Abstract of Title: A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Abstract: Notes made by a title examiner based on his examination of the land records providing a concise summary of the transactions affecting the property.

Abutting: The joining, reaching, or touching of adjoining land. Abutting pieces of land share a common boundary.

Acceleration: The right of the lender to demand the immediate repayment of the mortgage loan balance upon the default of the borrower, or by using the right vested in the Due-on-Sale Clause (demands immediate repayment if the home is sold).

Acceleration clause: Clause in the mortgage allowing the lender to demand payment immediately due and payable upon an event (the borrower defaults on the loan or transfers title to another individual without informing lender).

Accidental Agency: See Implied Agency

Accounting: An agent is obligated to account for all money or property that belongs to his/her principal entrusted to that agent. The duty compels a real estate broker to safeguard any money, deeds, or other documents entrusted to them relative to their client’s transactions of affairs. See also Fiduciary Duties.

Accretion: Addition to land through natural causes, such as the building up of a beach through natural wave action.

Acknowledgement: Declaration made by a person to a notary public, or other public official authorized to take acknowledgements, that the instrument was executed by him and that it was his free and voluntary act.

Acre: Measure of land equal to 43,560 square feet.

Action to Quiet Title: A court action to establish ownership to real property. Although technically not an action to remove a cloud on a title, the two actions are usually referred to as “Quiet Title” actions.

Ad Valorem: Designates an assessment of taxes against property.

Adjustable rate mortgage: Mortgage where the interest rate is adjusted periodically based on a pre-selected index. Also sometimes known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Adjusted basis: The cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

Adjustment date: The date the interest rate changes on an adjustable-rate mortgage.

Adjustment period or interval: The period elapsing between adjustment dates for an adjustable-rate mortgage (ARM).

Adjustments: Money that the buyer and sellers credit each other at the time of closing. Often includes taxes and down payment.

Administator/Administratrix: A person appointed by a court to settle the estate of a deceased person who dies without a will.

Adverse Possession: The right of an occupant of land to acquire title against the real owner, where possession has been actual, continuous, hostile, visible, and distinct for the statutory period.

Affidavit: Written statement signed and sworn to before some person authorized to take an oath.

Affordabilityh Analysis: An analysis of a buyers ability to afford the purchase of a home. Reviews income, liabilities, and available funds, and considers the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that are likely.

Agency: A relationship in which the agent is given the authority to act on behalf of another person (principal). In real estate transactions, usually the seller is the principal, and the broker is the agent. In an agency relationship, the principal delegates to the agent the right to act on his or her behalf in business transactions and to exercise some discretion while so acting. The agent has a fiduciary relationship with the principal and owes to that principal the duties of Loyalty, Obedience, Disclosure, Confidentiality, Reasonable Care and Diligence, and Accounting. Also see Buyer’s Broker, Exclusive Buyer’s Broker, Seller’s Broker.

Agreement: A meeting of minds. A change to the correct or alteration to the original document/agreement without changing its principal essence.

Agreement of Sale: A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties. Usually (but not always) secured by the payment of earnest money. In some states it is known as a Purchase Agreement, Land Contract, or Earnest Money Contract.

Alienation Clause: A clause in a mortgage which gives the lender the right to call the entire loan balance due if the property is sold also known as due-on-sale clause.

Amenities: Nonmonetary benefits and satisfactions derived from property ownership, such as a pleasant view, pride in home ownership, etc.

Amortization: Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

Amortization schedule: A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Amortization Term: The length of time required to amortize the mortgage loan expressed as a number of months. For example, 360 months is the amortization term for a 30-year fixed-rate mortgage.

Amortized Mortgage: A mortgage which requires periodic payments which include both interest and principal. Also see Self Amortized Loan.

Annual Percentage Rage (APR): The interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account point and other credit cost. the APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Antitrust Laws: Federal and state laws prohibiting, among other things, monopolies, monopolistic practices, restraint of trade, and price fixing.

Application: An initial statement of personal and financial information which is required to approve your loan.

Application Fee: Fees that are paid upon application. Charges for property appraisal and a credit report are usually included in the application fee.

Appointed Agency: Also known as Split Agency, Designated Agency. Agency relationship where the Broker appoints one agent in the office to represent the seller and another agent in the same office to represent the Buyer. Caution: This is a relatively new concept and has not been tested in the Courts yet. Prior relationships or conversatins between the 2 agents appointed could possibly create a conflict of interest.

Appraisal: An opinion by a licensed appraiser of the fair market value of a property. An expert judgment or estimate of the quality or value of real estate, made by an appraiser, as of a given date. Most states require licenses for appraisers.

Appraisal fee: The charge for estimating the value of property offered as security.

Appraised Value: An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. An appraisal is based primarily on comparable sales.

Appraiser: An individual qualified by education, training, and experience to estimate the value of real property and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

Appreciation: An increase in value or worth of property. Opposite of depreciation.

Approved attorney: An attorney authorized by a title insurance company to handle closings and render title opinions.

Appurtenance: Anything attached to the land or used with it passing to the new owner.

Arrears: Payment made after its due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.

Asking price: The price placed on property for sale.

Assessment: A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assessment Base: The total assessed value of all property in a given assessment district.

Assessed Value: The valuation placed on property by a public tax assessor for purposes of taxation.

Assessor: A local government official who determines the value of the property for taxation purposes.

Asset: Any possession that has value in an exchange.

Assign: To transfer interest.

Assignee: One who receives an assignment or transfer of rights. An assignment of a contract transfers the right to buy property.

Assignment: The transfer of a mortgage from one person to another.

Assignor: The one who assigns to another person.

Assumability: When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to the new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. Assumability can help you attract buyers if you sell your home.

Assumable mortgage: A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.

Assumption: The term applied when a buyer assumes the seller�s mortgage.

Assumption fee: The fee paid to a lender (usually by the purchaser of real property) when an assumption takes place.

Assumption of Mortgage: The transfer of title to property to a grantee wherein he assumes liability for payment of an existing note secured by a mortgage against the property.

Attached homes: A home that has one or more common walls adjoining another home. Condominiums and row houses are attached homes.

Attachment: Method by which a debtor’s property is placed in the custody of the law and held as security pending outcome of a creditor’s suit.

Attorney in fact: A type of agency relationship where one person holds a power of attorney allowing him to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal.

Attorney’s Opinion of Title: An instrument written and signed by the attorney who examines the abstract of title, stating his opinion as to whether a seller may convey good title.

Auction: A public sale of property to the highest bidder.

