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Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Abandonment
The voluntary relinquishment of rights of ownership or another interest (such as rights to an easement) by failure to use the property, coupled with an intent to abandon (give up the interest).

Abatement
A reduction or decrease. Usually applies to a decrease of assessed valuation of property for ad valorem taxes.

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.

Abstract of Judgment
A summary of the essential provisions of a court judgment. (When this summary or abstract is recorded in the county recorder’s office, in some states the judgment becomes a lien on the debtor’s property, both presently owned or after-acquired.)

Acceleration Clause
A clause in your mortgage which allows the lender to demand payment of the outstanding loan balance for various reasons. The most common reasons for accelerating a loan are if the borrower defaults on the loan or transfers title to another individual without informing the lender.

Access
The right to enter and leave a tract of land from a public way. Can include the right to enter and leave over the lands of another.

Accommodation Recording
Recording of instruments with the county recorder by a title company merely as a convenience to a customer and without assumption of responsibility for correctness or validity.

Accretion
A formal declaration before a duly authorized officer (such as a notary public) by a person who has executed an instrument that such execution is his own act and deed. An acknowledgment is necessary to entitle an instrument (with certain specific exceptions) to be recorded, to impart constructive notice of its contents and to entitle the instrument to be used as evidence without further proof. The certificate of acknowledgment is attached to the instrument or incorporated therein.

Acre
A measure, usually of land, containing 43,560 square feet in any shape.

Ad Valorem
“According to value.” A method of taxation using the value of the thing taxed to determine the amount of the tax.

Adjustable-Rate Mortgage
Adjustable-Rate Mortgages (ARM’s) are mortgages in which the interest rate and monthly payment will change periodically. The main difference among ARM programs is the length of the initial fixed interest rate period.

Adjustment Date
The date the interest rate changes on an adjustable-rate mortgage (ARM).

Adverse Possession
A process of acquiring title to real property by possession for a certain (statutory) period of time, in addition to fulfilling other conditions.

Affidavite
A written statement or declaration, sworn to before an officer who has authority to administer an oath.

Agent
One who has authorization, either expressed or implied, to act for or represent another party, usually in business matters.

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
The loan payment consists of a portion which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.

Amortization Schedule
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.

Amount Financed
This figure is used to calculate your APR. It represents your loan amount minus any prepaid finance charges (i.e., the sum of “Amount Financed” and “Finance Charge”) assuming you kept the loan to maturity and made only the required monthly payments.

Annual Percentage Rate (APR)
There are two interest rates applicable to your loan: (i) your Actual Interest Rate and (ii) your Annual Percentage Rate. Your Actual Rate is the annual interest rate of your loan (sometimes referred to as the “note rate”), and is the rate used to calculate your monthly payments. The amount of interest you pay, as determined by your Actual Rate, is only one of the costs associated with your loan… there may be others. The Annual Percentage Rate (referred to as the “APR”) encompasses both your interest and any additional costs or prepaid finance charges you may pay such as prepaid interest (necessary to adjust your first payment if you close mid-month), private mortgage insurance, closing fees, points, etc. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It will usually be slightly higher than your Actual Rate because it includes these additional items and assumes you will keep the loan to maturity.

Application
The form used to apply for a mortgage loan, containing information about a borrower’s income, savings, assets, debts, and more.

Application Fee
Some lenders charge an “Application Fee” fee for accepting and reviewing your loan application.

Appraisal
An appraisal is a written analysis of the estimated value of your property. A qualified appraiser who has knowledge, experience and insight into the marketplace prepares the document. It ensures you’re paying fair market value for your home and is required to close on your new home or property.

Appraisal Fee
This fee is paid to the outside appraisal company engaged to objectively determine the fair market value of your property. This fee varies based on the location and type of your property.

Appraised Value
An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Appraiser
An individual qualified by education, training, and experience to estimate the value of real and personal property. Although some appraisers work directly for mortgage lenders, most are independent.

Appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Approved Attorney
In states where attorneys examine the chain of title before title insurance is issued, the title company will approve certain attorneys as those whose opinion it will accept for the issuance of a title policy.

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

Assessed Value
The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment
1. The valuation of real estate for purpose of taxes or special improvement charges.
2. The amount of taxes or special improvement charges. Special improvement charges are usually for the costs of streets, sidewalks, sewers, etc.

Assessor
A public official who establishes the value of a property for taxation purposes.

Asset
Items of value owned by an individual. Assets that can be quickly converted into cash are considered “liquid assets.” These include bank accounts, stocks, bonds, mutual funds, and so on. Other assets include real estate, personal property, and debts owed to an individual by others.

Assignment
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Assignment Recording Fee
In many instances, after closing your loan is transferred to a specialized loan “servicer” who handles the collection of your monthly payments. The Assignment Fee covers the cost of recording this transfer at the local recording office.

Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must “qualify” in order to assume the loan.

Assumption
The term applied when a buyer assumes the seller’s mortgage.

Attachment
Legal seizure of property to force payment of a debt.

Attorney in Fact
One who holds a power of attorney from another allowing him or her to execute legal documents such as deeds, mortgages, etc., on behalf of the grantor of the power.

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

 

B

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

Balloon Mortgage
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Balloon Note
A form of promissory note that calls for the minimum payment of principal and the payment of interest at regular intervals. This type of note requires a substantial final payment, which represents all the principal.

Balloon Payment
The final lump sum payment that is due at the termination of a balloon mortgage.

Bankruptcy
By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seems to be a “Chapter 7 No Asset” bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an “A” paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.

Beneficiary
1. One for whose benefit a trust is created.
2. In states in which deeds of trust are commonly used instead of mortgages, the lender (mortgagee) is called the beneficiary.

Bill of Sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

Binder
1. A preliminary report as to the condition of a title and a commitment to issue a title insurance policy in a certain manner when certain conditions are met. Sometimes called “preliminary certificate” or ” prelim.commitment”.
2. A policy of title insurance (used primarily by investors) calling for a reduced rate for a future policy if the property is sold within a specified period.

Biweekly Mortgage
A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make twenty-six. The extra payments reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principal. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.

Blanket Mortgage
A mortgage or trust deed that covers more than one lot or parcel of real property, and often an entire subdivision. As individual lots are sold, a partial reconveyance or release from the blanket mortgage is ordinarily obtained.

Bona Fide Purchaser
One who buys property in good faith, for fair value, and without notice of any adverse claim or right of third parties.

Bond Market
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and, in a volatile market, can and do change during the day as well.

Breach of Contract
Failure to perform a contract, in whole or part, without legal excuse.

Bridge Loan
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.

Broker
Broker has several meanings in different situations. Most Realtors are “agents” who work under a “broker.” Some agents are brokers as well, either working for themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.

Building Contract
An agreement between an owner or lessee and a building contractor, setting forth terms relative to the construction of a proposed structure.

Buydown
Usually refers to a fixed rate mortgage where the interest rate is “bought down” for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower’s payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower’s monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A “lender funded buydown” is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to “qualify” at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.

 

C

Certificate of Title
In areas where attorneys examine abstracts or chains of title, a written opinion, executed by the examining attorney, stating that title is vested as stated in the abstract.

Chain
In real estate measurements (surveying), a chain is 66 feet long or 100 links, each link being 7.92 inches. The measurement may change when used in fields other than surveying.

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

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

Clear Title
Real property ownership free of liens, especially voluntary liens such as mortgages.

Closing
Also known as “escrow” or “settlement”. The process of executing legally binding documents, such as deeds and mortgages most commonly associated with the purchase of real estate and the borrowing of money to assist in the purchase.

