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 (or cured) before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause

Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage (i.e., failure to pay taxes or insurance premiums).

Acknowledgment

A declaration or a vow of one's act or of a fact to give it legal validity, especially before a duly qualified public officer. The term "notary acknowledgment" denotes the notary section of legal documents.

Adjustable Rate Mortgage (ARM)

Mortgage loans under which the interest rate is periodically adjusted, in accordance with some market indicator, to more closely coincide with the current rates. The extent and number of these adjustments are agreed to at the inception of the loan.

Adverse Possession

The possession, by one person, of land belonging to another in a manner deemed adverse to the interest of the owner. In most states, by operation of law, title to the land becomes vested in such person after a fixed number of years if the owner fails to assert his or her rights.

Affidavit

A written statement made under oath before a notary public or other judicial officer.

Agreement of Sale

Known by various names, such as "Contract", Contract of Purchase, Purchase and Sale Agreement or Deposit Receipt and Contract for Sale and Purchase, according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific conditions spelled out in writing and signed by both parties.

ALTA (American Land Title Association)

The trade association of the title insurance industry, which has adopted certain insurance policy forms to standardize coverage on a national basis.

Amenity

An aspect of a property that enhances its value. Off-street reserved parking within a condominium community is an amenity.

Amortization

A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal. An Amortization Schedule is a detailed record of the principal and interest paid on each payment date, showing the remaining principal owed after each payment.

APR (Annual Percentage Rate)

The cost of credit expressed as a yearly rate to the customer, which includes the nonrecurring and other charges paid by the borrower. Interest and prepaid finance charges which are a part of the finance charge are computed as an annualized rate.

Appraisal

A report from an independent third party detailing the estimated value of real estate.

Appurtenance

A right or privilege that is a part of the ownership of property, such as a right of way to a highway across the land of another. Water rights are also an example.

Assessment

(1) The valuation of real estate for purposes of taxes or special improvement charges. (2) The amount of taxes or special improvement charges. Special improvement charges are usually for the costs of streets, sidewalks, sewers, etc. (3) Levy by Condominium Association for improvement/repair costs not included in monthly maintenance.

Assignment

(1) The act of transferring an interest, such as a loan secured by a mortgage, from one person to another. (2) The instrument or paper by which one person transfers such ownership to another.

Assumption of Mortgage

(Assumption Agreement) Contract by deed or other form, through which a buyer undertakes the obligation of an existing mortgage originally signed by another person. The seller remains secondarily liable unless released by the lender from this obligation. (Note: When the seller is released from liability, many governmental jurisdictions require payment of a tax or documentary stamps on the amount of the mortgage assumed by the buyer.)

Attorney-in-Fact

A person who, acting as agent, is given written authorization by another person to transact business for him or her out of court (not to be confused with attorney at law (lawyer).

Attorney's Opinion

A statement by an attorney as to the validity of a title, arrived at after investigation of the history of the title as recorded in the public records.

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Back Title Letter

Also called "back title certificate" in some areas, and "starter" in others. When titles previously have been examined up to a certain date by reliable examiners, title companies sometimes give subsequent examiners of such titles a letter that sets forth the condition of the title at the time of the previous examination and authorizes them to begin their subsequent examination with the terminal date of the previous examination.

Balloon Mortgage

A form of mortgage with a promissory note that calls for the minimum payment of principal and the payment of interest at regular intervals, usually for 10 years or less. This type of note requires a substantial final payment, which represents all the remaining principal.

Balloon Payment

The last payment on a loan, where the required payments are not all equal and the last payment is substantially larger than the others, i.e., the last payment of a balloon mortgage, which has been amortized over 30 years to keep the monthly payments low, but the term for payoff of the principal is only 10 years. These mortgages can sometimes be modified and/or renewed, if the lender agrees.

Bankruptcy

A proceeding in U.S. District Court wherein assets of an insolvent debtor are protected and distributed in an equitable manner.

Basis Point

The movement of interest rates or yields expressed in hundredths of a percent.

Beneficiary

(1) A lender secured by a deed of trust; (2) one for whose benefit a trust is created; (3) one who is named in a decedent's will to inherit real or personal property.

Binder

Sometimes called "preliminary certificate" or "commitment." (1) A preliminary report as to the condition of a title and a commitment to issue a title insurance policy in a certain manner when certain conditions are met. (2) A deposit in escrow of a small part of the purchase price of real estate as evidence of good faith and to find an agreement to purchase. (3) Written evidence of temporary hazard and/or windstorm and flood insurance coverage issued by an insurance agent, which must be replaced by a permanent policy.

