OLD CAR

Old: Obedience, Loyalty, and Disclosure.

Car: Confidentiality, Accountability and Reasonable Care/Diligence.

Bundle of Rights

Legal rights of the real estate title holder. Includes the right of possession, the right of control, the right of exclusion, the right of enjoyment and the right of disposition.

Real Property

Generally immovable. Goes with the real estate.

Chattel

Often merely refers to tangible movable personal property.

Riparian Rights

Water rights over a moving body of water - for example, a river or a stream.

Littoral Rights

Land which abuts a body of static water - for example, a lake, sea or ocean.

Accretion

An increase in actual land due to natural causes - for example, from the gradual action of the ocean or river waters.

Avulsion

Land that is washed away by water - for example, a dam breaks and the rushing water washes away a strip of land.

Reliction

Gradual recession of water, leaving land permanently uncovered.

Appurtenances

Appurtenances include easements, covenants, and minerals (still in the ground). They are considered real property and “run with the land.”

Freehold Estate

Estate where ownership is held for an undefined length of time.

Fee Simple Estate

Also known as an "Estate of Inheritance" or "Fee Simple Absolute", this is a type of freehold estate. A Fee Simple Estate can be sold or inherited. Fee Simple Absolute is the most interest that one can hold in land.

Fee Simple Defeasible

Puts conditions on the use of a property.

Life Estate

An interest in real property that lasts the length of someone’s life. It is a type of freehold estate because it is indefinite in duration. When the life tenant's life ends, title reverts to the original owner (reversion) or a remainderman.

Legal Life Estate

Any life estate created by a function of law

Life Estate Pur Autrie Vie

An interest in real property that lasts the length of someone's life (who is not the life tenant). It is a type of freehold estate because it is indefinite in duration. When the "measuring life" ends, title reverts to the original owner (reversion) or a remainderman.

Reversionary Interest

The property reverts back to the person who granted it in the first place once the life estate's measuring life ends. This may also be referred to as a right of reverted.

Remainder Interest

If a life estate is designated to pass on to someone other than the person who created it (the grantor) after the measuring life ends, the person who will someday inherit the estate has a remainder interest in it. The recipient of the future remainder interest is referred to as the remainderman.

Less Than Freehold Estate

An estate estate interest held for a defined period of time.

Estate for Years

Estate or tenancy lasting a fixed period of time - for example, a summer rental lasting from April to September.

Periodic Tenancy

Estate where tenancy is renewed periodically - for example, week to week, month to month or year to year.

Estate at Will

Estate that can be ended at any time by the landlord or the tenant.

Estate at Sufferance

Estate where a tenant continues to occupy a property after a lease or rental agreement has ended.

Percentage Lease

Lease where the amount of rent paid by the lessee is a percentage of the gross income of the lessee’s business.

Net Lease

Also known as a Triple Net Lease, this is a lease in which the tenant pays for taxes, insurance and maintenance in addition to other fees like rent and utilities.

Gross Lease

Lease in which the tenant pays a fixed amount to the landlord - for example, a standard residential lease.

Sandwich Lease

A lease in which an existing tenant sub-lets (or leases again) the property to a third party.

Sale Leaseback

Seller leases the recently-sold building from the new owner. The Vendor becomes the Lessee. This allows the seller to deduct all future rent payments as business expenditures.

Tenant Improvement Allowance

The amount a landlord is willing to spend so the tenant can retrofit or renovate a commercial space.

Abandonment

Voluntarily giving up the rights and responsibilities of possession of a property.

Assignment

When one party passes responsibility on to another.

Surrender

Giving up possession of a property.

Constructive Eviction

When a landlord does something, or fails to do something, that he or she is legally obligated to do, rendering the property uninhabitable.

Estoppel Statement

A signed statement certifying that certain facts are correct, which cannot be later contradicted by the signer - for example, that a lease exists or that rent is paid to a certain date.

Deed

Evidence of property transfer.

Grant Deed

A deed that includes two implied warranties: 1 - The grantor has not already given the title to another person; and 2 - The estate has no undisclosed encumbrances.

Quitclaim Deed

A deed that operates as a release. It transfers property quickly, but without any warranties on the title of any kind.

Warranty Deed

A deed in which a property owner, when transferring the title, warrants that he owns the property free and clear of all liens.

Special Warranty Deed

A deed in which the grantor warrants only against defects that occurred during their ownership.

General Warranty Deed

A type of deed where the grantor or the seller guarantees that s/he or he holds clear title to a piece of real estate and has a right to sell it.

Bargain and Sale Deed

A deed that conveys real property without covenants. The grantor is implied to hold title and possession, but there is no warranty against encumbrances.

Reconveyance Deed

A deed which indicates that the borrower is released from a mortgage debt and transfers the property title from the lender (or beneficiary) to the borrower. Most commonly issued when a mortgage has been paid in full.

Title

Way of holding title to real property. Title means ownership of the bundle of rights in a property.

Chain of Title

Record of all prior transfers and or encumbrances for a particular parcel of land.

