- Terms are
defined as commonly understood in the mortgage and real
estate industry. The same terms may have different meanings
in other context.
- The definitions
are intentionally short and non-technical. They do not
include all possible meanings that a term may acquire
in legal use.
- State laws
may modify or change the meanings of certain terms defined.
A
B
C
D
E
F
G H
I J K L
M N O P
Q R
S T U V W X Y Z
A
Abstract
(Of Title): A
summary of the public records relating to the title to
a particular piece of land. An attorney or title insurance
company reviews an abstract of title to determine whether
there are any title defects which must be cleared before
a buyer can purchase clear, marketable, and insurable
title.
Acceleration
Clause: Condition in a mortgage that may require the
balance of the loan to become due immediately, if regular
mortgage payments are not made or for breach of other
conditions of the mortgage.
Agreement
of Sale: Known by various names, such as contract
of purchase, purchase agreement, or sales agreement according
to location or jurisdiction. A contract in which a seller
agrees to sell and a buyer agrees to buy, under certain
specific terms and conditions spelled out in writing and
signed by both parties.
Amortization:
A payment plan which enables the borrower to reduce
his debt gradually through monthly payments of principal.
Appraisal:
An expert judgment or estimate of the quality or value
of real estate as of a given date.
Assumption
of Mortgage: An obligation undertaken by the purchaser
of property to be personally liable for payment of an
existing mortgage. In an assumption, the purchaser is
substituted for the original mortgagor in the mortgage
instrument and the original mortgagor is to be released
from further liability in the assumption, the mortgagee's
consent is usually required.
The original
mortgagor should always obtain a written release from
further liability if he desires to be fully released under
the assumption. Failure to obtain such a release renders
the original mortgagor liable if the person assuming the
mortgage fails to make the monthly payments.
An "Assumption
of Mortgage" is often confused with "purchasing subject
to a mortgage." When one purchases subject to a mortgage,
the purchaser agrees to make the monthly mortgage payments
on an existing mortgage, but the original mortgagor remains
personally liable if the purchaser fails to make the monthly
payments. Since the original mortgagor remains liable
in the event of default, the mortgagee's consent is not
required to a sale subject to a mortgage.
Both "Assumption
of Mortgage" and "Purchasing Subject to a Mortgage" are
used to finance the sale of property. They may also be
used when a mortgagor is in financial difficulty and desires
to sell the property to avoid foreclosure.
B
Binder or
"Offer to Purchase": A
preliminary agreement, secured by the payment of earnest
money, between a buyer and seller as an offer to purchase
real estate. A binder secures the right to purchase real
estate upon agreed terms for a limited period of time.
If the buyer changes his mind or is unable to purchase,
the earnest money is forfeited unless the binder expressly
provides that it is to be refunded. Broker
(See Real Estate Broker)
Building
Line or Setback: Distances from the ends and/or sides
of the lot beyond which construction may not extend. The
building line may be established by a filed plat of subdivision,
by restrictive covenants in deeds or leases, by building
codes, or by zoning ordinances.
C
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.
Closing
Costs: The numerous expenses which buyers and sellers
normally incur to complete a transaction in the transfer
of ownership of real estate. These costs are in addition
to price of the property and are items prepaid at the
closing day.
This is a typical
list:
BUYER'S
EXPENSES SELLER'S EXPENSES
- Documentary
Stamps on Notes Cost of Abstract
- Recording
Deed and Mortgage Documentary Stamps on Deed
- Escrow Fees
Real Estate Commission
- Attorney's
Fee Recording Mortgage
- Title Insurance
Survey Charge
- Appraisal
and Inspection Escrow Fees
- Survey Charge
Attorney's Fee
The agreement
of sale negotiated previously between the buyer and the
seller may state in writing who will pay each of the above
costs.
Closing
Day: The day on which the formalities of a real estate
sale are concluded. The certificate of title, abstract,
and deed are generally prepared for the closing by an
attorney and this cost charged to the buyer. The buyer
signs the mortgage, and closing costs are paid. The final
closing merely confirms the original agreement reached
in the agreement of sale.
Cloud
(On Title): An outstanding claim or encumbrance
which adversely affects the marketability of title.
Commission:
Money paid to a real estate agent or broker by the
seller as compensation for finding a buyer and completing
the sale. Usually it is a percentage of the sale price--6
to 7 percent on houses, 10 percent on land.