Closing Costs

Buyer’s Expenses:

  • Documentary Stamps on Notes
  • Recording Deed and Mortgage
  • Escrow Fees
  • Attorney’s Fee
  • Title Insurance
  • Appraisal and Inspection
  • Survey Charge
Seller’s Expenses:

  • Cost of Abstract
  • Documentary Stamps on Deed
  • Real Estate Commission
  • Recording Mortgage
  • Survey Charge
  • Escrow Fees
  • Attorney’s Fees

Condominium
A real estate project in which each unit owner holds title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. The condominium may be attached or detached. The homeowners association dues are included in the total monthly mortgage payment for qualifying purposes.

Credit Report
On every loan transaction order a credit report is  ordered to determine your past credit history and your outstanding liabilities. This fee covers the cost of such report.

Call Option
Similar to the acceleration clause.

Cap
Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as “caps.” Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.

Carry Back
In order to sell his home, a seller may be willing to “carry back” a second trust deed/mortgage.  This would mean that the buyer of the home would obtain a first trust deed from a traditional lender for perhaps 75% or 80% of the purchase price, and obtain a second mortgage directly rom the seller of the home for an additional five or ten percent of the purchase price.   The “loan-to-value of these mortgages can vary, as well as the terms.  It is common for the second trust deed to require “interest only payments (which do not pay towards any of the principal) and for the loan to be totally “due and payable” after a term of five years.  Then the buyer may have to refinance in order to pay off the loan, obtain a new second trust deed elsewhere, or pay off the loan from savings.  The major reason for obtaining a “seller carry back” is that the lower loan-to-value ratio on the first mortgage will make it easier to qualify for the loan, and there will be no need for mortgage insurance.

Cash-Out Refinance
When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a “cash out refinance.”

Certificate of Deposit
A time deposit held in a bank which pays a certain amount of interest to the depositor.

Certificate of Deposit Index
One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.

Certificate of Eligibility
A document issued by the Veterans Administration that certifies a veteran’s eligibility for a VA loan.

Certificate of Reasonable Value (CRV)
Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.

Chain of Title
An analysis of the transfers of title to a piece of property over the years.

Clear Title
A title that is free of liens or legal questions as to ownership of the property.

Closing
This has different meanings in different states. In some states a real estate transaction is not consider “closed” until the documents record at the local recorders office. In others, the “closing” is a meeting where all of the documents are signed and money changes hands.

Closing Costs
Closing costs are separated into what are called “non-recurring closing costs” and “pre-paid items.” Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

Closing Statement
See Settlement Statement.

Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.

Co-Borrower
An additional individual who is both obligated on the loan and is on the title to the property.

Collateral
In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

Collection
When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to “collection.” As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreClose on the property.

Commission
Most salespeople earn commissions for the work that they do and there are many sales professionals involved in each transaction, including realtors, loan officers, title representatives, attorneys, escrow representative, and representatives for pest companies, home warranty companies, home inspection companies, insurance agents, and more. The commissions are paid out of the charges paid by the seller or buyer in the purchase transaction. Realtors generally earn the largest commissions, followed by lenders, then the others.

Common Area Assessments
In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.

Common Areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Common Law
An unwritten body of law based on general custom in England and used to an extent in some states.

Community Property
In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.

Comparable Sales
Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as “comps.”

Condominium
A type of ownership in real property where all of the owners own the property, common areas and buildings together, with the exception of the interior of the unit to which they have title. Often mistakenly referred to as a type of construction or development, it actually refers to the type of ownership.

Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium Hotel
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned. These are often found in resort areas like Hawaii.

Construction Loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Contingency
A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.

Contract
An oral or written agreement to do or not to do a certain thing.

Conventional Mortgage
Refers to home loans other than government loans (VA and FHA).

Convertible ARM
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.

Cooperative (co-op)
A type of multiple ownership in which the residents of a multi-unit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cost of Funds Index (COFI)
One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.

Credit
An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

Credit History
A record of an individual’s repayment of debt. Credit histories are reviewed by mortgage lenders as one of the underwriting criteria in determining credit risk.

Creditor
A person to whom money is owed.

Credit Report
A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s credit worthiness.