Abstract of Title

A summary that provides details of the title deeds and documents that prove an owner's right to dispose of land, together with any encumbrances that relate to the property.

Cloud on Title

A defect in title - for example, an unreleased lien or encumbrance that might invalidate or impair a title.

Quiet Title Action

Court action to remove a cloud or another claim that has been placed on title to property, thus "quieting" any challenges or claims to the title.

Alienation of Title

A loss of title.

Title Insurance

Insures against any losses due to defects or problems with the title after it has been searched or examined. Ensures the buyer is getting a clean title.

Standard Policy of Title Insurance

Insurance policy most buyers get to protect themselves from forgery in the chain of title or defective delivery of a deed.

Extended Policy of Title Insurance

Insurance policy with increased coverage. Helps with a dispute over property lines which are disclosed by a survey. Covers improvements on adjoining land.

Estate in Severalty

Property owned by just one individual (or corporation).

Ownership in Severalty

Individual or sole ownership (also known as tenancy in severalty)

Concurrent Estate

Property owned by more than one person.

Tenancy in Common

Concurrent ownership with unity of possession only. No automatic right of survivorship, meaning a tenant in common can leave her interest to someone in her will.

Joint Tenancy

Type of co-ownership. Usually comes with the right of survivorship.

Right of Survivorship

the statutory principle of survivorship tenancy, which means that when one co-owner dies, their ownership interest reverts to the surviving co-owners.

Encumbrance

Burden on the property. It is a claim, lien, charge, or liability attached to real property. Title can still be transferred.

Easement

The right to use or enter someone else’s land for a special purpose, within limits. Land with an easement on it is encumbered.

Dominant Tenement

The land enjoying the easement. Can terminate an easement by recording a “quitclaim deed”.

Servient Tenement

The land burdened by the easement.

Easement by Prescription

Easement granted after someone has used or entered land for a period of time and is given a legal right to continue to do so. Requires “open, notorious, hostile, and continuous” use.

Appurtenant Easement

Easement attached a property which allows the owner the use of the neighbor's land - for example, using your neighbor's driveway to get to your garage. "Runs with the land", so the easement passes to the next owner.

Easement in Gross

Easement which attaches to an individual (person or entity) - for example, the power company's right to access utility lines.

Encroachment

When a neighbor is using land which they do not own - for example, if the owner of a parcel of land built a driveway on his own land that accidentally crossed two feet over onto his neighbor’s land. Can be considered trespass.

General Lien

Lien which attaches to all of the owner’s property - for example, income tax liens or liens resulting from a court judgment.

Specific Lien

Lien which attaches to a specific parcel of the owner’s property - for example, trust deeds, mortgages, mechanic’s liens, or property taxes.

Voluntary Lien

Lien obtained voluntarily - for example, when you get a mortgage or trust deed from the bank and a lien is placed on your property in exchange for a loan.

Involuntary Lien

Lien that is imposed on a person - for example, a property tax lien imposed for unpaid property taxes.

Mechanic's Lien

Lien filed for to benefit someone who worked on the property. Only considered valid if they have been verified and recorded.

Judgement Lien

Lien imposed upon someone by a court. It is a general involuntary lien.

Government Powers

P E T E = Police power, Eminent domain, Taxation, Escheat.

Police Power

The government's right to regulate conduct or property to protect the health, safety, welfare, and morals of the community. Includes regulations like zoning laws.

Down Zoning

Changing a zone from commercial to residential.

Grandfather Clause

Allows a property to continue it's existing use, even if it doesn't comply with zoning laws.

Nonconforming Use

Allows a property to continue it's existing use when it no longer complies to zoning regulations, but did at the time the property's use was established.

Multi-family Residential

An R-3 zone is for Multi-family Residential use.

Building Codes

Establish minimum standards of construction for public safety. Local building codes usually set high standards. When they are different from state standards or federal standards, the builder must follow whichever standards are highest.

Escheat

When property is returned to the state because there is no individual owner - for example, when a property owner dies intestate (without a will), and without heirs.

Intestate

Without a will.

Testate

Having a will.

Probate Sale

The selling of a property when a homeowner dies and the property needs to be divided among inheritors or sold to pay debts.

Holographic Will

Handwritten will.

1031 Tax Deferred Exchange

Process which allows investors to sell a property and reinvest the proceeds into a new property while postponing the payment of capital gain taxes.

Boot

Cash or property used to balance out the equities of properties being exchanged. Receipt of boot may result in a recognized gain.

Ad Valorem

When something is taxed based on its value. Latin for "According to Value."

Marginal Tax Rate

Percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the percentage taken from your next dollar of taxable income above a predefined income threshold. It is applied to the nearest dollar of taxable earned income.

Unadjusted Cost Basis

Original price of a property. Used to calculate capital gains. It is usually just the purchase price.

Adjusted Cost Basis

Takes into account changes to a property which would affect its cost. To calculate, start with the amount originally paid, add the cost of improvements and assessments, then subtract deductions taken (such as depreciation and depletion) for example, adding the cost of a new concrete patio on your personal residence.