Ballon Payment: The final lump sum payment that is due at the termination of a balloon mortgage.

Bankruptcy: By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Basis: Original cost of property plus value of any improvements put on by the seller minus the depreciation taken by the seller.

Beneficiary: The lender named on the mortgage note. One entitled to the proceeds of property held in trust, also proceeds of wills, insurance policies, or trusts.

Bill of sale: A written instrument given to pass title to personal property from a seller to a buyer.

Binder (Purchase): Same as ‘Agreement of Sale’.

Binder (title commitment): A report issued by a title insurance company setting forth the condition of title and setting forth conditions under which the title company will issue a title insurance policy.

Biweekly Mortgage: A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time.

Biweekly Payment Mortgage: A plan to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment required if the loan were a standard 30-year fixed-rate mortgage. The result for the borrower is a substantial savings in interest.

Blanket Mortgage: One mortgage on a number of parcels of real property.

Blockbusting: The illegal practice of inducing panic selling in a neighborhood by making representations of the entry, or prospective entry, of members of a minority group. See Panic Peddling and Fair Housing.

Bond Market: Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

Borrower (Mortgagor): One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Breach of Contract: Failure, without legal excuse, of one of the parties to a contract to perform according to the contract.

Bridge Financing: A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing.

Bridge Loan: A second trust that is collateralized by the borrower’s present home allowing the proceeds to be used to close on a new house before the present home is sold. Also known as “swing loan.”

Broker: Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

Brokerage: For a commission or fee, bringing together parties interested in buying, selling, exchanging, or leasing real property.

BTU (British Thermal Unit): Unit of heat required to raise one pound of water one degree Fahrenheit.

Building code: Government regulations specifying minimum construction standards.

Building line (Setback): A line fixed at a certain distance from the front and/or sides of a lot beyond which no structure can project. See Setback.

Bundle of Rights: Ownership in real property implies a group of rights, such as the right of occupancy, use and enjoyment, the right to sell in whole or in part, the right to control the use, the right to bequeath, the right to lease any or all of the rights, the right to the benefits derived by occupancy and use of the property, etc.

Buydown: A cash payment, usually measured in points, to a lender in order to reduce the interest rate a borrower must pay. The seller may increase the sales price to cover the cost of the buydown. Consider the fact that the mortgage interest may be deductible from your income taxes. You could be better off getting a lower price and paying the higher interest rate. Consult your CPA.

Buyer’s Broker (Buyer’s Agent): A licensee who represents only the buyer in a transaction, regardless of whether compensation is paid by the buyer or the listing broker through a commission split. Brokers who conduct their business by representing buyers only are Exclusive Buyers Broker.

Call option: Similar to the acceleration clause.

Cap: A limit on how much the interest rate or monthly payment of an Adjustable Rate Mortgage (ARM) can change, either at each adjustment or during the life of the mortgage.

Capital: Accumulated wealth. A portion of wealth which is set aside for the production of additional wealth specifically, the funds belonging to the partners or shareholders of a business, invested with the expressed intention of their remaining permanently in the business.

Capital Gain: Taxable profit on the sale of an appreciated asset.

Capitalization Rate: The rate of expected return on investment property. A ratio of income to value.

Caps (interest): Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage which may change per year and/or the life of the loan.

Caps (payment): Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

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.).

Cash out: Receiving money back when refinancing your present mortgage.

Cash out refinance: When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”

Caveat Emptor: A legal term meaning “let the buyer beware”.

CCCS: If you ever want to get a mortgage again in the next 7 years, avoid turning your debts over to Consumer Credit Counseling Services or any other debt management service. There used to be a time when this program really made sense, and it still ought to – but now most lenders prefer not to touch you until the CCCS is off of your credit report.

Ceiling: The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Certificate of deposit: A time deposit held in a bank which pays a certain amount of interest to the depositor.

Certificate of deposit index: One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

Certificate of eligibility: The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business and mobile homes. Certificates of eligibility may be obtained by sending form DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of occupancy: Document issued by a local governmental agency that states a property meets the local building standards for occupancy.

Certificate of reasonable value: An appraisal of property for the purpose of insurance by the Veteran’s Administration.

Certificate of title: A certification issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale.

Certificate of veteran status: The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status. This document enables veterans to obtain lower down payments on certain FHA insured loans).

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

Cestui que trust: One having an equitable interest in property, legal title being vested in trustee.

Chain of title: A history of conveyances and encumbrances of a property from some starting point, whereby the present owner derives title.

Change frequency: The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Channeling: The illegal practice of directing people to, or away from, certain areas or neighborhoods because of minority status.

Charge-off: When a lender has given up on your default, they may eventually write the debt off for tax or other bookkeeping purposes. This is noted on your credit report.

Chattel: Property that belongs to you.

Clear title: A land title that doesn’t have any liens (including a mortgage) against it.

Client: Person (or other entity such as a company) who employs the agent. Typically the seller is a client of the listing agent. The buyer can be a client (buyer’s broker) or customer (seller’s broker). A Client is also known as the Principal.

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 charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

Closing costs: These are expenses – over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc. Closing costs will vary according to the area country and the lenders used.

Closing statement: A detailed written summary of the financial settlement of a real estate transaction, showing all charges and credits made, and all cash received and paid out.

Cloud on title: A detailed written summary of the financial settlement of a real estate transaction, showing all charges and credits made, and all cash received and paid out.

Co-borrower: An additional individual who is both obligated on the loan and is on title to the property.

COFI: These are expenses – over and above the price of the property- that are incurred by buyers and sellers when transferring ownership of a property. Closing costs normally include an origination fee, property taxes, charges for title insurance and escrow costs, appraisal fees, etc..

Collateral: Something of value deposited with a lender as a pledge to secure repayment of a loan.

Collections: Obviously a serious late pay situation, and ugly on a credit report. When an account goes to collection, it is past 90 days late, and usually indicates you have made no effort to correct the problem. Collections can stay on your credit report as long as the creditor keeps updating the file every seven years, until it is paid. From the time you pay off a collection account, it will stay on your credit report as a “Paid Collection” for seven years.

Co-maker: Equally responsible for repayment as the borrower.

Commingling: The illegal practice of combining or mixing client’s funds with the agent’s own funds.

Commission: The compensation paid to a licensed real estate broker or by the broker to the salesman for services rendered. Usually a percentage of the selling price of the property.

Commitment: A written promise to make or insure a loan for a specified amount and on specified items.

Common area assessments: They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas. Also known as Homeowners Association Fees.

Common areas: Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners.

