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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
The act of conveying real property; taking title to a
property with the Buyer assuming liability for paying
an existing note secured by a deed of trust against
the property.
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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.
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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
of expenses:
Buyer's Expenses
Seller's Expenses
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 is charged to the buyer. The
buyer signs the mortgage, and all 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. Typically 6% to 7% on houses and 10% on
vacant 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.
Contract of Purchase
(See
Agreement of Sale)
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. (Different
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.
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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,
Quit Claim
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
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.
Depreciation
Decline in value of a house due to wear and tear,
adverse changes in the neighborhood, or any other
reason.
Documentary Stamps (Docs Stamps)
A State tax, in the forms of stamps, required on deeds
and mortgages when real estate title passes from one
owner to another. The amount of stamps required varies
with each State.
Down Payment
The amount of money to be paid by the purchaser to the
seller upon the signing of the agreement of sale. The
agreement of sale will refer to the down payment
amount and will acknowledge receipt of the down
payment. Down payment is the difference between the
sales price and maximum mortgage amount. The down
payment may not be refundable if the purchaser fails
to buy the property without good cause. If the
purchaser wants the down payment to be refundable, he
should insert a clause in the agreement of sale
specifying the conditions under which the deposit will
be refunded, if the agreement does not already contain
such clause. If the seller cannot deliver good title,
the agreement of sale usually requires the seller to
return the down payment and to pay interest and
expenses incurred by the purchaser.
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E
Earnest Money
The deposit money given to the seller or his agent by
the potential buyer upon the signing of the agreement
of sale to show that he is serious about buying the
house. If the sale goes through, the earnest money is
applied against the down payment. If the sale does not
go through, the earnest money will be forfeited or
lost unless the binder or offer to purchase expressly
provides that it is refundable.
Easement Rights
A right-of-way granted to a person or company
authorizing access to or over the owner's land. An
electric company obtaining a right-of-way across
private property is a common example.
Encroachment
An obstruction, building, or part of a building that
intrudes beyond a legal boundary onto neighboring
private or public land, or a building extending beyond
the building line.
Encumbrance
A legal right or interest in land that affects a good
or clear title, and diminishes the land's value. It
can take numerous forms, such as zoning ordinances,
easement rights, claims, mortgages, liens, charges, a
pending legal action, unpaid taxes or restrictive
covenants. An encumbrance does not legally prevent
transfer of the property to another. A title search is
all that is usually done to reveal the existence of
such encumbrances, and it is up to the buyer to
determine whether he wants to purchase with the
encumbrance, or what can be done to remove it.
Equity
The value of a homeowner's unencumbered interest in
real estate. Equity is computed by subtracting from
the property's fair market value the total of the
unpaid mortgage balance and any outstanding liens or
other debts against the property. A homeowner's equity
increases as he pays off his mortgage or as the
property appreciates in value. When the mortgage and
all other debts against the property are paid in full
the homeowner has 100% equity in his property.
Escrow
Funds paid by one party to another (the escrow agent)
to hold until the occurrence of a specified event,
after which the funds are released to a designated
individual. In FHA mortgage transactions an escrow
account usually refers to the funds a mortgagor pays
the lender at the time of the periodic mortgage
payments. The money is held in a trust fund, provided
by the lender for the buyer. Such funds should be
adequate to cover yearly anticipated expenditures for
mortgage insurance premiums, taxes, hazard insurance
premiums and special assessments.
Examination
(See Title
Search)
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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.
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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.
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H
Hazard Insurance
Protects against damages caused to property by fire,
windstorms, and other common hazards.
H.U.D.
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.
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I
Interest
A charge paid for borrowing money. (See
Mortgage
Note)
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J
Judgment Lien
A lien against the
property of a judgment debtor. An involuntary lien.
K
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)
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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.
Mortgage Insurance Premium
The payment made by a borrower to the lender for
transmittal to HUD to help defray the cost of the FHA
mortgage insurance program and to provide a reserve
fund to protect lenders against loss in insured
mortgage transactions. In FHA insured mortgages this
represents an annual rate of one- half of one percent
paid by the mortgagor on a monthly basis.
Mortgage 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.
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N
Note
A unilateral agreement containing an express and
absolute promise of the signer to pay to a named
person, or order, or bearer, a definite sum of money
at a specified date or on demand. Usually provides for
interest and, concerning real property, is secured by
a mortgage or trust deed.
O
Open-End Mortgage
(See also
Mortgage
(Open-End))
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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)
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Q
Quit Claim Deed
A deed which transfers whatever interest the maker of
the deed may have in the particular parcel of land. A
quit claim 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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R
Real Estate Broker
An 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.)
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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.
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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 covenants filed in the record,
which would adversely affect the marketability or
value of title.
Trustee
A party who is given legal responsibility to hold
property in the best interest of or "for the benefit
of" another. The trustee is one placed in a position
of responsibility for another, a responsibility
enforceable in a court of law.
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U
Underwritten Company
A title firm which conducts title searches but is not
qualified to insure, and therefore issues policies of
a qualified title insurer (underwriter) in return for
a portion of the premium.
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V
Variable Interest Rate
An interest rate that fluctuates with the current cost
of money; subject to adjustment if the prevailing rate
moves up or down.
Vendee
(See
Agreement of Sale)
Vendor
(See
Agreement of Sale)
Vendor's Lien
An implied lien given by law to a vendor for the
remaining unpaid and unsecured part of a purchase
price.
Venue
Neighborhood; often used to refer to the county or
place in which an acknowledgment is made before a
notary; also refers to the county in which a lawsuit
may be filed or tried.
Vesting
The names, status and manner in which title of
ownership is held with a fixed or determinable
interest in a particular parcel of real property; also
that portion of a title report or policy setting forth
the above.
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W
Waive
To voluntarily and intentionally relinquish a known
right, claim or privilege.
Warranty Deed
A deed used in many states to convey fee title to real
property.
X
Y
Z
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This
is a list of common terms used when refinancing, buying or selling a
home or property.