Eminent Domain

Property taken by the government for public use in exchange for just compensation. Government power.

Condemnation

Action which results in compensation for a property when eminent domain rights are exercised by the government.

Inverse Condemnation

Legal action to force payment for property taken by the government when eminent domain proceedings were not correctly followed, or when the government failed to provide just compensation.

Lis Pendens

A pending legal action - for example, a notice that a property is due to be taken to court which, depending on the results of the court case, could affect the title. A lis pendens remains in effect until there is a judgment or the court case is dismissed.

Injunction

A court order to stop certain actions by certain individuals - for example, local homeowners could seek an injunction to stop another homeowner from putting up a large neon sign over his home that says “Motel”.

Writ of Execution

A court order to enforce a judgement - for example, to sell a property to satisfy a judgment against the owner.

Constructive Notice

A "legal fiction" that says someone has been notified of something even though actual notice didn't happen. Constructive Notice can also be given by taking possession.

Actual Notice

When first-hand knowledge of something's provided to an individual - for example, if a buyer knows that someone has taken possession of the property that is for sale.

Material Fact

Fact that a reasonable person would think was relevant to a decision being made. If knowing something could cause a person to change their mind about a transaction, legally it's a material fact.

Acknowledgement

An affirmation or declaration used to authenticate legal instruments, usually done by a notary). An Acknowledgment may only be carried out by a notary public who has no interest in the transaction.

Escrow

Neutral third party hired to handle a property transaction, the exchange of money and any related documents.

Debit

Money owed when escrow is closed - for example, the purchase price of a property is a debit for the buyer.

Credit

Money owed to you when escrow is closed - for example, prepaid taxes are a credit for the seller.

Short Rate

Method used by your insurance company to calculate any refund or premium due after you cancel your policy, especially with early cancellation.

Impounds

Account maintained by the mortgage company to collect recurring costs such as insurance and tax payments that are necessary for you to keep your home, but are not technically part of the mortgage.

R E S P A

The Real Estate Settlement Procedures Act mandates that certain disclosures be provided so buyers can make informed decisions, and prohibits certain practices like referral fees and kickbacks. Applies to 1 to 4 family residential dwellings.

T I L A

The Truth In Lending Act is designed to protect borrowers by requiring that lenders explain full credit terms to the borrower, like the amount of a loan, APR, finance charges, payment schedule, and total paid over the life of a loan. T I L A does not cover agricultural loans.

T R I D

The T I L A/R E S P A Integrated Disclosure, also called the "Know Before You Owe" rule, combines several documents required by RESPA and TILA into two: one provided at the beginning of the process called a "Loan Estimate", and one provided at the end called a "Closing Disclosure".

A P R

The Annual Percentage Rate is the cost of credit that consumers pay, expressed as a simple annual percentage. If an ad only states the APR, then other disclosures are not necessary.

F H A

The Federal Housing Administration was created by the National Housing Act of 1934 with the intention of regulating the rate of interest and the terms of mortgages that it insured in order to make home ownership more accessible.

Jones vs. Mayer

The U.S. Supreme Court judgment which, under the Thirteenth (13th) Amendment, upheld anti-discrimination laws as constitutional in 1968.

Sherman Anti-Trust Act

Federal Law that promotes free-market competition by prohibiting any contract, trust, or conspiracy in restraint of interstate or foreign trade.

Americans with Disabilities Act

A civil rights law that prohibits discrimination against individuals with disabilities in all areas of public life, including jobs, schools, transportation, and all public and private places that are open to the general public. Became law in 1990.

Steering

A form of racial discrimination where brokers or salespeople direct interested buyers away from or toward certain neighborhoods to control racial composition - for example, an agent that only shows minority buyers houses that are located in segregated areas.

Blockbusting

Discriminatory practice of trying to convince owners in a neighborhood to sell their homes because members of a minority group are moving into the neighborhood.

Panic Selling

Discriminatory practice of trying to convince owners in a neighborhood to sell their homes because members of a minority group are moving into the neighborhood.

Panic Peddling

Discriminatory practice of trying to convince owners in a neighborhood to sell their homes because members of a minority group are moving into the neighborhood.

Redlining

Discriminatory practice of mortgage lenders in which they draw "red lines" around portions of a map to indicate areas or neighborhoods where they don't want to make loans.

Specific Performance

Court order requiring a party to perform. In real estate, a buyer can force a seller to go through with the sale of property (according to a contract) when money is not sufficient compensation for a buyer.

Misrepresentation

A misstatement about some material feature of a property - for example, when a broker fails to address or reveal a material feature of the property entirely. Can be fraudulent, negligent, or innocent.

Actual Fraud

An act intended to deceive another like making a false statement, making a promise without intending to perform it, or suppressing the truth.

Constructive Fraud

A circumstance in which a person or entity gains an unfair advantage over another by deceitful or unfair methods. Intent does not need to be shown, as in the case of actual fraud.

Commingling

When personal funds are mixed with those of a client. It is illegal. By law, brokers must use a separate trust or escrow account for other people’s funds.

Puffing

Exaggerating the benefits or features of a property.

