a loan of any further obligations. It may be obtained when a buyer takes over the
payments on the seller's old loan, provided the buyer meets the lender's standards for
income and creditworthiness. If granted, the release of liability means the seller will not
be responsible if the buyer fails to pay.

REPAYMENT PLAN: A plan for repaying missed payments over time.

REQUEST FOR NOTICE: A recorded document requiring a trustee send a copy of a


Notice of Default or Notice of Sale concerning a specific deed of trust in foreclosure to
the person who filed the document.

REQUIREMENT: A demand or need; in title insurance a requirement is listed on the


commitment and must be satisfied before closing.

RESTRICTIONS: Often called restrictive covenants. Provisions in a deed or other


instrument whereby an owner of land prohibits or restricts certain use, occupation or
improvement of the land.

REVERSE ANNUITY MORTGAGE: Form of mortgage in which the lender makes


periodic payments to the borrower using the borrower's equity in the home as
Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage
loam is paid in full. Also called a "release of mortgage."

REVOLVING LOAN: A loan with a credit limit that is repaid by proportional payments. The
payment percentage increases as the outstanding balance increases. -Second mortgage
of $100,000

RIGHT OF REDEMPTION: A borrowers right to reacquire property lost due to a


foreclosure.

RIGHT OF SURVIVORSHIP: Right of the surviving joint owner to succeed to the


interests of the deceased joint owner. This right is a distinguishing feature have a joint
tenancy or tenancy by the entirety.

RIGHT OF WAY: (1) The right to pass over property owned by another, usually based
upon an easement. (2) A path or thoroughfare over which passage is made. (3) A strip
of land over which facilities such as highways, railroads or power lines are built.

S
SALE AND LEASE BACK: A situation in which the grantor in a deed to a parcel of
property sells it and retains possession by simultaneously leasing it from the grantee.

51
SCIRE FACIAS: A court command to a borrower to show up at a hearing and show
cause why a foreclosure should not be authorized.

SEARCH: In title industry parlance, a careful exploration and examination of the public
records in an effort to find all recorded instruments relating to a particular chain of title.

SEASONED LOAN: A loan which as been outstanding for a period of time. In some
cases you cannot refinance the loan until it is a "Seasoned Loan". This can cause
problems when getting a second and then trying to refinance a first mortgage. In some
cases you may have to wait until your second becomes "Seasoned".

SEASONONG: This term refers to the pay history on a loan. A loan that is "seasoned"
will have at least six months of pay history. Notes that are brand new, having only a few
payments received, are non-seasoned. Non-seasoned loans are more risky than
seasoned loans because they lack a pay history.

SECOND MORTGAGE: ("Junior Mortgage") a mortgage, which is subordinate to or lower


in authority than a first mortgage.

SECONDARY MARKET: The primary market is where securities are originally created.
A secondary market is where securities are bought and sold after their original issue.

SECONDARY MORTGAGE MARKET: The buying and selling of existing mortgages.

SECURITIZATION: The pooling and selling of huge portfolios of privately held


mortgages to public investors (in a secondary market).

SECURITY DEPOSIT: a renter or a lessee pays a security deposit. If there are no


damages at the end of the rental period or lease the money is returned.

SECURITY INTEREST: Rights in collateral assigned as consideration for debt.

SELLER: One who sells real estate.

SENIOR LIEN: A lien that has been recorded before another. A lien that was recorded
after a previous lien is called a junior lien. Liens that are in first position have more legal
rights than junior liens.

SEPARATE PROPERTY: Real property owned by one spouse exclusive of any interest
of the other spouse.

SERVICER: An organization that collects principal and interest payments from


borrowers and manages borrowers’ escrow accounts. The servicer often services
mortgages that have been purchased by an investor in the secondary mortgage market.

52
SERVICING: Servicing lenders: collect mortgage payments and then disperse principal,
interest, and in most cases, taxes and insurance. The mortgage company you make
your payments to is the Servicing Lender.

SETTLEMENT STATEMENT: The computations of costs payable at closing that


determines the seller’s net proceeds and the buyer’s net payment (referred to as a HUD-
1).

SHARED APPRECIATION MORTGAGE: A Mortgage in which a borrower receives a


below-market interest rate in return for which the lender (or another investor such as a
family member or other partner) receives a portion of the future appreciation in the value
of the property. May also apply to mortgage where the borrowers shares the monthly
principal and interest payments with another party in exchange for part of the
appreciation.