Common law: An unwritten body of law based on general custom in England and used to an extent in some states.

Community property: In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances.

Community Reinvestment Act (CRA): The federal law which requires federally regulated lenders to describe the geographical market area they serve. Deposits from that area are to be reinvested in that area whenever practical.

Comparables: Properties which are similar to a particular property and are used to compare and establish a value for that property.

Compound interest: Interest which is computed on the principal and any unpaid accumulated interest. Also see Simple interest.

Condemnation: The act of taking private property for public use, through due process under the right of Eminent Domain, with compensation to the owner.

Condominium: A form of real estate, usually a dwelling with individual ownership of separate portions of the building plus shared ownership of the common areas.

Condominium conversion: Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium hotel: A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

Confidentiality: An agent is obligated to safeguard his/her principal’s lawful confidences and secrets. Therefore, a real estate broker must keep confidential any information that may weaken a principal’s bargaining position.

Construction loan: Short term financing of real estate construction. Generally followed by the long term financing called a “take out” loan, issued upon completion of improvements.

Consumer Reporting Agency: An organization that handles the preparation of reports used by lenders to determine a potential borrower’s credit history. The agency gets data for these reports from a credit repository and from other sources.

Contingency: The dependence upon a stated event which must occur before a contract is binding. A common contingency is a clause stating that the buyer must sell their present home before the contract becomes binding.

Contingent fee: Any fee that is earned upon the occurence of some specified event. Example: Listing contracts usually specify that the listing agent will be paid a fee at closing.

Contract: An oral or written agreement to do or not to do a certain thing.

Contract for deed: A contract for the sale of real estate where the deed (title) of the property is transferred only after all the payments have been made. Also known as a land contract, conditional sales contract, or installment contract.

Contract for Exchange of Real Estate: A contract for the sale of real estate in which the consideration is paid wholly or partly in real property instead of cash.

Contract for sale: The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer. Also known as a Land Contract, Contract of Purchase, Purchase Agreement, or Earnest Money Contract.

Contract sales price: The full purchase price as stated in the contract.

Conventional loan: A real estate loan which is not insured by the FHA or guaranteed by the VA.

Convention mortgage: Refers to home loans other than government loans (VA and FHA).

Conversion clause: A provision in an ARM allowing the loan to be converted to a fixed-rate at some point during the term. Usually conversion is allowed at the end of the first adjustment period. The conversion feature may cost extra.

Convertable ARMs: ARMs that have a provision allowing the borrower to convert the mortgage to a fixed rate term. The conversion feature is outlined in the mortgage note and has certain restrictions.

Conveyance: Written instrument, such as a deed or lease, that evidences transfer of some ownership interest in real property from one person to another.

Cooperating agent: A real estate agent who sells a property. The selling agent may be (1) the subagent or listing agent of the seller (2) a buyer’s agent or (3) a dual agent. Also called a selling agent or participating agent.

Cooperative housing: An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors.

Cost approach to value: An estimate of value based on current construction costs, less depreciation, plus land value. See also both Income and Market Data Approach to Value.

Cost basis: Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on permanent improvements and other costs, minus any depreciation claimed on tax returns over the years.

COFI (Cost of funds index): One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans.

Cost plus contract: A building contract setting the builder’s profit as a set percentage of the actual cost of labor and materials.

Counter offer: An offer made in response to a previous bid.

County: A division within a state, usually encompassing one or more cities or towns. In Louisiana this division is known as a Parish.

Covenenant: 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.

Credit: An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit history: A record of an individual’s repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.

Credit limit: The maximum amount that you can borrow under a home equity plan.

Credit report: A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

Credit repository: An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Credit risk score: A credit risk score is a statistical summary of the information contained in a consumer’s credit report. The most well known type of credit risk score is the Fair Isaac or FICO score, which is a mathematical summary calculation that assigns numerical values to various pieces of information in the credit report. The overall credit risk score is highly relative in the credit underwriting process for a mortgage loan.

Creditor: A person to whom money is owed.

Cul-de-Sac: A dead end street which widens sufficiently at the end to permit an automobile to make a “U” turn.

Customer: A buyer who is working with an agent who represents the seller. The term may also define a seller who is working with an agent who represents the buyer.

Debt service: The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Debt-service ratio: The measurement of debt payments to gross household income which may include, in addition to the main wage earner’s salary, salaries of other wage earners, commissions, bonuses, overtime, etc.

Debt-to-income ratio: The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

Deceptive Trade Practices Act: Part of the federal Consumer Protection Act originally passed in 1973 and made specifically applicable to real estate in 1975, specifically prohibiting a lengthy number of false, misleading and deceptive acts or practices.

Declaration of restrictions: A set of restrictions filed by a subdivider to cover an entire tract or subdivision.

Dedication: The voluntary giving of private property to some public use by the owner, as the dedication of land for streets, schools, etc. in a development.

Deed: A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee.

Deed of trust: Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary.

Deed of trust rider: The document required by the lender to be recorded along with the security instrument for an ARM.

Deed restriction: Restrictions placed on use of real property by writing in a deed to control use and occupancy of the property by future owners. Example: Developers often place deed restrictions that require that all structures have a brick exterior.

Deed-in-lieu: Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu.

Default: Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Defeasanse: A provision or condition in a deed or in a separate instrument which, being performed, renders the instrument void.

Defective title: Title to real property which lacks some of the elements necessary to transfer good title.

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.

Deficiency judgment: Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the loan(s) and accrued interest.

Delinquency: Failure to make payments on time. This can lead to foreclosure.

Delivery: The actual transfer of the deed, or an act of a seller showing intent to make a deed effective, without which, there is no transfer of title to the property.

Department of Veterans Affairs (VA): An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Deposit: A deposit made by the buyer as evidence of good faith in offering to purchase real estate and to secure performance of the contract. Earnest money is typically held by a title company, in an escrow account, during the period between acceptance of the contract and the closing. If the sale goes through, the earnest money is usually applied against the downpayment. If the sale does not go through, the earnest money will be forfeited or lost unless the agreement of sale expressly provides that it is refundable. Also known as Earnest Money Deposit.

Depreciation: Decrease in value to real property or improvements caused by deterioration, obsolescence, or economic factors.

Derogs: Derogatory credit history can result from several various causes, and it can have different types of results on your credit report:

Descent: Acquisition of property through inheritance laws when there is no will (when a person dies Intestate).

Designated agency: Agency relationship where the Broker appoints one agent in the office to represent the seller and another agent in the same office to represent the Buyer. Also known as Appointed or Split Agency.