Condemnation:
The taking of private property for public use by a
government unit, against the will of the owner, but with
payment of just compensation under the government's power
of eminent domain. Condemnation may also be a determination
by a governmental agency that a particular building is
unsafe or unfit for use.
Condominium:
Individual ownership of a dwelling unit and an individual
interest in the common areas and facilities which serve
the multi-unit project.
Contractor:
In the construction industry, a contractor is one
who contracts to erect buildings or portions of them.
There are also contractors for each phase of construction:
heating, electrical, plumbing, air conditioning, road
building, bridge and dam erection, and others.
Conventional
Mortgage: A mortgage loan not insured by HUD or guaranteed
by the Veterans' Administration. It is subject to conditions
established by the lending institution and State statutes.
The mortgage rates may vary with different institutions
and between States. (States have various interest limits.)
Cooperative
Housing: An
apartment building or a group of dwellings owned by a
corporation, the stockholders of which are the residents
of the dwellings. It is operated for their benefit by
their elected board of directors. In a cooperative, the
corporation or association owns title to the real estate.
A resident purchases stock in the corporation which entitles
him to occupy a unit in the building or property owned
by the cooperative. While the resident does not own his
unit, he has an absolute right to occupy his unit for
as long as he owns the stock.
D
Deed: A
formal written instrument by which title to real property
is transferred from one owner to another. The deed should
contain an accurate description of the property being
conveyed, should be signed and witnessed according to
the laws of the State where the property is located, and
should be delivered to the purchaser at closing day. There
are two parties to a deed: the grantor and the grantee.
(See also deed of trust, general warranty
deed, quitclaim deed,
and special warranty
deed.)
Deed of
Trust: Like a mortgage, a security instrument whereby
real property is given as security for a debt. However,
in a deed of trust there are three parties to the instrument:
the borrower, the trustee, and the lender, (or beneficiary).
In such a transaction, the borrower transfers the legal
title for the property to the trustee who holds the property
in trust as security for the payment of the debt to the
lender or beneficiary. If the borrower pays the debt as
agreed, the deed of trust becomes void. If, however, he
defaults in the payment of the debt, the trustee may sell
the property at a public sale, under the terms of the
deed of trust. In most jurisdictions where the deed of
trust is in force, the borrower is subject to having his
property sold without benefit of legal proceedings. A
few States have begun in recent years to treat the deed
of trust like a mortgage.
Default:
Failure to make mortgage payments as agreed to in
a commitment based on the terms and at the designated
time set forth in the mortgage or deed of trust. It is
the mortgagor's responsibility to remember the due date
and send the payment prior to the due date, not after.
Generally, thirty days after the due date if payment is
not received, the mortgage is in default. In the event
of default, the mortgage may give the lender the right
to accelerate payments, take possession and receive rents,
and start foreclosure. Defaults may also come about by
the failure to observe other conditions in the mortgage
or deed of trust.
Depreciation:
Decline in value of a house due to wear and tear,
adverse changes in the neighborhood, or any other reason.
Documentary
Stamps: A State tax, in the forms of stamps, required
on deeds and mortgages when real estate title passes from
one owner to another. The amount of stamps required varies
with each State.
Downpayment:
The amount of money to be paid by the purchaser to
the seller upon the signing of the agreement of sale.
The agreement of sale will refer to the downpayment amount
and will acknowledge receipt of the downpayment. Downpayment
is the difference between the sales price and maximum
mortgage amount. The downpayment may not be refundable
if the purchaser fails to buy the property without good
cause. If the purchaser wants the downpayment 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 downpayment
and to pay interest and expenses incurred by the purchaser.
E
Earnest
Money: The deposit money given to the seller or his
agent by the potential buyer upon the signing of the agreement
of sale to show that he is serious about buying the house.
If the sale goes through, the earnest money is applied
against the downpayment. If the sale does not go through,
the earnest money will be forfeited or lost unless the
binder or offer to purchase expressly provides that it
is refundable.
Easement
Rights: A right-of-way granted to a person or company
authorizing access to or over the owner's land. An electric
company obtaining a right-of-way across private property
is a common example.
Encroachment:
An obstruction, building, or part of a building that
intrudes beyond a legal boundary onto neighboring private
or public land, or a building extending beyond the building
line.