Caveat Emptor

Latin for "Buyer Beware".

Valid Contract

The four elements of a contract that make it valid are Capable parties, Mutual consent, Consideration, and Lawful object. It does not necessarily have to be written to be valid, nor does it have to be performed to be valid.

Void Contract

A contract that lacks one of the four essentials.

Voidable Contract

A contract that can be rejected at a later date for a specific reason - for example, contracts signed under duress, contracts entered into with threat or menace, or contracts entered into with a minor.

Competent or Capable Parties

All parties entering into a contract must be "legally fit" (having the necessary age, ability, and authority to accomplish any given acts or duties) for the contract to be valid.

Mutual Consent

An agreement by the parties is necessary for the contract to be binding.

Consideration

An exchange of one or more items; “Sufficient”, “Valuable”, “Good”, and “Adequate” are all words that are often used to describe Consideration.

Lawful Object

A contract must be legal. If a contract has an illegal purpose, it is void.

Unenforceable Contract

Contract which cannot be enforced in a court of law - for example, if the terms of the contract are ambiguous, if one party has a voidable contract, if the Statute of Limitations has expired or if it needs to be in writing.

Enforceable Contract

Any legal contract which carries the force of law behind it.

Bilateral Contract

An agreement in which one person makes a promise in exchange for a promise from a second person.

Unilateral Contract

An agreement in which one person makes a promise.

Executed Contract

A contract is considered “executed” once both parties have completed each of their obligations mentioned in the contract.

Executory Contract

A contract in which terms of the contract have yet to be completed.

Implied Contract

An agreement created by actions of the parties involved, but there is no written record nor any actual verbal agreement. An implied contract is a legal substitute for a contract that is assumed to have been drawn.

Statute of Frauds

Statute that explains what contracts need to be written to be enforceable. Normally, any contract that is not performed within one year must be in writing.

Statute of Limitations

Statute which dictates a period of limitation for bringing legal actions of certain kinds.

Novation

Term used when part of an agreement is changed, or an old agreement is replaced by a new one.

Codicil

An addition or supplement that explains, modifies, or revokes a will (or part of one).

Agency

An individual or corporation who represents another. The other person or corporation is known as the “principal”.

Fiduciary

A professional responsibility to act truthfully and with good faith when you are representing a client.

Actual Authority

Specific powers given to an agent by a principal, allowing them to act on the principal's behalf.

Ostensible Authority

Situation where a reasonable third party would understand that an agent had authority to act. This means a principal is bound by the agent's actions, even if the agent had no actual authority, whether express or implied. Also known as Apparent Authority.

Dual Agent

When a real estate licensee works with both the buyer and the seller.

General Agent

Agent who has the authority to perform any and all acts required for a job or business.

Special Agent

Agent with the authority to perform a specific duty - for example, a listing agent.

Estoppel

Signed statement of facts that can't later be contradicted by the person who signed it.

Listing

Employment contract between principal and broker where the broker is paid by the principal to find a buyer. A listing can last any length of time agreed upon by both broker and seller.

Exclusive Listing

Employment agreement in which a specified agent earns a commission if a property is sold within a specified time frame. The specified agent will generally earn a commission, even if another licensee finds a buyer. If two exclusive listings are signed, the seller may have to pay two commissions.

Exclusive Agency Listing

Employment contract where the seller agrees to pay a broker commission if any agent/ or broker finds a buyer. But if the owner sells it themselves, the broker gets no commission.

Exclusive Authorization and Right to Sell Listing

Employment contract where the owner agrees to sell the property only through the listing broker. The broker gets paid no matter who finds a buyer, so does not need to prove that he/she is the “procuring cause”.

Open Listing

Unilateral contract in which multiple agents can be employed to find a buyer. If the owner finds a buyer, no commission is paid.

Net Listing

Employment contract in which seller pays the listing broker all purchase price proceeds over and above a minimum figure required by the seller - for example, Joe wants $100,000 for his house, if the broker finds a buyer for $120,000 he gets $20,000 commission, if he finds a buyer for $102,000 he gets $2,000. Legal in some states, but not in most.

An Option

Contract which promises to keep an offer open to sell or lease real property for a set period of time. The optionor cannot revoke the offer to sell during the designated period of time, and the optionee is under no obligation to buy the property in question. The optionee is not bound by the option.

Land Contract (Conditional Installment Sales Contract)

Form of seller-financing. The buyer makes payments to the seller until the property is paid off. The vendor (seller) becomes a lender to the vendee (buyer). The buyer gets to use the property (equitable title) while the seller retains legal title of land as a security device (the right to sell).

Protection Period Clause (Safety Clause)

Clause which protects the listing broker's commission if the owner sells to a buyer procured by the broker, even after the listing agreement has ended. The name of the potential buyer(s) should be documented in writing at the end of the listing period.

Contingency Clause

Contract provision that requires a specific event or action to take place in order for the contract to be considered valid - for example, a subject-to-financing clause which allows a buyer to make an offer on a home before financing has been secured.