Devise: A transfer of real estate by will or last testament.

Devisee: One to whom real estate is given by will.

Devisor: A testator who leaves real estate.

Direct endorsement: A lender that can complete the processing and closing of an FHA loan without prior approval from FHA.

Direct reduction mortgage: An amortized mortgage in which principal and interest are computed on the remaining balance.

Disbursements: Payments made during the course of an escrow or at closing.

Disclosure: An agent must disclose to the principal all known relevant and material information that pertains to the scope of the agency.

Discount (ARM): An ARM with an initial discount, the lender gives up a number of percentage points of interest to give you a lower rate and lower payments for part of the mortgage term. After the discount period, the ARM rate will probably go up depending on the index rate.

Discount points: The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $200,000 mortgage would equal $4,000).

Discount rate: The rate charged member banks who borrow from the Federal Reserve System. (2) The rate used to convert future income into present value.

Dispossess: To oust from land by legal process.

Documentary tax stamps: Stamps, affixed to a deed, showing the amount of transfer tax.

Dower: The rights of a widow to a portion of her deceased husband’s property.

Down payment: Money paid to make up the difference between the purchase price and the mortgage amount.

Dragnet clause: A clause in a mortgage or deed or trust which places the real estate as security for existing debts between the parties.

Dual agency: Representing the buyer and the seller in the same transaction by the same agent. Since there is an inherent conflict in Fiduciary Duties to two different principals, Dual Agency, at best, is a risky undertaking. All states require that Dual Agency must be disclosed to all parties to the transaction.

Due on sale: A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Due-on-sale-clause: A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Duress: Forcing action or inaction against a person’s will.

Earnest money contract: See Agreement of Sale.

Earnest money deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement: The right to use the land of another for a specific purpose, such as a right of way for utilities.

Economic Obselescence: Loss of value of real property due to external forces or events e.g., a sewer plant is built next door to the subject property. Also known as Functional Obsolescence.

Effective age: An appraiser�s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective interest rate: The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note.

Emblements: Annual crops produced by cultivation. They are deemed to be personal property.

Eminent domain: The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Encroachment: A fixture, or structure, such as a wall or fence, which invades a portion of a property belonging to another.

Encombrance: A cloud against clear, free title to the property which does not prevent conveyance, such as unpaid taxes, easements, deed restrictions, mortgage loans, etc.

Endorsement: Writing one’s name, either with or without additional words, on a negotiable instrument, or on a paper attached to it.

Entitlement: The VA home loan benefit is called an entitlement (i.e. entitlement for a VA guaranteed home loan). This is also known as eligibility.

Equal credit opportunity act: A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equal treatment or Different impact: It is possible to be guilty of discrimination even by treating two individuals the same. If the results of the treatment are discriminatory, or tend to exclude or otherwise harm members of a minority group, or have discriminatory impact, they are against the law.

Equity: A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

Escalator clause: The clause in a contract permitting adjustments of the payments.

Escheat: The reversion of property to the state in the event the owner thereof dies without leaving a will (intestate) and has no heirs to whom the property may pass by lawful descent.

Escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Escrow account: A third party account that holds money safely while a sale is in progress.

Escrow analysis: Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.

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 payment: The part of a mortgagor�s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Escrow reimbursement: In an assumption or wrap loan transaction, the buyer reimburses the seller for the current balance of his escrow (or impounded) funds.

Estate: The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Estate at will: Possession of property at the discretion of the owner.

Estate for years: Tenant has rights in real property for a designated number of years.

Estimate of value: An appraisal (the appraised value).

Estimated closing costs statement: The statement which lists the financial settlement between buyer and seller and the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

Estoppel: An impediment to a law of action, whereby one is forbidden to contradict or deny one’s own previous statement or act.

Et ux: Abbreviation for “et uxor”, meaning “and wife”.

Eviction: The lawful expulsion of an occupant from real property.

Examination of title: The report on the title of a property from the public records or an abstract of the title.

Exclusive agency: The practice of representing either the buyer or the seller in a transaction. Owes Fiduciary Duties to the party he represents.

Exclusive buyer agency: The practice of representing only buyers and never sellers in a transaction.

Exclusive buyres broker/agent: The practice of representing only buyers and never sellers in a transaction. The company never lists a seller’s property and thus never has a seller as a client. Agents never accept subagency that is offered by a seller’s agent.

Exclusive listing: A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Exclusive rights to sell: A Listing Agreement which gives the listing agent the right to sell the property for a specified time, with the right to collect a commission if the property is sold by anyone, including the owner, during the listing period.

Exclusive seller agency: The practice of representing only sellers and never buyers in a transaction.

Executor or Executrix: A person named in a will to carry out its terms and administer the estate.

Fair credit reporting act: A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

Fair housing laws: Federal, state, and local laws, particularly Title VIII of the 1968 Civil Rights Act, Title VI of the Civil Rights Act of 1964, and the Civil Rights Act of 1866, which forbid discrimination because of race, sex, color, religion, or national origin, in the selling or renting of homes or apartments, and in other specified transactions.

Fair market value: The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA): The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. FNMA was established for the purpose of purchasing loans from primary lenders (mortgage companies). FNMA is a private corporation and it’s stock is traded on the New York Stock Exchange. FNMA buys VA, FHA, and conventional mortgages from primary lenders.

Farmers Home Administration (FmHA): Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Bank: Provides liquidity to supervised financial service companies, such as savings and loans and credit unions. The bank system has several districts.

Federal Home Loan Board: The board which charters and regulates federal savings and loan associations, as well as controlling the system of Federal Home Loan Banks.

Federal Home Loan Mortgage Corporation (FHLMC), aka “Freddie Mac”: Is a quasi-governmental agency that purchases conventional mortgage from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA): A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by approved private lenders. FHA also sets standards for underwriting mortgages.

Federal Reserve Bank: The regulatory agency for certain commercial banks and bank holding companies. Sets monetary policy for the country and provides liquidity for supervised financial institutions.

Federal tax lien: A lien attached to property for nonpayment of a federal tax.

Fee simple: The greatest possible interest a person can have in real estate.

Fee simple estate: The most complete form of ownership of real property absolute ownership. Commonly used to to denote a property where the owner has undivided title to the land on which the property is situated.

FHA loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. These loans are generous enough to handle moderately-priced homes almost anywhere in the country.

FHA mortgage: A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

FHA mortgage insurance: Requires a fee 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.

Firm commitment: A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

First mortgage: The primary lien against a property.

Fixed rate mortgage: The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Fixture: Personal property that becomes real property when attached in a permanent manner to real estate.