Credit Repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

D

Debt
An amount owed to another.

Debtor
One who owes a debt.

Decree of Distribution
A probate court decree which determines how the estate of a decedent shall be distributed.

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 and quitclaim deed.)

Deed-In-Lieu
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Deed of Trust
Some states, like California, do not record mortgages. Instead, they record a deed of trust which is essentially the same thing.

Deed Restrictions
Limitations in the deed to a property that dictate certain uses that may or not be made of the property.

Default
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

Defective Title
1. Title to a negotiable instrument obtained by fraud.
2. Title to real property which lacks some of the elements necessary to transfer good title.

Delinquency
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

Delivery
In conveyancing, the placing of the property in the actual or constructive possession of the grantee. Usually accomplished by delivery of a deed to the buyer or agent of the buyer, or by recording the deed. The transfer of a deed from seller to buyer in such a manner that it cannot be recalled by the seller. A necessary requisite to the transfer of title.

Demand Note
A note having no date for repayment, but due on demand of the lender.

Deposit
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”

Depreciation
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.

Description
The exact location of a piece of real property stated in terms of lot, block, tract, part lot, metes and bounds, recorded instruments, or U.S. Government survey (sectionalized). This is also referred to as legal description of property.

Devise
A disposition of property made by a will.

Discount Points
In the mortgage industry, this term is usually used only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.

Document Preparation Fee
The use of outside companies to prepare the loan closing documents. This fee covers the cost of this service.

Documentary Stamps
CA 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.

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

Dower
A right that a wife has in her husband’s property at the time of his death. Does not exist in all states.

Down Payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Due on Sale Clause
Provision in a mortgage or deed of trust which requires loan to be paid in full if property is sold or transferred.

Due On Sale Provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

Duplex
Owner occupied property for more than one family.

 

E

Earnest Money Deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement
A right of way giving persons other than the owner access to or over a property.

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.

Effective Age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective Demand
A qualifying term meaning the ability to pay as well as desire to buy.

Egress
The right to leave a tract of land. Usually used as part of the term “ingress and egress” and interchangeably with “access”.

Eminent Domain
The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Endorsement
Addition to or modification of a title insurance policy which expands or changes coverage of the policy, fulfilling specific requirements of the insured.

Encroachment
An improvement that intrudes illegally on another’s property.

Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

Escheat
The reversion of property to the state when an owner dies leaving no legal heirs, devisees or claimants.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Escrow Account
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Escrow Analysis
Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrows
Lenders often set up an account, called an escrow or impound account, to hold the tax and insurance portions of your monthly mortgage payment. At closing, the lender collects sufficient money to establish the necessary reserves in this account. The reserves plus the monthly deposits are then held until such time they are used by the lender to pay the tax and insurance bills.

Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Estimated Closing Fees
An estimate of the fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain mortgage. These fees will average between 2% and 5% of the loan amount and vary by lender, property location, and type of mortgage.

Estoppel
A legal restraint that stops or prevents a person from contradicting or reneging on his previous position or previous assertions or commitments.

Eviction
The lawful expulsion of an occupant from real property.

Examination of Title
The report on the title of a property from the public records or an abstract of the title.

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

Exclusive Listing
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Execute
To sign a legal instrument. A deed is said to be executed when it is signed, sealed, witnessed and delivered.

Execution Sale
Sale of real property under a writ of execution by a court. A judicial mortgage foreclosure sale is in this category.

Executor
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.

Express/Courier Fee
On refinance transactions, an overnight courier is typically used to expedite the payoff of your existing loan. This fee covers the cost of the courier.

 

F

Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

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

Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.

Fannie Mae’s Community Home Buyer’s Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

Fee Simple
The greatest possible interest a person can have in real estate.

Fee Simple Estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

File and Use
In most states, title insurers file rate schedules, title insurance policies and endorsement forms with the State Insurance Department or other state agency and then may use such items or rates starting within a specified period of time after filing. Rates so filed usually are mandatory.