SHORT PAYOFF: A workout procedure in which the lender accepts less than the full
balance due on the loan as part of a deal in which the borrower cooperates with the
lender to obtain a quick sale. The lender skips foreclosure, which would take time, cost
money and expose the house to vandalism, further declines in market value, and
marketing costs for resale.

SIMPLE ASSUMPTION: An assumption arrangement in which the seller conveys title to


the property to the buyer and moves out while the buyer moves in and makes payments
on the old loan. The lender does not approve the buyer's credit and income, so the deal
may be called a no approval loan. However, the seller remains liable on the old loan
under such circumstances. Only loans without strong "due on sale" clauses are
assumable without approval. This includes DVA loans made before March 1, 1988, FHA
loans made before December 15, 1989, and conventional loans made before 1973.

SPECIAL ASSESSMENT: An assessment made against a property to pay for


improvements to a property.

SQUATTER: One who settles upon unoccupied land without legal claim or authority.
(See Adverse Possession.)

STANDING LOAN: A loan requiring interest payments only, the principal being paid upon
maturity.

STARTER: (movable) - A copy of the last policy or report issued by a title insurer which
described the title to land upon which a new search is to be made. In some states, this
is called a back title letter or back title certificate.

STATUTORY FEE: Administrative cost of closing a loan.

53
STRAIGHT NOTE: A promise to repay a loan, signed by the debtor and containing the
date executed, amount owing and to whom, date due (or on demand), rate of interest and
how it is payable. A straight note is not amortized.

STRAIGHT TERM MORTGAGE: A mortgage calling for principal to be paid in a lump sum
at maturity.

STREET IMPROVEMENT BONDS: Interest-bearing bonds issued, usually by a city or


county, to secure the payment of assessments levied against land to pay for street
improvements. The property owner may pay off the particular assessment against the
property, or may allow the assessment to "go to bond" and pay installments of principal
and interest over a period of years, usually at the city or county treasurer's office. The
holder of a bond received payments from these offices.

SUBDIVISION: An area of land laid out and divided into lots, blocks, and building sites,
and in which public facilities are laid out, such as streets, alleys, parks, and easements
for public utilities.

SUBJECT TO: The recognition of an existing lien or encumbrance but not assuming
personal liability thereof. The original trustor is responsible for any deficiency if there is a
foreclosure of a deed of trust.

SUBORDINATION AGREEMENT: An agreement by which one encumbrance (for


example, a mortgage) is made subject to another encumbrance (for example, a
mortgage) is made subject to another encumbrance (perhaps a lease). To "subordinate"
is to "make subject to," or to make of lower priority.

SUBORDINATION: A lender with a first claim against assets of the borrower agrees to a
second or subordinate position. This happens in business start-ups if an investor loans
money to a new corporation and a bank loan is also obtained. The bank would require the
other lender to sign a Subordination Agreement.

SUMMARY JUDGMENT: A legal procedure in which one side wins a lawsuit without a
trial by showing that the case involves no material fact issues, but only legal issues that
can be decided by the judge. If the judge agrees, then one side wins by Summary
Judgment.

SURACE RIGHTS: Rights to enter upon and use the surface of a parcel of land, usually
in connection with oil and gas lease or other mineral lease. They may be "implied" by
the language of the lease (no explicit reservation or exception of the surface rights) or
"explicitly" set forth.

SURVEY: The measurement by a surveyor of real property, which delineates the


boundaries of a parcel of land. An ALTA survey additionally delineates the exact
location of all improvements, encroachments, easements and other matters affecting

54
the title to the property in question. A title insurance company may require a survey
whenever the company is requested to issue an ALTA Extended Coverage Policy.
A drawing or map showing the precise legal boundaries of a property and the location of
improvements, easements, rights of way, encroachments, and other physical features.

T
TAX DEED: A deed executed by the tax collector to the state, county or city when no
redemption is made from a tax sale.

TAX SALE: Property on which current county taxes have not been paid is "sold to the
state." No actual sale takes place - the title is transferred to the state and the owner may
redeem it by paying taxes, penalties and costs.
If it has not been redeemed within five years, the property (referred to as "tax sold
property") is actually deeded to the state. (Similar "sales" to cities take place for unpaid
city taxes.)

TEMPORARY BUYDOWN: Money, usually equal to a percentage of the loan amount,


advanced by an individual (builder, seller or Buyer, etc.) to subsidize the monthly
payments for a home mortgage for an initial period of years. Example 3-2-1, the first
year the note rate would be reduced by 3% the rate would be reduced 2% for year two
and then reduced only 1% for year three. The initial note rate would return on year 4.
The borrower id charged up front for the buy-down to the loan. For this example,
roughly 6% up front.