Flood insurance: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Foreclosure: 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 mortgage. Also known as a repossession of property.

Fraud: A misstatement of a material fact made with intent to deceive or made with reckless disregard of the truth, and which actually does deceive.

Front foot: One linear foot (12 inches) along the street side of a lot.

Full disclosure: Revealing all the known facts which may affect the decision of a buyer or tenant.

Fully amortized ARM: An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

General warranty deed: A deed which conveys not only all the grantor’s interests in and title to the property to the grantee, but also warrants that if the title is defective or has a “cloud” on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic’s liens against it) the grantee may hold the grantor liable. A general warranty deed offers the most protection of any deed.

Ginnie Mae: See GNMA (Government National Mortgage Association)

GNMA (Government National Mortgage Association): Also known as “Ginnie Mae,” provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Good faith estimate: A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Government survey method: A system of land description (not used in Texas) which uses meridians (north and south lines) and base lines (east and west lines). Areas include quadrangles (24 miles on each side), townships (6 miles on each side), and sections (1 mile on each side).

Grace period: A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Graduated payment mortgage (GPM): A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grandfather clause: The clause in a law permitting the continuation of a use, business, etc., which, when was permissible but, because of a change in the law is now not permissible.

Grantee: A person to whom real estate is conveyed the buyer.

Grantor: A person conveying real estate by deed the seller.

Gross debt service: The amount of money needed to pay principal, interest and taxes, and sometimes energy costs. If the dwelling unit is a condominium, all or a portion of common fees are excluded, depending on what expenses are covered.

Gross income: For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Gross lease: A property lease where the landlord pays charges regularly incurred by the owner, such as taxes, insurance, utilities, and repairs.

Ground rent: Rent paid for vacant land. If the property is improved, ground rent is the portion attributable to the land only.

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.

Guarantee mortgage: A mortgage that is guaranteed by a third party.

Hazard insurance: A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Heirs and Assigns: (1) An heir is one who receives property from someone who has died. One who might inherit or succeed to an interest in a property under the rules of law applicipable when a property owner dies. (2) Assigns: A person or persons to whom a property right is transferred.

Hereditaments: Property, personal and real, capable of being inherited.

Holographic will: Will written entirely in the testator’s handwriting but has not been witnessed.

Home equity conversion mortgage (HECM): Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

Home equity line of credit: A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home equity loan: A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible.

Home inspection: A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

Homeowner’s fees: Also known as maintenance fees. Payments made by property owner(s) of a condominium or a unit in PUD (Planned Unit Development) to the homeowners’ association for expenses incurred in upkeep of the common areas.

Homeowner’s insurance: An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowner’s warranty: A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period.

Homestead: Land, and the improvements thereon, designated by the owner as his homestead and, therefore, protected by state law from forced sale by certain creditors of the owner. Not applicable in all states.

Housing expenses-to-incme ratio: The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her gross monthly income. Also see debt-to-income ratio.

HUD 1: Settlement statement mandated by the US Department of Housing and Urban Development.

HUD-1 statement: A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing.

Impound account: Account held by a lender for payment of taxes, insurance, or other expenses. Sometimes called Escrow Account.

Improvements: Valuable additions to the land, such as buildings, fences, roads, etc., which increase the value of the property.

Income approach to value: An estimate of value based on the monetary returns that a property can be expected to generate capitalization. Also see Cost Approach to Value and Market Data Approach to Value.

Index: A published interest rate against which 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.

Indexed rate: The sum of the published index plus the margin. For example if the index were 7% and the margin 1.75%, the indexed rate would be 8.75%. Often, lenders charge less than the indexed rate the first year of an adjustable-rate mortgage.

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.”

Inspection clause: A stipulation in an offer to purchase that makes the sale contingent on the findings of a home inspector.

Installment sale: A tax term used to describe a sale which is usually accomplished by use of a land contract, contract for deed, agreement of sale, conditional sales contract, or installment contract.

Insurable title: A title which a title company will insure.

Insured mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI).

Interest: The fee charged for using another’s money or credit. It is expressed as a percentage rate over a period of time.

Interest accrual rate: The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest rate buydown plan: An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage.

Interest rate ceiling: For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor: For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Interim financing: A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Intermediary: A broker who acts as an Intermediary in a transaction does not represent either party. He may not do anything that would give any party to the transaction an advantage over any other party.

Intestate: Legal designation of a person who has died without leaving a valid will.

Intimidation: As defined in the fair housing laws, it is the illegal act of coercing, intimidating, threatening, or interfering with a person in exercising or enjoying any right granted or protected by federal, state or local fair housing laws.

Joint tenancy: A type of ownership in which two ore more people have an undivided interest in a property, with the right of survivorship. Upon the death of one owner, his/her interest passes to the remaining owners and not to the heirs or the devises of the deceased.

Judgement: The official and authentic decision of a court of justice concerning the respective rights and claims of the parties to an action or suit. Money judgments, when recorded, become a lien on real property of the defendant.

Judgements (Tax liens or General liens): These are usually at the end of your account histories, and while they don’t always necessarily damage your credit rating, they can really impair your ability to borrow money.

Judicial foreclosure: A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo loan: A loan which is larger (more than $240,000 as of 1/1/99) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Jumbo loans cannot be funded by these two agencies.

Late charge: A penalty for failure to pay an installment on time.

Late mortgage payments: Mortgage payments are the most critical account on your credit history. Less than 12 months history leaves your credit report kind of thin, good history boosts your overall rating, and any ‘lates’ really hurt your credit rating, even if it’s on rental property. Mortgage ‘lates’ stay on your credit report for seven years.

Late pays: The most common “derog” is related to late payment history. The more late pays you have the worse your report is. Or if you have one or two accounts that show a severe delinquency record, you have some bad credit.

Latent defect: Hidden structural defects and flaws.

Lease with option to purchase: A lease under which the lessee has the right to purchase the property. The option may run for the length of the lease or only for a portion of the lease period.

Leasehold estate: A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Lease-purchase mortgage loan: An alternative financing option that allows low- and moderate-income home buyers to lease a home with an option to buy. Each month’s rent payment consists of principal, interest, taxes and insurance (PITI) payments on the first mortgage plus an extra amount that accumulates in a savings account for a downpayment.

Legal description: A description of a specific parcel of real estate which is acceptable to the courts in that state, and which will allows an independent surveyor to locate and identify it.

Lender: A company, institution or person that loans money to with the intention of a full repayment of the debt. Most commonly, this debt is repaid with interest.