Bridge Loan (also called Swing Loan)

A loan extended to enable the borrower to purchase new real estate, when the proceeds of the sale of another property they own will be used to repay the loan, but the old property sale is delayed and the funds cannot be obtained prior to the closing of the borrower's new purchase. These loans are usually on a short term basis.

Building Line or Setback

Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

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Capital Gains

Profit received from the sale of an asset that has been held for more than six months since purchase.  The distinction is made between capital gain and ordinary income because the former are taxed at a lower federal income tax rate. Profit form property held less than six months is taxed as ordinary income.

Certificate of Title

A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Chain of Title

The successive ownerships or transfers in the history of title to a tract of land.

Claim

An adverse right or interest asserted by one party against another or against an insurer or indemnitor.  Claims may arise from unpaid debts or taxes, as well as from hidden title defects such as fraud, forgery, missing heirs, etc.

Clear Title

Real property ownership free of liens, defects, encumbrances or claims.

Closing

Also called "settlement." A final meeting of all parties involved in a property transaction during which the transaction is consummated. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes and the disbursement of funds necessary to the sale or loan transaction.

Closing Agent

(1) Entity authorized by the lender to conduct the property transaction when the buyers execute the mortgage, promissory note, settlement statement and other required documents, which may be a title company or an attorney; (2) Title company or attorney who oversees execution of documents by the buyer and seller and who disburses funds to pay of existing loans, liens, etc.; (3) the closing agent represents the lender.

Closing Costs

All of the costs to the buyer and seller which are associated with the purchase, sale or financing of real property. These include, but are not limited to, prorations (for taxes, insurance, condominium or other assessments), cost of title insurance policies, title searches (also called abstracting), credit reports, recording fees, escrows, payment to inspectors and surveyor, etc.

Closing Statement (HUD-1 Settlement Statement)

A form used at closing which gives an account of the funds received and disbursed at the closing, including escrow deposits for taxes, hazard insurance, and mortgage insurance for the escrow account, etc. See listing of some other disbursements, under Closing Costs.

Cloud on Title

A defect in the owner's title to property arising from a written instrument or judgment or from an order of court purporting to create in someone else an interest in, or lien upon, the property and therefore impairing the marketability for the owner's title. These defects are sometimes as simple as a clerk's typographical error in a legal description, but may be serious and reveal fraudulent practices.

Commission

Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price -- 6 to 7 percent on houses, 10 percent on land.

Commitment

Also called "binder." A document issued by a title insurance company that contains the conditions under which a policy of title insurance will be issued.

Common Elements

In a Condominium or Planned Urban Development (PUD), such as a Homeowner's Association, any land or improvements owned jointly by all the owners in the project, such as a pool or clubhouse. Common Elements can also include grassy areas and walkways if the owners in the condo or PUD collectively pay for maintenance of the area.

Condemnation

The taking of private property for public use by a government unit, against the will of the owner, buy with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium

A form of ownership of real property, wherein title to a particular unit is vested in an entity (i.e., an individual or couple), together with a proportionate interest in certain common areas. Title to the common areas is in terms of percentages and refers to the entire project, less the separately owned units.

Contract

An agreement between two or more parties to do, or not to do, a particular act (such as sale/purchase of real property).

Contractor

In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others, any of which may be contractors or, if these companies are employed by a General Contractor, may be referred to as Sub-Contractors.

Conventional Mortgage

A mortgage loan not insured by the federal Department of Housing and Urban Development (HUD) or guaranteed by the Department of Veterans Affairs. It is subject to conditions established by the lending institution and State statutes. The mortgage rates may vary with different institutions and between States. (States have various interest limits.)

Conveyance

The transfer of title to property from one person to another.

Cooperative Housing (Co-Op)

An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for
as long as he owns the stock. Therefore, when one of these stockholders wishes to "sell" his apartment, he is actually selling his share of stock in the corporation and conveying the right to live in the apartment.

Covenant

A formal agreement or contract between two parties in which one party gives the other certain promises and assurances, such as covenants of warranty in a warranty deed.

Credit Report

A report to a prospective lender on the credit standing of a prospective borrower, used to help determine credit worthiness.

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Dedication

The setting aside of certain land by the owner and declaring it to be for public use. Examples: streets, sidewalks and parks.

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, witnessed and notarized according to the laws of the State where the property is located, and should be delivered to the purchaser (of purchaser's agent) on the day of closing. There are two parties to a deed: the grantor (seller) and the grantee (buyer). (See also deed of trust, general warranty deed,
quitclaim deed and special warranty deed.)

Deed of Trust

Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument; the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few states have begun in recent years to treat the deed of trust like a mortgage.