TEMPORARY INJUNCTION: A court order that freezes the status quo for an extended
time period, typically until a full court trial on the merits of a case can be held. It often
requires posting a bond.

TEMPORARY RESTRAINING ORDER: (TRO) A court command that freezes the


status quo for a short period of time until other legal relief is awarded or a settlement
between the litigants can be reached.

TENANCY BY ENTIRETY: A type of joint ownership of property that provides rights of


survivorship and is available only to a husband and wife.

TENANCY IN COMMON: A type of joint ownership in a property without rights of


survivorship.

TENANT AT WILL: One who holds possession of premises by permission of the owner
or landlord, but without agreement for a fixed term of possession.

TENEMENTS: Possessions that are permanent and fixed to land.

55
TERM LOAN: To a business borrower, a term loan is a loan with equal principal payments
and interest payments calculated on principal balance due. Term loan is sometimes used
as a synonym for an installment loan.

TESTATE: Leaving a legally valid will at death. See Intestate.

TITLE: (1) A combination of all the elements that constitute a legal right to own,
possess, use, control, enjoy and dispose of real estate or a right or interest therein. (2)
The rights of ownership recognized and protected by the law.

TITLE COMPANY: A company that specializes in examining and insuring titles to real
estate.

TITLE DEFECT: Unresolved claim against the ownership of property that prevents
presentation of a marketable title. Such claims may arise from failure of the owner's
spouse, or former part owner, to sign a deed, current liens against the property, or an
interruption in the title's records of a property.

TITLE INSURANCE: Insured statement of the condition of title or ownership of real


property. For a one-time-only premium, the named insured and their heirs are protected
against title defects, liens and encumbrances existing as of the date of the policy and
not specifically excluded from it. In the event of a claim, the Title Company provides
legal defense from the policyholder and pays any covered losses incurred as a result of
such claim.

TITLE PLANTS: A filing of all recorded information to real property, paralleling the
records of the county recorder's office, although the filing system may be different.

TITLE REPORT: Document indicating the current state of the title, such as easements,
covenants, liens, and any other defects. The title report does not describe the chain of
title.

TITLE SEARCH: A review of all recorded documents affecting a specific parcel of land
to determine the present condition of title. An experienced title officer or attorney
reviews and analyzes all material relating to the search, then determines the sufficiency
and status of title for insurance of a title insurance policy. A check of public records to
determine current ownership and liens on a parcel of real estate.

TRAILING SPOUSE INCOME: When his or her employer has transferred a borrower to
a new area, and he/she is purchasing a home there, it is possible that the spouse's
income may be used to qualify for the mortgage, even if the spouse has not yet found
employment.

TRANSFER TAX: A tax imposed upon transfers of title to real property, based on
purchase price or money changing hands. (Also called Documentary tax.)

56
TREASURY INDEX: An index that is used to determine interest rate changes for certain
adjustable rate mortgage (ARM) plans. It is based on the results of auctions that the U.S.
Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury’s
daily yield curve, which is based on the closing market bid fields on actively traded
Treasury securities in the over-the-counter market.

TRIPLEX: Most commonly a single structure designed with three separate living units.

TRUST DEED: Deed of trust.

TRUSTEE: One who holds normal title to real property under the terms of a deed of trust.

TRUSTEE’S SALE: A non-judicial foreclosure sale under a deed of trust.

TRUSTOR: The borrower under a deed of trust. One who deeds his property to a trustee
as security for the repayment of a loan.

TRUTH-IN-LENDING ACT: A federal law that requires lenders to fully disclose, in writing,
the terms and conditions of a mortgage, including the APR (Annual Percentage Rate) and
other charges.

TWO-STEP-MORTGAGE: Mortgage in which the borrower receives a below-market


interest rate for a specified number of years (most often seven or 10), and then receives
a new interest rate adjusted (within certain limits) to market conditions at that time. the
lender sometimes has the option to call the loan due with 30 days notice at the end of
seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

U
UNDER WATER HOME: A house that is worth less than what is owed on the mortgage.

UNDERLYING FINANCING: A mortgage, deed of trust, etc., prior to (underlying) a land


contract, mortgage, etc., on the same property.

UNDERWRITING: The process of evaluating a loan application to determine the risk


involved for the lender. It involves an analysis of the borrower’s creditworthiness and the
quality of the property itself.