Less favorable treatment: Any time a person is treated differently on the basis of race, sex, religion, color, familial status, disability, or national origin, either by action or inaction, in the selling or leasing of real property, it is a violation of the Fair Housing Laws.

Lessee: Tenant leasing property.

Lessor: One who leases property to a tenant.

Leverage: The use of borrowed funds to finance an investment and to magnify the rate of return.

Liabilities: A person’s financial obligations. Liabilities include long-term and short-term debt.

Liability insurance: Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party. It is usually part of a homeowner�s insurance policy.

Lien theory state: States where here legal title of mortgaged property resides with the mortgagor (borrower), with the mortgage as a lien against the property.

Lien: An encumbrance against property for money, either voluntary or involuntary.

Life estate: An interest in real property for the life of a living person. The interest then reverts back to the grantor or on to a third party. (This is useful for investors who want to purchase a property they believe will be more valuable in the future.)

Lifetime payment cap: For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Lis pendens: A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

Listing agreement: The legal agreement between the listing agent/broker and the vendor, setting out the services to be rendered, describing the property for sale, and stating the terms of payment.

Loan history: Having a proven track record goes a long way toward qualifying for a new mortgage. Many second mortgage lenders won’t make a loan, or they limit the loan amount, for people who haven’t had at least a 12-month mortgage rating in the past 12 months.

Loan package: The complete package of information given to the lender regarding the borrower and the property which the lender uses to evaluate the financial state of the borrower and the property.

Loan servicing: After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

Loan ratio (Loan-to-value ratio): The ratio of the mortgage loan amount to the properties appraised value (or the selling price whichever is less). If you purchase a property for $100,000 and make a $20,000 down payment the loan to value ratio will be 80%.

Lock in or Lock: A commitment you obtain from a lender assuring you a particular interest rate or feature or a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Lock-in period: The time period during which the lender has guaranteed an interest rate to a borrower.

Loyalty: One of the most fundamental fiduciary duties an agent owes to the principal. The duty obligates a real estate broker to act at all times, solely in the best interests of the principal, excluding all other interests, including that of the broker.

Market approach to value: An estimate of value based on the actual sales prices of comparable properties. Also see Cost and Income Approach to Value.

Market value: The price that a willing buyer and a willing seller, both given full information, and neither under pressure to act, would agree upon. Also known as Fair Market Value.

Marketable title: Title which can be readily marketed to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

Maturity: The date on which the principal balance of a loan becomes due and payable.

Mechanic’s lien: A lien created by statue for the purpose of securing priority of payment for the price of value of work performed and materials furnished in construction of repair of improvements to land, and which attached to the land as well as the improvements.

Metes and bounds: A system of land description using distance (metes) and angles/compass directions (bounds), beginning and ending at the same point. See Government Survey Method and Recorded Plat Method.

Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

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

Misrepresentation: A false statement, or concealment, of material fact with the intention of inducing action of another.

Monument: A fixed object or point, either natural or man-made, used in making a survey.

Mortgage contract: A contract providing security for the repayment of a loan, registered against property, with stated rights and remedies in the event of default. Lenders consider both the property and financial worth of the borrower in deciding whether to make a mortgage loan.

Mortgage loan: A loan secured by the collateral of specified real estate property which obliges the borrower to make a predetermined series of payments. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges (in some states), and special assessments.

Mortgage broker: An individual or company that charges a service fee to bring borrowers and lenders together for the purpose of loan origination.

Mortgage guaranty insurance corporation (MGIC): A private corporation which, for a fee, insures mortgage loans similar to FHA and VA insurance, although not insuring as great a percentage of the loan.

Mortgage insurance: Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance (PMI), FHA mortgage insurance.

Mortgage life and disability insurance: A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability.

Mortgage loan: A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgage note: A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the actual amount of the debt and the manner in which it shall be paid.

Mortgage warehousing: A process whereby a mortgage company will hold loans which would ordinarily be sold, in order to sell at a lower discount later. These are used as collateral security with a bank to borrow additional money to loan.

Mortgagee: The lender of money or the receiver of the mortgage document.

Mortgagor: The borrower in a mortgage agreement.

Multidwelling units: Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multiple listing service (MLS): A system by which a number of real estate firms share information about homes that are for sale.

Net effective income: The borrower’s gross income minus federal income tax.

Net listing: A price, which must be expressly agreed upon, below which the owner will not sell the property and at which the broker will not receive a commission.

No cash-out refinance: A refinance transaction which is not intended to put cash in the hand of the borrower. Instead, the new balance is caculated to cover the balance due on the current loan and any costs associated with obtaining the new mortgage.

No-cost loan: Almost all lenders offer loans at “no points.” You will find the interest rate on a “no points” loan is approximately a quarter percent higher than on a loan where you pay one point.

Non-assumption clause: A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

Nonconforming use: A property which does not conform to the zoning of an area.

Note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Note rate: The interest rate stated on a mortgage note.

Notice of default: A formal written notice to a borrower that a default has occurred and that legal action may be taken.

One-year adjustable: Mortgage whose annual rate changes yearly. The rate is usually based on movements of a published index plus a specified margin, chosen by the lender.

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.

Open house: An opportunity for prospective buyers to view a house in a low pressure environment.

Open listing: A listing under which the principal (owner) reserves the right to list his property with other brokers.

Option: The right to purchase property within a definite time at a specified price. There is no obligation to purchase, but the seller is obligated to sell if the option holder exercise the right to purchase. For the option to be valid, it must include consideration.

Origination fee: The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property.

Owner financing: A property purchase transaction in which the property seller provides all or part of the financing.

Owners title police: Title insurance for the owner of property. Insurance to defend the owner against enforcement of any liens or encumberances against the property that were in place prior to the issuance of the policy.

Panic peddling: The illegal practice of inducing panic selling in a neighborhood by making representations of the entry, or prospective entry, of members of a minority group.

Partial payment: A payment that is not sufficient to cover the scheduled monthly payment on a mortgage loan.

Participating agent: A real estate agent who sells a property. The selling agent may be (1)the subagent or listing agent of the seller (2)a buyer’s agent or (3)a dual agent.

Party wall: Wall erected on line between adjoining properties for the use of both properties.

Payment change date: The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM).

Percentage lease: Lease in which all or part of rental is a specified percentage of gross income from total sales made upon the premises.

Periodic payment: A limit on the amount that payments can increase or decrease during any one adjustment period.

Periodic rate cap: For an adjustable-rate mortgage, a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

Permanent loan: A long term mortgage, usually ten years or more. Also called an “end loan.”

