Real Estate Glossary

Abstract (Of Title; also called Title Report or Commitment for Title Insurance)

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

Adjustable Rate Mortgage (ARM)

A mortgage whose interest rate may be changed at specified times, within specified limits, based on a specific index.

Agreement (Purchase & Sale)

Known by various names, such as contract of purchase, agreement of sale, 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 that enables the borrower to reduce his debt gradually through monthly payments of principal and interest.

Annual Percentage Rate (APR)

The finance charge calculated over one year, taking into account all costs of the loan as required the Truth In Lending Act.

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 released from further liability under the mortgage. Since the 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 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.

Binder

Known as the “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.

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. 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 home owner under a certificate of title, is not as great as in title insurance policy.

Chattels

Items of tangible movable or immovable property, except real estate. Usually refers to personal, movable possessions such as furniture, appliances, accessories etc.

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 the price of the property and items prepaid at the closing day. A typical list includes, cost of abstract, documentary stamps on deed, recording mortgage, survey charge, escrow fees, attorney’s fees (and real estate commission). The Purchase and Sale Agreement may state 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 Contract or Agreement of Sale.

Cloud (On Title)

An outstanding claim or encumbrance that adversely affects the marketability of title.

Condominium

Individual ownership of a dwelling unit and interest in the common areas and facilities that serve the multi-unit project.

Conventional Mortgage

A mortgage loan not insured by HUD or guaranteed by the Veteran’s 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.

Conveyance

The transfer of ownership of real property from one person to another.

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: grantor and grantee.

Deed of Trust

Like a mortgage, a security instrument, where real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: borrower, trustee, and 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 mortgagee may give the lender the right to accelerate payments, take possession and receive rents and start foreclosure.

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 by State.

Down Payment

The amount of money 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 and will acknowledge receipt of the down Payment. down payment is the difference between the saleprice and the 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 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 buyer.

Earnest Money

The deposit money given to the seller or by the 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, 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 owners 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 many 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 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 homeowners 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 increases in value. When the mortgage and all other debts against the property are paid in full, the homeowner has 100% equity in his property.

Simply Put: The difference between the market value of a home and the balance of the mortgage outstanding on it.

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 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.

Fixtures

A chattel so annexed to realty, that it may be regarded as legally part of it. For example, chandeliers, blinds, shelves.

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.

General Warranty Deed

A deed that conveys, all the grantor’s interests in and title to the property to the grantee, and also warrants that if the title is has a .cloud” on it, the grantee may hold the grantor liable.

Grantee/Grantor

That party in the deed who is the buyer/seller.

Inspection

Buyers will generally want to have a professional inspection made of the property before they are fully obligated to complete the purchase. Inspections include structural, roofing, mechanical (plumbing and electrical) inspections, but may also include looking into environmental risks in teh area, radon testing, lead paint inspection and other tests, such as water and sewer if there are on-site water and sewer systems, rather than municipal service.

Lien

A claim by one person on the property of another as security for money owed. Such claims include obligations not met,
judgments, unpaid taxes, materials or labor.

Marketable Title

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

Mortgage

Along with the mortgage note, the borrower signs an agreement, granting the lender a security interest in the home being purchased with the loan proceeds. The borrower is agreeing to allow the home to serve as collateral for the loan. In the event of default the mortgage agreement allows the lender to take possession of the collateral and sell it to obtain an immediate repayment of the loan and all arrears. If the sale of the home does not produce an amount sufficient to cover what is owed, the personal nature of the promise to repay the loan will require the borrower to make up the difference. Any amount in excess of what is owed (i.e., the borrowers ) will be returned to the borrower. Mortgages generally run from 10 to 30 years, during which time the loan is to be paid off, usually monthly.

Mortgage Commitment

A written notice from a 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 monthly to the lender, for transmittal to HUD, to help defray the cost of the FHA mortgage insurance program and provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this is 1/2% annually.

Mortgage Note

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

The lender/borrower in a mortgage agreement.

PITI

Principal, Interest, Taxes and Insurance.

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.

PMI

Private Mortgage Insurance written by a private insurance company that protects the lender in the event the borrower defaults on the loan. Premiums are paid by the borrower. This is a reuqirement on loans that exceed 90% of the value of the property. The PMI constitutes an additional amount paid with each monthly or other periodic installment of the principal and interest due on the mortgage. PMI is required by certain lending regulations until the balance due on the loan is equal to or less than 80% of the value. At that time, the borrower should make a written request of the lender that the PMI payments be discontinued.

Points

Sometimes called “discount points.” A point is 1% of the amount of the mortgage loan. 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 Veteran’s Administration guaranteed loans. Sellers can pay however. On conventional mortgages, points may be paid by the buyer or seller or split between them.

Prepayment

Payment of a 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 FHA does not permit such restrictions.

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.

Quitclaim Deed

A deed that transfers whatever interest the maker of the deed may have in the particular parcel of land. It is often given to clear title when the grantors 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.

Restrictive Covenants

Private restrictions limiting the use of real property. They are created by deed and may “run with 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 State. 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.

Second Mortgage

An additional mortgage that is subordinate to the first mortgage. In the event of a default, the second mortgagee receives payment only after the first mortgagee is paid.

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.

Special Warranty Deed

A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects. 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 land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land.

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 defects in title. Title insurance may be issued to either the mortgagor as an “owner’s title policy” or to the mortgagee as a “mortgagee’s title policy.” Insurance benefits will be paid only to the “named insured.”

Title Search

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 given legal responsibility to hold property in the best interest of another. The trustee is placed in a position of responsibility for another, a responsibility enforceable in a court of law.

* Terms are defined as they are commonly understood in the mortgage and real estate industry. The same terms may have different meanings in another context.

* The definitions are intentionally general, non-technical and short. They do not encompass all possible meanings or nuances that a term may acquire in legal use.

* State law, as well as custom and use in various States or regions of the country, may modify or completely change the meanings of certain terms defined.

* Before signing any documents or depositing any money on a real estate contract, the reader should consult with a qualified real estate attorney, of his choice, to ensure that his rights are protected.

Visit http://www.hud.gov/bshelf1.html for more information about housing.

DISCLAIMER: This Information provides you with general information about buying or selling a residential property. RealtyandEstatesLaw.com is not rendering legal, financial, accounting or other professional advice. If legal advice is required, it is suggested that you consult with a reputable real estate attorney.