Hold Harmless Clause

A statement in a legal contract asserting that an individual or organization is not liable for any injuries or damages caused to the individual signing the contract. Can be unilateral or reciprocal.

Interim Occupancy Agreement

Agreement made when possession and title do not occur at the same time - for example, when a buyer wants to move in to a property before the close of escrow.

Earnest Money Deposit

Deposit made to a seller representing a buyer's intention to purchase a home in "good faith".

Value

The current worth of owning a particular property, or what someone would pay for it in a fair transaction. Its original cost has no relevance to its value.

Essential Elements of Value

S T U D - Scarcity, Transferability, Utility, and Demand.

Principle of Substitution

A valuation principle that says the value of a property should be equal to that of a similar, substitute property. For example, an investor wouldn't pay one million dollars for a property when another one is available with a similar use, design, and income for five hundred thousand dollars. The lowest valuation should be the upper limit of value for both homes being compared.

Principle of Contribution

A valuation principle that says the worth of an improvement is how much it adds to the market value of the property, not how much the improvement cost.

Principle of Regression

A valuation principle that says a more expensive property can become devalued when lesser expensive or substandard properties are built nearby.

Principle of Progression

A valuation principle that says having nicer, more expensive homes nearby can increase the value of a property.

Principle of Highest and Best Use

The reasonable, probable, and legal use of a property that results in the highest value. What is the best use for a property?

Conformity to Land Use Objectives

Idea that when everybody’s houses are built the same in an area, their price will go up. This is why many homes are built in a similar style to other properties in the area.

Plottage

The increase in value gained by combining two or more units of property. Usually the value of the new combined property is greater than the values of each lot individually.

Assemblage

Process of joining several parcels of land to form a larger parcel.

Assessment

Setting of a value on property, usually for the purpose of calculating real property taxes.

Narrative Appraisal

The most comprehensive of the three types of appraisal (letter form, short form, and narrative report). It includes all the information obtained by the appraiser as well as the methodology behind the calculations and value conclusion.

Type of Value

Found in the statement of purpose section of an appraisal report - for example, market value or investment value.

Market Data (Comparison) Approach

Method of estimating the value of a property by looking at sales of comparable properties. Uses the entire property to make the comparison. Based on the principle of substitution, it is often used to find the value of houses and vacant lots. It becomes less reliable during times of economic change or instability, or in an inactive market.

Cost (Replacement) Approach

Method of estimating the value of a property by adding the appraiser's estimate of the replacement cost of the building to estimated land value and subtracting depreciation. It is most commonly used to appraise special purpose properties (libraries, schools, etc.). It sets the upper limits of value and is most appropriate for the appraisal of new property.

Capitalization (Income) Approach

Method of estimating the value of a property by converting income into value. The hardest part of the Capitalization Approach is working out the cap rate.

Summation Method

- A post office building would have a lower capitalization rate because it is a lower risk. A hardware store would have a high cap rate because it is a higher risk.

- Capitalization (income) approach would be used in the appraisal of a restaurant. It would be also be highly appropriate for a shopping center.

- It is also called “Adjusted Gross Income”; the “Effective Gross Income” is calculated by subtracting vacancy losses from the gross income."

Gross Rent Multipliers

The price of a property divided by its rent.

Acre

Plot of land equal to 43,560 square feet.

Commercial Acre

Portion of commercial land that can be built upon after allowances for roads, setbacks, anticipated open spaces, and unsuitable areas have been made.

Depreciation

Any loss in value of a property over time.

Functional Obsolescence

Loss in value resulting from functional problems caused by age or poor design.

Economic Obsolescence

Loss in value that occurs because of physical factors outside of the property - for example, an oversupply of similar properties, or detrimental zoning changes.

Economic Life

Length of time a property has some profitable use (usually less than its physical life).

Effective Age

Age of a property based on its condition, not its actual age - for example, if an appraiser examines a building that is 25 years-old but, because of excellent maintenance it has the condition of an 11 year-old building, the appraiser may use the 11-year-old age as the effective age of the property.

Trust Deeds & Mortgages

Non-negotiable instruments used to secure a promissory note.

Trust Deed

Three-party system of securing a promissory note with a Trustor, Trustee and Beneficiary.

Physical Deterioration

Form of depreciation caused by wear and tear. It is not a form of obsolescence.

Trustor

The entity that signs the trust deed used as security on the loan. Appreciation in value of a property benefits the trustor. Although the house value may increase, the amount owed on the loan does not.

Trustee

Third-party given legal title by the trustor. The beneficiary notifies the trustee if the trustor defaults, at which time the trustee would conduct a trustee sale, resulting in foreclosure.

Beneficiary

Entity that loans the money and secures the loan via trust deed. Once a loan is paid in full, the beneficiary issues a “Request of Reconveyance” and the trustee issues a reconveyance deed. A beneficiary statement is a document in which the Lender provides the present balance of a loan.

Mortgagor

Entity giving the promissory note that serves as evidence of the debt. The borrower is known as the mortgagor.

Mortgagee

Entity that lends money to a borrower for the purpose of purchasing real estate. The lending institution receives the mortgage (instrument) from the buyer.