Permanent mortgage: A mortgage on completed construction on the same property under one mortgage or trust deed.

Personal property: Any property that is not real property.

Physical deterioration: The loss of value to real property from all causes due to the action of the elements and old age. Physical deterioration can be either curable or incurable.

PITI: Principal, Interest,Taxes and Insurance. The amount of the monthly payment including principal, interest, and an amount to be placed into the escrow (impound) account.

Planned unit development: A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owners.

Pledged account mortgage: Money is placed in a pledged savings account and this fund plus earned interest is gradually used to reduce mortgage payments.

PMI: Private Mortgage Insurance Insurance similar to FHA or VA insurance, insuring part (normally the top 20%) of the first mortgage or deed of trust, enabling a lender to make a conventional loan of a higher percentage of the property value.

Pocket listing: An agent lists a property for sale and does not enter it into the MLS system for several days, keeping it in his “pocket” so other agents will not know the property is for sale. This allows him to show the listing to his customers without competition from other buyers.

Point/points: Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

Police power: The authority of a government to adopt and enforce law governing the use of real estate based on the need to promote public safety, health, and general welfare.

Power of attorney: A legal document that authorizes another person to act on one�s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-approval: The process of determining how much money you will be eligible to borrow before you apply for a loan.

Prepaid expenses: Necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment: Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner’s decision to pay off the loan in full, or a foreclosure.

Prepayment clause: A mortgage Statement of the terms upon which the mortgagor (borrower) may pay the entire or stated amount on the mortgage principal at some time prior to the due date.

Prepayment penalty: A fee that may be charged to a borrower who pays off a loan before it is due.

Pre-qualification: This usually refers to the loan officer�s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings.

Primary mortgage market: Lenders who originate loans and makes funds available directly to the borrowers.

Prime rate: The interest, or discount rate charged by a commercial bank to its largest and strongest customers.

Principal: The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Principal balance: The outstanding balance of principal on a mortgage. The principal balance does not include interest or any other charges.

Promissory note: A written promise to repay a specified amount over a specified period of time.

Property tax: Generally, tax levied on both real and personal property.

Pro-rate: To divide or distribute proportionally. At closing, various expenses such as taxes, insurance, interest, rents, etc. are prorated between the seller and buyer.

Public auction: A meeting in an announced public location to sell property to repay a mortgage that is in default.

Purchase agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase money transaction: The acquisition of property through the payment of money or its equivalent.

Purchase offer: A document that lists the price, terms and conditions under which a buyer is willing to purchase a property.

Qualifying ratios: Calculations used to determine if a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

Quit claim deed: A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land.

Ready, willing and able: A buyer who is prepared to buy on the and has the financial capacity to do so.

Real estate agent: A person licensed to negotiate and transact the sale of real estate.

Real estate board: A non profit organization representing local real estate agents/brokers and salespeople, which provides services to its members. The board usually maintains and operates the Multiple Listing Service in the community.

Real estate inspector: Individual or company who holds themselves out to the public as being trained and qualified to inspect property.

Real estate settlement procedure act (RESPA): A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real Estate Transaction Standard (RETS): XML specification for exchanging real estate transaction information.

Real estate/property: Vacant land or land with improvements and the rights to own or use them.

Realtor�: A real estate agent, broker or an associate who holds active membership in a local real estate board that is affiliated with the National Association of Realtors.

Realty: Refers to land and buildings and other improvements from a physical standpoint.

Reasonable care and diligence: An agent, competent real estate professional, is obligated to use reasonable care and diligence when pursuing the principal’s affairs.

Receiver: Court-appointed custodian who controls property for the court, until the final disposition of the matter before the court.

Recission: The cancellation of a contract. For mortgage refinancing, the homeowner is given 3 days by law to cancel a contract once it is signed provided the transaction uses equity in the home as security.

Recital: With a deed or other writing, setting forth some explanation for the transaction.

Recorded: A written document that has been entered into the public records filed with the County Recorder’s office.

Recorder: The public official who retains records of transactions that deal with real property in the area.

Recording fees: Money paid to the lender for recording a home sale with the proper authorities, thereby making the record of the home sale part of the public records.

Recording: The written record of title to real property is entered in the public records, thereby giving constructive notice to the public.

Recourse: The right of the holder of a note to look personally to the borrower or endorser for payment of the note secured by a mortgage or deed of trust.

Recovery fund: A fund controled by a state Real Estate Commission. Upon court order due to illegal acts of licensees, the fund is used to reimburse the public for monetary loss.

Redlining: The illegal practice of refusing or limiting mortgage loans in certain neighborhoods on the basis of racial or ethnic composition.

Refinance: Getting a new mortgage loan on a property already owned.

Regulation Z: Truth in lending law by the Federal Reserve System requiring lenders to provide full disclosure of the terms of the loan, including expressing interest rates as an annual percentage rate.

Reissuerate: A charge, usually less than the original, for a title insurance policy if a previous policy on the same property was issued within a specified period.

Real Estate Investment Trusts (REIT): A method of investing, with cetatin tax advantages, in real estate with a group.

Release: To relinquish an interest or claim to a piece of property.

Renegotiable rate mortgage: A loan in which the interest rate is periodically adjusted.

Repayment plan: An agreement made to repay delinquent installments or advances.

Repossession: The act of re-acquiring property, voluntarily surrendered or not, mainly as a result of non-payment of agreed compensation.

Real Estate Settlement Procedures Act (RESPA): A federal law which deals with the procedures to be followed in a real estate closing. It requires disclosure of certain costs in the sale of improved residential property.

Restrictions: Limitations on the occupancy or use of real estate contained in a deed or in local ordinances pertaining to land use.

Reverse mortgage: A special type of loan available to equity-rich, older owners. Repayment is not necessary until the borrower sells the property or moves into a retirement community.

Revolving debt/liability: A credit arrangement that allows a customer to borrow against a preapproved line of credit when purchasing services and goods.

Right of first refusal: An agreement provision that requires the owner of a property to give one party the first opportunity to purchase or lease the property before the property is offered for sale or lease to another.

Right of egress or ingress: The right to enter or leave designated properties.

Right of survivorship: The right of survivor(s) to obtain the interest of a deceased joint tenant.

Sale-leaseback: A procedure in which a seller, for consideration, deeds property to a buyer whereupon the buyer concurrently leases the property back to the seller.

Satisfaction of mortgage: This is a document issued by the mortgagee when the mortgage loan is paid in full.