Deed Restriction

A covenant contained in a deed imposing limits on the use or occupancy of the real estate or the type, size, purpose or location of improvements to be constructed on it.

Default

A breach or non-performance of the terms of a note or the covenants of a mortgage.

Defect

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

Delinquency

A loan payment that is overdue but within the grace period allowed before actual default is declared.

Deposit

(1) A sum of money given to bind a sale of real estate, or (2) a sum of money given to insure payment or an advance of funds in the processing of a loan. Also known as earnest money.

Depreciation

A loss in value in real property brought about by age, action of the elements, physical deterioration, functional or economic obsolescence. Broadly, a loss in value from any cause. The opposite of appreciation.

Developer

A person or entity who prepares raw land for building sites, and sometimes builds on the site.

Devise

A gift of real estate made by a will.

Discount Rate

The rate of interest charged by the Federal Reserve on loans it makes to member banks. This rate has an influence on the rates bands then charge their customers.

Documentary Stamps (Doc Stamps)

A State tax, in the form of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required is based on a percentage of the purchase price for the deed and/or the amount of the mortgage for the mortgage, and varies with each State. In some States, documentary stamps are also paid when a mortgage is modified, but ownership of the real property is not changed.

Dominant Estate

The property for the benefit of which a right-of-way easement exists across another's adjoining piece of land is said to be the dominant estate. The land across which the easement runs is said to be the servient estate.

Down Payment (Deposit)

The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale (contract). The agreement of sale will refer to the down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and may require the seller to pay interest and expenses incurred by the purchaser.

Due on Sale Clause

Provision in a security instrument (mortgage) calling for automatic maturity in the event of sale or transfer of title by the borrower, wherein the principal, interest and any other sums due must be repaid by the borrower.

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Earnest Money

The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement

The right to use the land or a specified portion of the land of another for a specific limited use, such as laying a sewer, putting up electric power lines, or crossing the property.

Eminent Domain

The right of a government to take privately owned property for public purposes under condemnation proceedings subject to payment of its fair market value.

Encroachment

Any building, improvement or structure located on one property (such as a wall, fence, pool enclosure or driveway) that intrudes upon the property of another.

Encumbrance

Any interest, right, lien or liability attached to a parcel of land (such as unpaid taxes or an unsatisfied mortgage) that constitutes or represents a burden or charge upon the property.

Endorsements to Title Insurance (Endorsement Fees)

Mortgagee Title Insurance issued to the lender is required by law to have certain exclusions from coverage, as do the underwriters of title insurance. These exclusions modify the master policy and attach specific provisions to the insurance coverage, i.e., variable interest rates (ARM) and balloon mortgages, condominium and PUD (such as townhouses, homeowner's associations).

Equity

The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value, the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.

Escrow

(1) A method of closing a real estate transaction in which all required documents and funds are placed with a third party for processing and disbursement; (2) The money collected from the owner in each monthly payment, adequate to cover yearly anticipated expenditures, and held in a trust fund by the lender, when the mortgage requires the lender to collect for real estate taxes and hazard and flood insurance(s)) and mortgage insurance provided for the buyer.

Estate

(1) The right, title or interest which a person has in any property; (2) the property that was owned by a deceased person, which becomes part the estate of the decedent and is possibly subject to probate proceedings.

Estoppel

(1) A legal restraint that stops or prevents a person from contradicting or reneging on his previous position or previous asserts or commitments; (2) Payoff statement from lender and/or entity with authority to assess real property (i.e., condominium association, government utility department) as to any outstanding payments due at time of closing.

Examination

The study of the instruments and muniments incident to a chain of title to determine their effect and condition in order to reach a conclusion as to the status of the title.

Exception

A provision in a title insurance binder or policy that excludes a liability for a specific title defect or an outstanding lien or encumbrance.

Execute

To sign a legal instrument. A deed is said to be executed when it is signed, witnessed, notarized and delivered to the buyer or buyer's agent.
 

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FDIC (Federal Deposit Insurance Corporation)

A federal agency organized in 1933 to guarantee funds on deposit in member banks. The FDIC also performs functions such as making loans or buying assets from member banks to help effect mergers or helping to prevent bank failures.

FEMA

Federal Emergency Management Agency responsible for providing relief in national disasters. This agency designates flood areas and generates flood maps for use by hazard insurance agents and underwriters issuing flood insurance.

FHA (Federal Housing Administration)

A federal agency that is a division of the Department of Housing and Urban Development, it insures first mortgages, enabling lenders to lend a very high percentage of the sale price.