Encumbrance:
A legal right or interest in land that affects a good
or clear title, and diminishes the land's value. It can
take numerous forms, such as zoning ordinances, easement
rights, claims, mortgages, liens, charges, a pending legal
action, unpaid taxes, or restrictive convenants. An encumbrance
does not legally prevent transfer of the property to another.
A title search is all that is usually done to reveal the
existence of such encumbrances, and it is up to the buyer
to determine whether he wants to purchase with the encumbrance,
or what can be done to remove it.
Equity:
The value of a homeowner's unencumbered interest in
real estate. Equity is computed by subtracting from the
property's fair market value the total of the unpaid mortgage
balance and any outstanding liens or other debts against
the property. A homeowner's equity increases as he pays
off his mortgage or as the property appreciates in value.
When the mortgage and all other debts against the property
are paid in full the homeowner has 100% equity in his
property.
Escrow:
Funds paid by one party to another (the escrow agent)
to hold until the occurrence of a specified event, after
which the funds are released to a designated individual.
In FHA mortgage transactions an escrow account usually
refers to the funds a mortgagor pays the lender at the
time of the periodic mortgage payments. The money is held
in a trust fund, provided by the lender for the buyer.
Such funds should be adequate to cover yearly anticipated
expenditures for mortgage insurance premiums, taxes, hazard
insurance premiums, and special assessments.
F
Foreclosure:
A legal term applied to any of the various methods
of enforcing payment of the debt secured by a mortgage,
or deed of trust, by taking and selling the mortgaged
property, and depriving the mortgagor of possession.
G
General
Warranty Deed: A deed which conveys not only all the
grantor's interests in and title to the property to the
grantee, but also warrants that if the title is defective
or has a "cloud" on it (such as mortgage claims, tax liens,
title claims, judgments, or mechanic's liens against it)
the grantee may hold the grantor liable.
Grantee:
That party in the deed who is the buyer or recipient.
Grantor:
That party in the deed who is the seller or giver.
H
Hazard Insurance:
Protects against damages caused to property by fire,
windstorms, and other common hazards.
HUD: U.S.
Department of Housing and Urban Development. Office of
Housing/Federal Housing Administration within HUD insures
home mortgage loans made by lenders and sets minimum standards
for such homes.
I
Interest:
A charge paid for borrowing money. (See Mortgage Note)
L
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.)
M
Marketable
Title: A title that is free and clear of objectionable
liens, clouds, or other title defects. A title which enables
an owner to sell his property freely to others and which
others will accept without objection.
Mortgage:
A lien or claim against real property given by the
buyer to the lender as security for money borrowed. Under
government-insured or loan-guarantee provisions, the payments
may include escrow amounts covering taxes, hazard insurance,
water charges, and special assessments. Mortgages generally
run from 10 to 30 years, during which the loan is to be
paid off.
Mortgage
Commitment: A written notice from the bank or other
lending institution saying it will advance mortgage funds
in a specified amount to enable a buyer to purchase a
house.
Mortage
Insurance Premium: The payment made by a borrower
to the lender for transmittal to HUD to help defray the
cost of the FHA mortgage insurance program and to provide
a reserve fund to protect lenders against loss in insured
mortgage transactions. In FHA insured mortgages this represents
an annual rate of one-half of one percent paid by the
mortgagor on a monthly basis.
Mortgage
Note: A written agreement to repay a loan. The agreement
is secured by a mortgage, serves as proof of an indebtedness,
and states the manner in which it shall be paid. The note
states the actual amount of the debt that the mortgage
secures and renders the mortgagor personally responsible
for repayment.
Mortgage
(Open-End): A mortgage with a provision that permits borrowing
additional money in the future without refinancing the
loan or paying additional financing charges. Open-end
provisions often limit such borrowing to no more than
would raise the balance to the original loan figure.
Mortgagee:
The lender in a mortgage agreement.
Mortgagor:
The borrower in a mortgage agreement.
P
Plat: A
map or chart of a lot, subdivision or community drawn
by a surveyor showing boundary lines, buildings, improvements
on the land, and easements.
Points:
Sometimes called "discount points." A point is one
percent of the amount of the mortgage loan. For example,
if a loan is for $25,000, one point is $250. Points are
charged by a lender to raise the yield on his loan at
a time when money is tight, interest rates are high, and
there is a legal limit to the interest rate that can be
charged on a mortgage. Buyers are prohibited from paying
points on HUD or Veterans' Administration guaranteed loans
(sellers can pay, however). On a conventional mortgage,
points may be paid by either buyer or seller or split
between them.