UNDERWRITING COMPANY: A title firm that conducts title searches but is not
qualified to insure, and therefore issues policies of a qualified title insurer (underwriter)
in return for a portion of the premium.

UNDIVIDED INTEREST: Ownership of real estate by joint tenants or tenants in


common under the same title.

57
UNENCUMBERED: Free of liens and other encumbrances. Free and clear.

UNSECURED NOTE: A loan granted on the basis of a borrower's creditworthiness and


signature; not secured by collateral.

UPSET BID: A recorded bid placed after a foreclosure sale has ended that is higher
than the highest bid received at the actual foreclosure sale.

UPSIDE DOWN HOME: A house that is worth less than what is owed on the mortgage
it secures.

URAR: Uniform Residential Appraisal Report

USUARY: Interest charged in excess of the legal rate established by law.

V
VA LOAN: A loan that is guaranteed by the U.S. Department of Veterans Affairs.

VA MORTGAGE FUNDING FEE: Premium of up to 1-7/8 percent (depending on the


size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage
with no down payment, this would amount to $1,406 either paid at closing or added to
the amount financed.

VARIABLE INTEREST RATE: An interest rate, which fluctuates as the prevailing rate,
moves up or down. In mortgages there are usually maximums as to the frequency and
amount of fluctuation.

VENDEE: The buyer or purchaser, particularly the purchaser under a real estate or land
contracts.

VENDOR: The seller, particularly the seller of realty under a real estate land contract.

VENDOR’S LIEN: An implied lien given by law to a vendor for the remaining unpaid and
unsecured part of a purchase price.

VERIFICATION OF DEPOSIT (VOD): Document signed by the borrower’s financial


institution verifying the status and balance of his/her financial accounts.

VERIFICATION OF EMPLOYMENT (VOE): Document signed by the borrowers


employer verifying his/her position, salary, and dates of employment.

VERIFICATION OF MORTGAGE (VOM): Document signed by the borrowers mortgage


lender verifying that he/she is current on her mortgage and a 12 to 24 month history of

58
the mortgage payments. It also provides the balance and verifies the mortgage
payments.

VERIFICATION OF RENT (VOR): In the case of Renters, the mortgage lender gets a
signed document from the Landlord of the renter. This will give the lender a 12 to 24
month history of how well the rental payments have been made.

VESTED: An immediate fixed right, interest or title in real property, even though the right
to possession might not occur until some time in the future.

VOID: Having no legal force or effect.

W
WAGE EARNER PLAN: A name for Chapter 13 bankruptcy.

WAIVER: The voluntary relinquishment or surrender of a right.

WAREHOUSING: The depositing of loans by a lender such as a mortgage company, in a


bank, for sale at a later date. The mortgage company then borrows against these loans.
This is done when the mortgage company wishes to assemble a block of loans for sale, or
when the company believes that the discount rate is dropping and the loans may be sold
for a higher price in the future.

WARRANT: To legally assure that the title conveyed is good and possession will be
undisturbed.

WARRANTY DEED: Deed, which warrants and guarantees the title from seller to buyer.

WILL: A written expression of the desire of a person as to the disposition of that


person's property after death. Must follow certain procedures to be valid.

WITHOUT RECOURSE: Words used in endorsing a note or bill to denote that the future
holder is not to look to the endorser in case of nonpayment.

WRAP AROUND LOAN: The debt secured includes an existing debt already on the
property. The payments made to the holder of the wraparound include payments due on
the existing loan and the holder must forward the appropriate portion of each payment
to the existing note holder. A wrap around loan is a subordinate deed of trust or real
estate contract that includes the balance due on the existing first lien and contains
provisions for the seller to remain responsible

WRIT OF EXECUTION: A court order authorizing the holder to seize and sell a debtor's
property to pay off a judgment.

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WRIT OF POSSESSION: A court document that authorizes a constable or other officer
of the law to break down a tenant's door, drag the tenant from the premises and throw
the tenant's belongings out of the house or apartment.

WRIT: An order or mandatory process in writing issued in the name of a court or judicial
officer commanding the person to whom it is directed to perform or refrain from
performing a specified act.

WRONGFUL FORECLOSURE: A foreclosure that was legally improper and that


caused a borrower to suffer damages.

Y
YIELD: The return of profit to an investor on an investment, stated in a percentage of the
amount invested.
Z
ZONE: An area of land set off for a particular use or uses, subject too certain restrictions.

ZONING: Government regulation, through zoning ordinances and regulations, of the


uses of property within specific areas.

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