Foreclosure

Process which allows a lender to recover the amount owed on a defaulted loan.

Deed in Lieu of Foreclosure

Instrument through which a mortgagor (borrower) conveys all interest in a property to satisfy a loan and avoid foreclosure.

Request for Notice of Default

A junior lender's request to be notified if a senior loan is defaulted on. Recorded to protect the beneficiary of a second loan.

Promissory Note

Evidence of debt.

Straight Note

Loan in which there are no principal payments made. The entire principal amount of the loan is paid off at maturity or the end. The interest is paid off either at the end or during note’s term.

Holder in Due Course

An innocent purchaser of a note who didn't realize there were any defects.

Simple Interest

The cost of using or borrowing money based on the principle borrowed and time period of a loan. Type of interest paid on most home loans.

Discounting

Selling a note for less money than what is owed.

Variable Interest Rate Loan

Loan with which the interest rate can increase or decrease as market interest rates change.

Nominal Interest Rate

Interest rate specified (named) in a note.

Effective Interest Rate

Interest rate that a borrower actually pays on a loan.

Substandard Loans

Term for loans given to borrowers with bad credit history.

Leverage

Strategy of using borrowed money to maximize returns. Most people can't afford to buy a home with their own cash, which is why they take out a loan from the bank.

The most important factor for a lender when deciding whether or not to make a loan. A lender will evaluate risk by looking at the borrower’s income, their character (credit), and the property.

Debt to Income Ratio

How much money a person earns compared to how much they owe, expressed as a percentage. Used by lenders as a loan-qualifying tool.

FICO Score

Score reflecting a buyer’s credit history. Used by many mortgage lenders that use a risk-based system to guess at how likely a borrower is to default on financial obligations.

Loan to Value ratio

Ratio of a loan to the lending value of a property, expressed as a percentage. The lower the ratio, the higher the equity. For example, the loan-to-value ratio of a loan for $90,000 on a home which costs $100,000 is 90%.

Property as Collateral

If a property owner defaults on the terms of a home loan, the property will be sold to recover the debt. The mortgage or trust deed is your agreement to pledge your home or other real estate as security.

Amortization

Payment of a financial obligation in installments.

Negative Amortization

Situation in which loan payments do not cover the principal and/or interest on a loan, which causes the loan balance to increase.

Amortization Tables

Shows the monthly payment on a loan.

Graduated Payment Adjustable Mortgage (G P A M)

Allows for the deferment of certain principal payments. Typically, this means that payments on a loan start at a lower monthly payment and increase over a specified time frame.

Construction Loan

Short-term loan used to finance the building of a home or another real estate project.

Obligatory Advances

Disbursements of money over the period of a construction loan which the lender is bound to make under the terms of the loan.

Interim Loan

Short-term loan usually made during construction of a building. After completion of the structure, a permanent loan (“takeout loan”) is usually arranged.

Take-Out Loan

Long-term loans, often permanent mortgage loans which a lender agrees to make to a borrower upon completion of improvements on the borrower's land. The proceeds of the loan are used mainly to pay off the construction loan.

Subject To

Situation in which a buyer takes title to property but the existing loan stays in the name of the seller, so the seller is primarily liable for the loan.

Assume

Situation in which a buyer is willing takes over an existing trust deed and note, which relieves the seller of the primary liability on the trust deed.

Hypothecate

When an asset is pledged to secure a loan without giving up possession of the asset.

Subordination Clause

A clause in an agreement which states that another agreement will take priority over it. Allows a mortgage to be added at a later date which will take priority over an existing mortgage, such as when an owner re-finances a piece of property that already has a second mortgage, and the re-financing lender requires the second mortgage provider to add a subordination cause which gives the re-financing loan priority over the second mortgage.

An Acceleration Clause

A clause that allows a lender to "call" a loan and demand immediate repayment of the entire loan.

Open-End Clause

Provision in a mortgage contract that allows the mortgaged real estate to be used as security to borrow additional money.

Prepayment Clause

Allows a penalty to be enforced if a mortgage is paid off early.

Prepayment Penalty

Agreement between a borrower and a bank or mortgage lender that regulates what the borrower is allowed to pay off and when - for example, many mortgage providers allow up to 20% of a loan balance to be paid off each year.

Discount Points

Fee paid directly to a lender in exchange for a reduced interest rate. Each discount point costs one percent of the face amount of the loan.

Mortgage Yield

Interest returns a lender gets from a mortgage.

Release Clause

Clause in a blanket mortgage which gives the property owner the right to pay off a portion of the debt, thereby freeing a portion of his property from the mortgage.

Warehousing

Collecting loans and putting them out as a package for sale in the secondary mortgage market. By selling these mortgages, they now have additional capital that can be used to make more mortgages which, in turn, may be sold on the secondary mortgage market.

Federal Housing Administration (F H A)

Insures lenders against loss in the event of a home loan default. FHA loans are issued at institutions that are authorized to deal with the FHA. Private insurers can insure loans when the borrower does not qualify for an FHA loan.