Prepayment:
Payment of mortgage loan, or part of it, before due
date. Mortgage agreements often restrict the right of
prepayment either by limiting the amount that can be prepaid
in any one year or charging a penalty for prepayment.
The Federal Housing Administration does not permit such
restrictions in FHA insured mortgages.
Principal:
The basic element of the loan as distinguished from
interest and mortgage insurance premium. In other words,
principal is the amount upon which interest is paid.
Purchase
Agreement: (See Agreement of sale.)
Q
Quitclaim
Deed: A deed which transfers whatever interest the
maker of the deed may have in the particular parcel of
land. A quitclaim deed is often given to clear the title
when the grantor's interest in a property is questionable.
By accepting such a deed the buyer assumes all the risks.
Such a deed makes no warranties as to the title, but simply
transfers to the buyer whatever interest the grantor has.
(See Deed.)
R
Real Estate
Broker: A middle man or agent who buys and sells real
estate for a company, firm, or individual on a commission
basis. The broker does not have title to the property,
but generally represents the owner.
Refinancing:
The process of the same mortgagor paying off one loan
with the proceeds from another loan.
Restrictive
Covenants: Private restrictions limiting the use of
real property. Restrictive covenants are created by deed
and may "run with the land," binding all subsequent purchasers
of the land, or may be "personal" and binding only between
the original seller and buyer. The determination whether
a covenant runs with the land or is personal is governed
by the language of the covenant, the intent of the parties,
and the law in the State where the land is situated. Restrictive
covenants that run with the land are encumbrances and
may affect the value and marketability of title. Restrictive
covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be
erected, or prevent particular businesses from operating
or minority groups from owning or occupying homes in a
given area. (This latter discriminatory covenant is unconstitutional
and has been declared unenforceable by the U.S. Supreme
Court.)
S
Sales Agreement:
(See Agreement of sale.)
Special
Assessments: A
special tax imposed on property, individual lots or all
property in the immediate area, for road construction,
sidewalks, sewers, street lights, etc.
Special
Lien: A lien that binds a specified piece of property,
unlike a general lien, which is levied against all one's
assets. It creates a right to retain something of value
belonging to another person as compensation for labor,
material, or money expended in that person's behalf. In
some localities it is called "particular" lien or "specific"
lien. (See Lien.)
Special
Warranty Deed: A
deed in which the grantor conveys title to the grantee
and agrees to protect the grantee against title defects
or claims asserted by the grantor and those persons whose
right to assert a claim against the title arose during
the period the grantor held title to the property. In
a special warranty deed the grantor guarantees to the
grantee that he has done nothing during the time he held
title to the property which has, or which might in the
future, impair the grantee's title.
Survey:
A map or plat made by a licensed surveyor showing
the results of measuring the land with its elevations,
improvements, boundaries, and its relationship to surrounding
tracts of land. A survey is often required by the lender
to assure him that a building is actually sited on the
land according to its legal description.
T
Tax: As
applied to real estate, an enforced charge imposed on
persons, property or income, to be used to support the
State. The governing body in turn utilizes the funds in
the best interest of the general public.
Title: As
generally used, the rights of ownership and possession
of particular property. In real estate usage, title may
refer to the instruments or documents by which a right
of ownership is established (title documents), or it may
refer to the ownership interest one has in the real estate.
Title Insurance:
Protects lenders or homeowners against loss of their
interest in property due to legal defects in title. Title
insurance may be issued to a "mortgagee's title policy."
Insurance benefits will be paid only to the "named insured"
in the title policy, so it is important that an owner
purchase an "owner's title policy", if he desires the
protection of title insurance.
Title Search
or Examination: A check of the title records, generally
at the local courthouse, to make sure the buyer is purchasing
a house from the legal owner and there are no liens, overdue
special assessments, or other claims or outstanding restrictive
convenants filed in the record, which would adversely
affect the marketability or value of title.
Trustee:
A party who is given legal responsibility to hold
property in the best interest of or "for the benefit of"
another. The trustee is one placed in a position of responsibility
for another, a responsibility enforceable in a court of
law. (See Deed of Trust.)
Z
Zoning Ordinances:
The acts of an authorized local government establishing
building codes, and setting forth regulations for property
land usage.
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