FNMA (Fannie Mae)

Federal National Mortgage Association. a taxpaying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by VA, as well as conventional home mortgages.

Fair Credit Reporting Act

A 1971 federal law which guarantees an individual the right to examine all information on file about him or her with a credit reporting agency participating within the established guidelines. Procedures for rectifying errors are also specified in this act.

Federal Reserve System (The Fed)

The central banking system that regulates the supply of money, it includes 12 regional "banker's banks", their branches and all national and state banks that choose to be members. The Board of Directors of the system regulates the prime interest rate, which affects interest rates in all banks.

Fee Simple Title

The absolute ownership of a parcel of land. The highest degree of ownership that a person can have in real estate, which gives the owner unqualified ownership and full power of disposition.

Fiduciary

One who hold a position of trust and confidence requiring scrupulous good faith and candor. In connection with real estate transactions, fiduciary responsibility belongs to the closing agent disbursing funds and the designated holder of escrowed monies in a closing, i.e., repair or tax payment escrows.

Fiscal Year

The period encompassing 365 days over which the company maintains financial records and at the end of which the financial books are closed and profit or loss are determined. This may or may not correspond with calendar year. In real estate transactions, this is more relevant for commercial closings.

Fixed Rate Mortgage

A mortgage having a rate of interest that remains the same for the life of the mortgage.

Fixtures

Personal property that is attached to real property and is legally treated as real property while it is so attached. Examples: medicine cabinets, window blinds and chandeliers.

Flood Hazard Area

A geographical area designated by the Department of Housing and Urban Development (HUD) as having an above average risk of flooding. Most lenders require a flood elevation certification from the surveyor.

Foreclosure

A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property to satisfy the underlying debt, and depriving the mortgagor of possession.

Forgery

The fraudulent signing of another's name to an instrument such as a deed, mortgage or check.

Freddie Mac (FHLMC)

Federal Home Loan Mortgage Corporation. A federal agency that purchases both conventional and federally insured first mortgages from members of the Federal Reserve System and the Federal Home Loan Bank System.

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GNMA (Ginnie Mae)

A federally owned corporation formed to invest in mortgages not suitable for Fannie Mae. Administered by the U.S. HUD, Ginnie Mae invests in relatively high-risk mortgages.

GNMA Mortgaged Backed Securities

Securities guaranteed by GNMA and issued primarily by mortgage bankers. The GNMA security is pass-through in nature, and the banker is protected by the "full faith and credit of the U.S. Government." It is collateralized by FHA and VA mortgages.

Grant

To bestow or confer, with or without compensation, real or personal property, such as land or money by one having control or authority over the property.

Grantee (Buyer)

(1) A person to whom interest in property is transferred by deed or who is granted property rights by trust instrument or some other document (referred to as the buyer in a Contract for Sale and Purchase); (2) the recipient of a grant or property.

Grantor (Seller)

A person who transfers property by deed or who grants property rights by deed or trust instrument or some other document (referred to as the seller in a Contract for Sale and Purchase).

Gross Income

Total dollar amount of all income resources before deductions for taxes, insurance, etc.  
 

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HUD

The Department of Housing and Urban Development, established by the Housing and Urban Development Act of 1965. It is responsible for the administration and implementation of government housing and urban development programs. The broad range of programs includes community planning and development, housing production and mortgage credit, equal opportunity in housing, research, and technology. It also generates forms used in the real estate industry.

Hazard Insurance/Flood Insurance

This premium is for insurance protection for the owner and lender against loss due to fire, windstorm and other natural hazards. This coverage may be included in a Homeowner's Policy, which insures against additional risks which may include personal liability and theft. If a property is located within a special Flood Hazard Area (identified by FEMA )a borrower may be required by Federal law and/or by the lender to carry flood insurance. Lenders require proof of payment of the first year's premium for fire insurance and flood insurance at the time of settlement and requires that the lender be designated as a loss payee.

Hereditaments

Any and all kinds of estates, interest and rights in real estate that can be inherited.

Homeowner's Association

An organization of homeowners living in a particular development, whose major purpose is to maintain and provide community services for the enjoyment of the residents. In real estate it is a PUD and often charges a maintenance fee for providing lawn and yard care, and maintenance of common areas in the development, such as a recreational area.

Homeowner's Insurance

Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. Also includes coverage such as personal liability and theft away from home. Also called Hazard Insurance and sometimes includes Windstorm coverage.

Homestead Rights (Estate)

The rights of the head of a family or the household residents in real estate that is owned and occupied as a residence. Some states grant statutory exemptions, protecting homestead property 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, or at the least to file a declaration with a government property appraiser, assessor or collector.