Second mortgage: An additional mortgage made subsequent to another mortgage and subordinate to the first one.

Secondary financing: Assistance provided for downpayment purposes.

Secured loan: A loan backed by collateral.

Security: Property pledged as collateral for a loan.

Self amortized loan: A loan which will end the debt by the systematic payments of combined principal and interest. At the end of the loan period, the balance will be zero.

Seller carry-back: The seller of the property carries a second trust deed and note against the property.

Selling agent: A real estate agent who sells a property.

Septic system: A sewage system allowing waste to drained through conduits into a septic tank.

Servicer: An organization which collects principal and interest payments from borrowers and manages their escrow accounts.

Servicing a loan: The ongoing process of collecting a monthly mortgage payment, including accounting for and payment of the yearly tax and/or homeowners insurance bills.

Setback: The distance between a building and the property lines to be in accordance with local zoning ordinances or deed restrictions.

Settled account: An delinquent account on which one gets a creditor to settle for less than full payoff.

Settlement statement: A prepared statement prepared giving a complete breakdown of costs involved in a real estate sale transaction.

Shared Appreciation mortgage: A mortgage in which a borrower receives a below-market interest rate in return for which the lender receives a portion of the future appreciation in the value of the property.

Sheriff’s deed: The deed fiven at a sheriff’s sale in foreclosure of a mortgage.

Simple interest: Interest computed only on the principal balance.

Special warranty deed: A deed in which the grantor guarantees the title only against defects arising during the period of his or her occupancy and ownership of the property.

Special lien: A claim that only affects or applies to a certain property or group of properties.

Specific performance suit: A legal action brought by either a seller or buyer to enforce compliance to the terms of a contract.

Split agency: Agency relationship where both the agent representing the buyer and the agent representing the seller or in the same office.

Square footage: The area in square feet of a building or tract of land.

Standard payment calculation: The method used to calculate the monthly payment required to repay the remaining balance of a mortgage in relatively equal installments over the remaining period of the mortgage.

Statute of frauds: The law which requires (in part), that all contracts transferring real estate, or for the leasing of real estate for more than one year, must be written to be enforceable.

Statutory year: A total of 360 days composed of twelve 30-day months.

Steering: The illegal practice of directing members of minority groups, racial or otherwise, away from or to certain areas or neighborhoods

Step-rate mortgage: A loan that allows a gradual increase in the interest rate during the first few years (i.e., 5 years) of the loan, and then remains constant for the remainder of the load period.

Subagent: One who is employed by a person already acting as an agent. Typically a reference to a salesperson licensed under a broker (agent) who is employed under the terms of a listing agreement.

Subdivision: A housing development that is created by breaking up a tract of land into smaller lots for sale or lease.

Subordinate financing: A mortgage or lien that has a priority that is lower than that of the first mortgage.

Substitute of trustee: A legal recorded document to change the trustee under the deed of trust.

Substitution principle: The principle which indicates that a buyer will pay no more for a property than the cost of an equally desirable alternative property.

Survey: The process of showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

Sweat equity: Equity created by a buyer performing work on a property he is purchasing.

Tax lien: A claim against assets filed by a taxing authority against property of a person who owes back taxes.

Tax sale: After a period of nonpayment of property taxes, the property can be sold at a public sale of property at auction by a governmental authority.

Tenancy by the entirety: Ownership whereby the husband and wife each owns the entire property. In event of death of one, the survivor owns the property without probate.

Tenancy in common: Property ownership in which two or more people have an undivided interest in property, without survivorship rights. That is, upon death of one of the owners, his interest passes to his heir(s) or designatee(s).

Tenement: Everything that may be occupied by a tenant holding lease rights.

Term: The actual life of a mortgage, at the end of which the mortgage becomes due and payable.

Third-party organization: Any outside company with which the lender contracts to provide morgage processing services.

Time is of the essence: A contract clause which makes failure to perform by a specified date a violation or material breach of the contract.

Timeshare: An arrangement under which a purchaser receives an interest in real property and the right to use specified accommodations and/or amenities for a specified period and on a recurring basis.

Title: A legal document setting forth a person’s ownership of property.

Title company: A company that provides title insurance policies and title examination.

Title insurance: Insurance to protect a lender or owner against loss in the event of a property ownership dispute.

Title search: The examination of official records for the property’s title history to determine the ‘chain of title’ and the current status of title, including such concerns as owner, legal description, property taxes due, encumbrances, judgments or other liens.

Torrens system: A system of the registration of interests in land in which documents are closely regulated, monitored, and examined by the recording authority to ensure that they are correct and that title is transferred without flaw.

Total expense ratio: The total obligations, including monthly housing expenses plus other monthly debts, as a percentage of gross monthly income.

Townhouse: A dwelling unit usually with two or three levels, and shared walls.

Transaction fee: A fee charged each time you draw on a home equity credit line.

Transfer of ownership: The ownership of a property changes hands.

Transfer tax: Tax payable when title passes from one owner to another.

Treasury index: An index that is used to determine interest rate changes for certain adjustable rate mortgages.

Trustee: The person who manages assets owned by a trust under the terms of the trust document, to safeguard the trust and distribute trust income or principal as directed by the document.

Two-step mortgage: A mortgage in which the borrower receives a below-market interest rate for a specified number of years and then receives a new interest rate adjusted (within certain limits) to current market conditions.

Undisclosed dual agency: A relationship, illegal in all states, in which the real estate agent is the agent of both the buyer and seller in a transaction, but without the knowledge and informed consent of both parties.

Usury: Charging more than the rate of interest allowed by law.

VA mortgage: A VA guaranteed mortgage.

Variable rate mortgage: Same as adjustable rate mortgage (ARM).

Vendee: The one buying the property.

Vendor: The one selling the property.

Varification of deposit: A document signed by the borrower’s financial institution verifying the status and balance of the borrower’s financial accounts.

Verification of employment: A document signed by the borrower’s employer verifying the borrower’s employment.

Vested: Having the rights of ownership, although enjoyment of those rights may be delayed until a future date.

Void: Having no legal force.

Voidable: A document which appears valid and enforceable, but may be declared invalid by one of the parties.

Warehouse fee: When the prime rate of interest is higher on short term loans than on mortgage loans, a mortgage firm can have an economic loss. This loss is offset by charging a warehouse fee.

Wraparound mortgage: A refinanced home loan in which the balances on all mortgages are combined into one loan.

Writ of execution: A writ to put in force the sentence or judgement that the law has given.

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Zoning: The way regulatory government agencies control the physical development of land and the kinds of uses to which each individual property may be put.