VA Loan

A loan guaranteed by the US Department of Veterans Affairs (VA). No down payment is required. Made to honorably discharged veterans or their un-remarried widows or widowers.

Accession

Title to improvements or additions to real property is acquired as a result of the accretion of alluvial deposits along the banks of streams or as a result of the annexation of fixtures.

Acknowledgment

A declaration made by a person to a notary public or other public official authorized to take acknowledgments that an instrument was executed by him or her as a free and voluntary act.

Agent

One who represents or has the power to act for another person (called the principal). The authorization may be express, implied, or apparent. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be her or his agent.

Alienation clause

Clause in a mortgage instrument that prevents a borrower from selling a property or allowing an assumption of the existing mortgage without lender approval. If an attempt is made to do so without prior approval, the entire remaining mortgage balance becomes due before the property can be transferred.

Amenities

Neighborhood facilities and services that enhance a property’s value. They are always outside of the property. Swimming pools, three-car garages, decks, etc., that are on the property are called features.

Antitrust laws

The laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition.

Appurtenant

Belonging to; incident to; annexed to.

Assumption of mortgage

The transfer of title to property to a grantee, by which the grantee assumes liability for payment of an existing note secured by a mortgage against the property. Should the mortgage be foreclosed and the property sold for a lesser amount then that due, the grantee/purchaser who has assumed and agreed to pay the debt secured by the mortgage is personally liable for the deficiency.

Reduction certificate

A document signed by a lender stating the outstanding amount on a mortgage loan.

Attorney-in-fact

An attorney-in-fact is a person who is authorized to perform business-related transactions on behalf of someone else such as the principal of a company.

Base line

One of a set of imaginary lines running east and west and crossing a principal meridian at a definite point. Base lines are used by surveyors for reference in locating and describing land under the rectangular survey system (or government survey method) of property description.

Benchmark

A permanent reference mark or point established for use by surveyors when measuring differences in elevation.

Bill of sale

A written instrument given to pass title to personal property.

Blanket mortgage

A mortgage that covers more than one parcel of real estate and provides for each parcel’s partial release from the mortgage lien on repayment of a definite portion of the debt.

Buffer zone

A strip of land that separates one land use from another.

Buydown

A payment made, often by the seller, to help the buyer qualify for the loan.

Capital gain

A capital gain refers to profit that results from a sale of a capital asset, such as stock, bond or real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price

Capitalization rate

The rate of return a property will produce on the owner’s investment.

Conforming mortgages

Securitized mortgages sold on the secondary market that meet certain requirements established by Fannie Mae and Freddie Mac.

Contingencies

A provision or condition in the purchase of real estate requiring a certain act to be done or an event to happen before the contract becomes binding.

Contract for deed

A contract for the sale of real estate under which the sale price is paid in periodic installments by the purchaser, who is in possession and holds equitable title, although actual title is retained by the seller until final payment.

Conventional loan

A loan that is not insured or guaranteed by a government agency.

Conveyance

A written instrument that evidence transfer of some interest to real property from one person to another.

Counteroffer

A new offer made as a reply to an offer received, having the effect of rejecting the original offer. The original offer cannot be accepted thereafter unless revived by the offeror repeating it.

C C & R's

Covenants, Conditions, and Restrictions. Condominium documents that serve as the operational procedures describing the rights and prohibitions of the co-owners in a condominium association.

Defeasance clause

A clause used in leases or mortgages that cancels a specified right on the occurrence of a certain condition, such as cancellation of a mortgage on repayment of the mortgage loan.

Deficiency judgment

A personal judgment levied against the mortgagor when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

Determinable fee estate

A fee-simple estate in which the property automatically reverts to the grantor on the occurrence of a specified event or condition.

Devise

A transfer of real estate by will or last testament. The donor is the devisor and the recipient is the devisee

Emblements

Growing crops that are produced annually through the tenant’s own care and labor and that she or he is entitled to take away after the tenancy is ended. Emblements are regarded as personal property even prior to harvest.

E C O A Equal Credit Opportunity Act

Federal legislation requiring lenders to make credit equally available without discrimination based on race, sex, color, religion, marital status, age, national origin, or receipt of income from public assistance.

Equitable title

The beneficial interest of a person whom equity regards as the real owner but the legal right vests with another. For example, a purchaser under a contract for sale has equitable title to the property s/he intended to purchase.

Equity

The interest or value that an owner has in a property over and above any liens against it.

Expressed contract

An oral or written contract in which the parties state their terms and express their intentions in words.

Federal National Mortgage Association (F N M A)

“Fannie Mae” creates a secondary market for existing mortgages. FNMA does not loan money directly, but rather buys DVA, FHA, and conventional loans.

F H A loan

A loan insured by the FHA and made by an approved lender in accordance with FHA regulations.

Government National Mortgage Association (G N M A)

“Ginnie Mae,” a federal agency and division of HUD that operates special assistance aspects of federally aided housing programs and participates in the secondary market through its mortgage-backed securities pools.

Graduated payment mortgage

A mortgage loan for which the initial payments are low but increase over the life of the loan.