Hud-1 Settlement Statement

 

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Improvements

Man-made additions to the land, including structures, building, or facilities placed on or in land, e.g., buildings, streets, sewers, water lines.

Index

(1) An alphabetical listing in the public records of the names of parties to recorded real estate instruments together with the book and page number of the record. (2) The listing in abstract and title plans of recorded real estate instruments in groups according to land descriptions, known as a geographic index; (3) Specifically designated indexes are used by lenders to calculate the interest adjustment of variable (adjustable) rate loans. Some indexes are more volatile than others, which can affect adjustments in your interest rate and subsequently, your monthly payments, making it wise for the potential borrower to investigate the index used by their proposed lender prior to making application for the loan.

Inspection Reports/Fees

Fees payable to the providers of such reports as roof and/or structural, termite or pest control, household appliances, property, geological or core soil samples.

Installment Note

A note usually given in consumer and personal credit transactions in which the principal is payable in specified installments, together with interest on the unpaid balance until the note is paid in full. This note is usually of shorter duration than a promissory note or mortgage note. An installment note may be but is not necessarily secured by real property.

Institutional Lender

A financial institution that invests in mortgages and carries them in its own portfolio. Mutual savings banks, life insurance companies, commercial banks, pension and trust funds, and savings and loan associations are examples of institutional lenders.

Insurance Binder

See Binder (above)

Insured Bank

A bank that belongs to the FDIC (Federal Deposit Insurance Corporation).

Interest Rate

The percentage rate charged for the use of money, usually quoted on an annual basis.

Interest Rate Cap

A safeguard built into variable rate loans to protect the consumer by limiting the movement in the rate of interest when adjusted.

Investor

(1) An individual who purchases securities with the intention of obtaining income from the investment without losing the principal; (2) a private lender who normally is obtained through a mortgage broker.
 

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Joint Ownership

The common ownership of real or personal property by two or more persons. The persons involved are either joint tenants or tenants in common.

Joint Tenants

Two or more entities owning an undivided interest in property. The interests must be equal, accruing under the same conveyance (deed) and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased. Also see Tenants in Common and Tenants by the Entireties.

Judgment

The determination of a court regarding the rights of parties in an action. A judgment of debt on a property owner can create a lien on all of that owner's land within a certain jurisdiction.

Junior Mortgage

A mortgage lower in lien priority than another, i.e., Second Mortgage or Equity Line secured by real property already secured by a mortgage.
 

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Leasehold Interest

A form of property interest in which the holder of the interest has the right to use or occupy, but not to sell or transfer the property. The holder of a Leasehold Estate has the right to build on and to occupy land for a specified lease term, but the holder of Fee Simple Estate to the land retains the right to sell the land at any time (subject to the lease) and to take the buildings as well at the end of the lease. Some condominium PUD projects lease land and/or recreational; facilities from the developer or a third party.

Legal Description

A method of geographically describing a parcel of land, which is recognized in a court of law, and which is sufficient to locate and identify a property without oral testimony.

Legal Rate of Interest

The maximum rate of interest that may be charged on a loan. The interest established by the laws of the state having jurisdiction over the transaction. Interest rates charged in excess of this ceiling are considered usurious and are subject to the usury laws of the state having jurisdiction.

Lessee

Person who pays for the privilege of using a specific piece of property, as stipulated in a lease; a tenant.

Lessor

The person, corporation, or other legal entity that leases property to a lessee; a landlord.

Liability

The claims of creditors and owners against the assets of a business.

License

Permission to go upon or use the land of another, the permission being a personal privilege and not constituting an interest in the land.

Lien

A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor. (See also special lien.)

Lien Waiver

Also "waiver of liens." A waiver of mechanics' lien rights, signed by contractors or subcontractors.

Link

In surveying, a length of 7.92 inches.

Loan Discount Fee

A one-time charge based on a percentage of the loan amount to adjust the yield on a loan to the market conditions demand. It is used to offset constraints placed on the yield by State or Federal regulations.

Loan Maturity

Date when a note becomes due and payable, the date when the amortization schedule indicates the last payment will have been made.

Loan Origination Fee

A one-time fee which covers the lender's administrative cost in processing a home loan. This is usually expressed in terms of "points". One point is equal to one (1%) percent of the loan amount.

Loan Policy

Also called "mortgagee policy." A title insurance policy insuring a mortgagee (lender), or beneficiary under a deed of trust, against loss caused by invalidity or unenforceability of a lien, or loss of priority of the mortgage or deed of trust.

Loan-to-Value Ratio

The relationship between the amount of the mortgage loan and the appraised value of the security, expressed as a percentage of the appraised value.

Lis Pendens

A legal notice intending to bind third parties of litigation claiming an interest in real estate, and preventing sale of same until judicial disposition of the litigation.

Long Term Capital Gains

Profits earned on assets held for more than six months. It is important for taxation purposes and sellers should consult their accountant or financial advisor regarding the profit from the sale of real property.

Loss Payable Clause

An endorsement to an insurance (hazard) policy specifying parties (lenders) entitlement to participate in proceeds in the event of loss.

Lot

Generally, any portion or parcel of real property. Usually refers to a portion of a subdivision.
 
 

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Market Rates

Rates of interest resulting from the demand for a supply of funds in the money market.

Market Value

The average of the highest price that a buyer, willing but not compelled to buy, would pay and the lowest price a seller, willing but not compelled to sell, would accept.

Marketability

Refers to how easily a property will sell, if a borrower defaulted on the loan.

Marketable Title

A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Maturity

The date on which a note, draft, acceptance or bond becomes due and payable.

Mechanic's Lien

A lien on real estate, created by operation of law, that secures the payment of debts due to persons who perform labor or services or furnish materials incident to the construction of buildings and improvements on the real estate.

Metes and Bounds

A land description in which boundaries are described by courses, directions, distances and monuments.

Monthly Assessment

A monthly fee paid to the Homeowner's Association or a Condominium Association (or a firm that handles collection of the fees for the association), which covers the costs of maintaining common areas and often includes money escrowed for future maintenance costs such as roofs, so as to avoid future special assessments.

Mortgage Broker

A firm or individual who brings the borrower and lender together, receiving a commission. A mortgage broker does not retain servicing of the loan.

Mortgage (Conventional)

A conveyance of an interest in real property given as security for the payment of a debt. (See Deed of Trust)

Mortgage (Open End)

A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure. An Equity Loan secured by real property operates similarly to an Open End Mortgage, and has a specified maximum loan amount.

Mortgage Commitment

A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount, for a specified interest rate, to enable a buyer to purchase real property.

Mortgage Note

A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which is shall be paid. The note states the actual amount of the debt that the mortgage secures, at a specific interest rate within a specified term, and renders the mortgagor personally responsible for repayment.

Mortgagee

The holder of a mortgage. The party who lends money, secured by real property; generally the lender.

Mortgage Insurance Premium (MIP)

Mortgage insurance protects the lender from loss due to payment default by the borrower. With this insurance protection, the lender is willing to make a larger loan, thus reducing the down payment requirements. This type of insurance should not be confused with mortgage life, credit life or disability insurance designed to pay off a mortgage in the event of physical disability or death of the borrower. The consideration is paid by a mortgagor for the mortgage insurance either to FHA or to a private mortgage insurer (PMI).

Mortgagee Policy (see Loan Policy, above)

Mortgage Portfolio

The aggregate of mortgage loans held by an investor, or serviced by a mortgage banker.

Mortgagor

A person who mortgages property. A person who executes a mortgage, generally the property owner.

Multiple Listing Service (MLS)

The pooling in a central bureau of listings of properties for sale. These listings are held individually by members of a group of real estate brokers, with the agreement that any member of the group may sell the properties and, in the case of a sale, the commission will be divided between the broker making the sale and the broker who filed the listing.

Muniments of Title

Written evidence (documents) that an owner possesses to prove his or her title to property.
 

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National Flood Insurance Act

A federal law establishing a program to provide flood insurance to homeowners whose houses are located in specially designated flood hazard areas. This program is administered by the Federal Insurance Administration.

Negative Amortization

A situation which may occur on variable rate loans which have a payment cap feature. If the adjusted payment amount is insufficient to pay the actual amount of interest due, the unpaid deferred interest will then be added to the loan principal balance. This increase in principal balance is known as negative amortization.

Net Worth

The difference between total assets and liabilities of an entity (individual , corporation,
etc.)

Notary Public

A public officer who takes acknowledgment of or otherwise attests or certifies deeds and other writings or copies of them, usually under his official seal to make them authentic, and takes affidavits, depositions and protests of negotiable instruments.

Note

A written evidence of a debt. A note is a promise to pay a specified amount to a certain entity on a specified date. Also called "promissory note."
 
 

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Origination Fee

A fee or charge for the work involved in the evaluation, preparation, and submission of a proposed mortgage loan.

Owner's Policy

A policy of title insurance insuring an owner of real estate against loss occasioned by defects in, liens against, or unmarketability of the owner's title.
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PITI

Refers to a mortgage payment which includes Principle, Interest, Taxes and Insurance.