Habendum clause

The deed clause beginning “to have and to hold,” which defines or limits the extend of ownership in the state granted by the deed.

HUD The Department of Housing and Urban Development

Regulates FHA and GNMA. The Department of Housing and Urban Development (HUD) oversees federal programs designed to help Americans meet their housing needs.

Hypothecation

The pledge of property as security of a loan in which the borrower maintains possession of the property while it is pledged as security.

Income approach

The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.

Laches

An equitable doctrine used by the courts to bar a legal claim or prevent the assertion of a right because of undue delay, negligence, or failure to assert the claim or right.

Leasehold estate

A tenant’s right to occupy real estate during the term of a lease, generally considered to be a personal property interest.

Lessee

The tenant who leases a property.

Lessor

One who leases property to a tenant

Life tenant

A person in possession of a life estate.

Liquidated damages

Liquidated damages occur when, by contractual agreement, defaulted earnest money becomes the personal property of the seller.

Metes-and-Bounds description

A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using direction and distances around the tract, back to the point of beginning.

Notary public

A public official authorized to certify and attest to documents, take affidavits, take acknowledgments, administer oaths, and perform other such acts.

Open-end mortgage

A mortgage loan expandable by increments up to maximum dollar amount, all of which is secured by the same original mortgage.

Package mortgage

A method of financing in which the purchase of the land also finances the purchase of certain personal property items.

Participation financing

A mortgage in which the lender participates in the income of the mortgaged venture beyond a fixed return, or receives a yield on the loan in addition to the straight interest rate.

Principal

A main party to a transaction – the person for whom the agent works. Also known as the client.

Client

When a agency relationship is created that involves a fiduciary duty.

Customer

Must be treated with honesty and fairness but no fiduciary duty is owed.

Principle of conformity

The appraisal theory stating that buildings that are similar in design, construction, and age to other buildings in the area have a higher value than they would have in a neighborhood of dissimilar buildings.

Procuring cause

The effort that brings about the desired result. Under an open listing, the broker who is the procuring cause of the sale receives the commission. In an exclusive right to sell listing there is no need to prove procuring cause.

Proration

The proportional division or distribution of expenses of property ownership between two or more parties. Closing statement prorations generally include taxes, rents, insurance, interest charges, and assessments.

Pur autre vie

Latin, meaning “for the life of another.” A life estate pur autre vie is a life estate measured by the life of a person other than the grantee.

Purchase-money mortgage

A note secured by a mortgage or deed of trust given by a buyer, as a mortgagor, to a seller, as a mortgagee, as part of the purchase price of the real estate.

Real Estate Settlement Procedures Act (R E S P A)

The federal law ensuring that the buyer and seller in a real estate transaction have knowledge of all the settlement costs when the purchase of a one to four-family residential dwelling is financed by a federally related mortgage loan. Prohibits kickbacks.

Regulation Z

A regulation of the Federal Reserve Board designed to ensure that borrowers and customers in need of consumer credit are given meaningful information with respect to the cost of credit.

Remainder

The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate, such as when an owner conveys a life estate to one party and the remainder to another.

Reversion

The remnant of an estate that the grantor holds after he or she has granted a life estate to another person; the estate will return or revert to the grantor. Also called a reverter.

Reversionary right

An owner’s right to regain possession of leased property on termination of the lease agreement.

Sale and leaseback

A transaction in which an owner sells her or his improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.

Section

A portion of a township under the rectangular survey system (government survey method). A township is divided into 36 sections numbered 1 to 36. A section is a square with mile-long sides and an area of one square mile, or 640 acres.

Short sale

A sale of secured property that produces less money than is owed to the lender, but in order to expedite the sale and avoid foreclosure expense, the lender releases its interest so the property can be sold.

Special assessment

A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.

Stigmatized property

A property regarded by some as undesirable because of events that have occurred on the property, like murder or suicide, or present paranormal activities. Sometimes, proximity to undesirable property causes a property to become stigmatized, too.

Straight-line method

A method of calculating depreciation for tax purposes computed by dividing the adjusted basis of a property less its estimated salvage value by the estimated number of years of remaining useful life.

Subrogation

The substitution of one creditor for another, with the substituted person succeeding to the legal rights and claims of the original claimant. Subrogation is used by title insurers to acquire the right to sue from the injured party to recover any claims they have paid.

Summation appraisal

An approach under which value equals estimated land value plus reproduction costs of any improvements after depreciation has been subtracted.

Testator A will maker

'Time is of the essence'

A phrase in a contract that requires the performance of a certain act within a stated period of time.

Township

The principal unit of the rectangular survey system. A township is a square with six-mile sides and an area of 36 square miles.

Township lines

The horizontal lines running at six-mile intervals parallel to the base lines in the rectangular survey system.

Unearned increment

An increase in the value of a property caused by increased population, development, or demand for which the owner is not responsible.

Usury

The practice of charging more than the rate of interest allowed by law.

Writ of attachment

The method by which a debtor’s property is placed in the custody of the law and held as security, pending the outcome of a creditor’s suit.

The End