PUD (Planned Unit Development)

A comprehensive development plan for a large land area, usually including residences, roads, schools,, recreational facilities, and service area plus commercial, office and industrial areas.

Payee

The individual named in an instrument as the recipient of the sum shown. The payee, thus, is the part who benefits by the payment of an instrument.

Per Diem

A term meaning "by day," used to compute an allowance or charge that has been established on a daily basis, or which is calculated on a daily basis.

Personal Property

All property subject to ownership which is not fixed or immovable. Personal property may be tangible or intangible. Tangible personal property consists of physical objects, whereas intangible personal property consists of property which cannot be physically touched, such as a patent, goodwill of a business, mutual funds and stocks, etc.

Plat

A map representing a piece of land dived into lots, as in a subdivision, with streets, boundaries, easements, and dimensions shown thereon. It is usually recorded and made a part of the public record.

P.O.C. (Paid Outside of Closing)

 

Points

Sometimes called "discount points." A point is one percent of the amount of the mortgage loan. It is a one-time charge by a lender to raise the yield on his loan, and is often charged to induce the lender to offer the mortgagor a lower interest rate on the life of the loan. It is also charged when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage. Buyers are prohibited from paying points on VA loans (however, sellers can pay points on VA loans), On a conventional mortgage, or an FHA insured mortgage, points may be paid by either buyer or seller or split between them. (Example: if a mortgage loan is for $50,000, one point would cost $500.00; two points would cost $1,000, etc.)

Power of Attorney

A document witnessed and acknowledged authorizing the person named therein to act as his agent, called attorney-in-fact, for the person signing the document. If the attorney-in-fact is authorized to act for his principal in all matters he or she has a general power of attorney, if he or she has authority to do only certain specified things he has a special power of attorney.

Prepaid Closing Costs

These are the fees which are for those expenses which are paid in advance and will usually be prorated upon sale, such as taxes, interest and insurance.

Prepayment

Payment of mortgage loan in advance of final due date, or payment of an amount to reduce the principal of the mortgage loan, or an amount in excess of the stipulated amortized payment amount. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.

Prepayment Penalty

A charge paid for the privilege of repaying an obligation prior to the agreed upon maturity date. Prepayment penalties are often charged on a loan extended at an interest rate considered unfavorable to the lender in the short run but favorable in the long run.

Prescriptive Easement

A right to use another's property that is not inconsistent with the owner's rights and that is acquired by an open, notorious, adverse and continuous use for the statutory period, for example 20 years.

Prime Rate

The most favorable interest rate charged by the bank to their most creditworthy customers for short term loans, not mortgages.

Principal

(1) A sum of money owed or outstanding balance of a mortgage; (2) Outstanding balance of a mortgage; (3) A person who empowers another to act as his representative or agent; (4) The person having prime responsibility for an obligation as distinguished from one who acts as a surety or endorser.

Private Mortgage Insurance (Also See MIP)

Insurance written by a private mortgage company protecting the mortgage lender against loss occasioned by a mortgage default. Companies in this industry are referred to as MIC's (Mortgage Insurance Companies).

Promissory Note

An unconditional written promise, signed by Maker (borrower), to pay absolutely a sum in money, either to the bearer or to a person herein designated or his agent (lender).

Prorate

To divide in proportion, proportionately, according to share interest or liability of each party. Payments such as property taxes, monthly condominium maintenance fees, assessments, and appliance contracts are prorated on a settlement statement (HUD).

Purchase Money Mortgage

A mortgage given by a purchaser to a seller on the subject property to secure payment of a part of the purchase price.
 
 

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Quit Claim Deed

A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. (See Deed)
 
 

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Real Estate

Also called "real property." (1) Land and anything permanently affixed to the land, such as building, fences and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached; (2) May refer to rights in real property as well as the property itself.

Realtor

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision

Cancellation of a contract without penalty. When a borrower is refinancing a mortgage, the lender must by law give the borrower 3 days after the closing documents are executed to reconsider the transaction, which is called the recision period. If after 3 days the borrower has not cancelled the contract, the funding is approved and all disbursements are made.

Reconveyance

A document extinguishing the lien of a Deed of Trust after payment in full of the note. A Satisfaction of Mortgage is issued by a lender upon final payment of the note, and a Deed is issued by the holder of a Deed of Trust, upon final payment for the property.

Recording

The noting in a public (government) office of the details of a legal document, such as a deed or mortgage, affecting the title to real estate. When such an instrument is properly recorded, it is considered to be a matter of public record. Legally, that means that all subsequent purchasers are deemed to have constructive knowledge of that information.

Redlining

Systematic exclusion of certain geographic areas usually high-risk, low income neighborhoods, from mortgage investment.

Refinancing

The payment of a mortgage or debt from the proceeds of a new loan, using the same property as security. Ordinarily an entity applies for a refinancing loan in order to obtain a better interest rate on their mortgage.

Regulation B

Prohibits discrimination by lenders on the basis of age, race, color, religion, national origin, sec, marital status, or receipt of income from public assistance programs. It establishes guidelines for gathering and evaluating credit information and requires written notification to the applicant in cases where credit is denied.

Regulation Z

Requires that uniform methods be used to compute the cost of credit extended to individuals for personal, family, household, or agricultural credit.

Reinsurance

A contractual relationship between two insurance companies under which one insurer assumes a portion of the risk of the insurance policy written by the other.

Release

(1) To relieve from debt or security or abandon a right, such as the release of a mortgage lien from a part or all of the land mortgaged; (2) The instrument effecting a release.

Rent

Consideration paid for use or occupancy of land, buildings or dwelling units.

Resale

A sale of a home which is not the original sale from the builder or developer. When a development is still in construction, the developer may control resale by original owners.

Reserves

Funds set aside for a particular purpose, usually to protect the security of outstanding mortgage loans. Reserves are also held by condominium and homeowner associations for future maintenance needs, as a portion of the funds collected monthly, to reduce the need for future assessments for roof repairs, etc.

Residential Mortgage

A loan extended for which real estate is given as collateral. The collateral is usually a single owner occupied home, or a unit in a condominium or townhouses.

Restrictions (also Restrictive Covenant)

Limitations on the use of property imposed or created by deeds or other documents in the chain of title. A restriction, for example, may prohibit the placement of a trailer or the construction of a commercial structure on the property.

Riparian Rights

The rights of owners of lands bordering watercourses which relate to the water and its use.
 
 

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Sale Agreement

A contract entered into between a buyer and seller, setting forth the terms, provisions and conditions of a sale of real estate. Also referred to as a "Contract", Purchase and Sale Agreement or Deposit Receipt and Contract for Sale and Purchase.

Sales Comparison Approach

A method of estimating market value by comparing similar properties which have recently sold. It's based on the supposition that an informed purchaser would pay no more for a property than the cost of acquiring a similar existing property in the same neighborhood. Realtors commonly provide "comps" to prospective sellers contemplating listing their property with a realtor.

Satisfaction of Mortgage

A Release issued by the Mortgagee (lender) indicating that the debtor has repaid all principal, interest and outstanding charges due for a loan, specifying the recording data of the original mortgage. This document is provided subsequent to the lender's receipt of the payoff check issued by the closing agent. The Satisfaction must be recorded in the public records.

Savings Bank

An institution whose main functions are accepting interest bearing time deposits for investment in mortgages and high grade securities. Savings banks operate under slightly different federal regulations than national associations.

Search

A careful exploration and perusal of the public records in an effort to find all recorded instruments relating to a particular chain of title for real property.

Second Mortgage

A mortgage ranking in priority immediately below a first mortgage.

Secured Loan

A loan for which the creditor's interest is protected by requiring the borrower to pledge collateral of some kind. The collateral can be any marketable asset.

Servicing

The duties of the mortgage banker as loan correspondent as specified in the servicing agreement for which a fee is received. The collection for an investor of payments, interest, principle, and trust items, such as hazard and flood insurance, real estate taxes, on a note by the borrower in accordance with the terms of the note. Servicing also consists of operational procedures covering accounting, bookkeeping, insurance records, loan payment follow-up, and loan analysis.

Simple Interest

A method of interest calculation that takes a flat percentage of the principal sum on an annual basis.

Site Improvements

Improvements made to the land, such as landscaping, water, sewer and other utilities.

Small Business Administration (SBA)

An independent agency, created by the U.S. Government in 1953, for the purpose of helping small businesses compete with larger corporations. The SBA makes loans directly or guarantees those loans made to small businesses.

Subordination

(1) The act or process by which a person's rights are ranked below the rights of others. For example, a second mortgagee's (lender's) rights are subordinate to those of the first mortgagee (lender); (2) an agreement between two creditors of a particular borrower whereby one party grants to the other a priority of its lien.

Surety

(1) A person who agrees to be responsible for a debt or obligation of another; (2) The pledge or agreement by which one undertakes responsibility for the debt or obligation of another.

Survey

A measurement of boundaries of a parcel of land, it's area and sometimes it's topography, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any improvements, rights-of-way, easements.  Particularly im