Filing Fees
The amount charged by public officials in your area for recording your mortgage and other documents.

Finance Charge
Your finance charge is the total of all the interest you would pay over the entire life of the loan, assuming you kept the loan to maturity, as well as all prepaid finance charges. If you pre-pay any principal during your loan, your monthly payments remain the same, but your total finance charge will be reduced.

Financing Statement
A document filed with the Register of Deeds or Secretary of State securing the title to personal property.

Firm Commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed-Rate Mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.

Fixture
Personal property that becomes real property when attached in a permanent manner to real estate.

Float
Until you request to secure a lender’s quoted interest rate, the interest rate will continue to change, or float, due to market fluctuations. Locking or securing a rate protects you from these potential fluctuations from the time your lock is confirmed to the day your lock period expires. You may choose to float your rate up until the time your lender contacts you to schedule your closing. At this time, an interest rate must be secured in order to prepare your closing documents.

Flood Certification Fee
Federal law requires that you obtain flood hazard insurance if your property lies in a flood zone. As part of our evaluation of your property, we engage a flood determination company to tell us whether or not your house lies in a flood zone. The flood certification fee covers the cost. If your house is located in a flood zone, you will be required to purchase Flood Insurance.

Flood Insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Flood Life of Loan Coverage
Flood zone determinations may change from time to time. The “Life of Loan Coverage” fee allows us to track any changes in your property’s flood zone status over the life of your loan.

Foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Forfeiture of Title
A common penalty for the violation of conditions or restrictions imposed by the seller upon the buyer in a deed or other proper document. For example, a deed may be granted upon the condition that if liquor is sold on the land, the title to the land will be forfeited (that is, lost) by the buyer (or some later owner) and will revert to the seller.

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

Freddie Mac
Federal Home Loan Mortgage Corporation (also FHLMC) is a stockholder-owned corporation chartered by Congress that purchases mortgage loans.

Full Disclosure
In real estate, revealing all the known facts which may affect the decision of a buyer or tenant. A broker must disclose known defects in the property for sale or lease.

401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

401(k)/403(b) Loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.

 

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.

Ginnie Mae
Government National Mortgage Association (also GNMA) is a wholly-owned United States corporation that guarantees privately issued securities backed by pools of mortgages insured by FHA (Federal Housing Administration), FMHA (Farmers Home Administration) or VA (Veterans Administration).

Good Faith Purchaser or Mortgagee
A person who buys or lends in good faith, that is, without knowledge of fraudulent circumstances, or reason to inquire further, where value is paid or lent.

Government Recording Fee
We pay this fee to your local county recording office for recording our mortgage lien, and in the event of a purchase transaction, the deed which transfers title. Fees for recording vary by county and are set by state and local governments.

Government Loan (Mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA).

Graduated Payment Mortgage
A loan in which monthly payments are relatively small in the beginning and gradually increase in dollar amount over the life of the mortgage.

Grant
To transfer an interest in real property, either the fee simple or a lesser interest, such as an easement. A transfer of real estate from a sovereign is accomplished by patent or royal decree.

Grantee
That party in the deed who is the buyer or recipient.

Grantor
That party in the deed who is the seller or giver.

Grantor
A person appointed by a court to manage the person and/or property of one who is legally incompetent to handle his/her own affairs.

Guideline Ratios
There are two guideline ratios used to qualify you for a mortgage. The first is called the front-end ratio, or top ratio, and is calculated by dividing your new total monthly mortgage payment by your gross monthly income. Typically, this ratio should not exceed 28%. The second is called the back-end, or bottom ratio, and is equal to your new total monthly mortgage payment plus your total monthly debt divided by your gross monthly income. Typically, this ratio should not exceed 36%.

H

Harbor Line
An arbitrary line set by authorities on navigable rivers, beyond which wharves and other structures may not be built. Also designated as line of navigation.

Hazard Insurance
Insurance coverage in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

Heir
One who might inherit or succeed to an interest in land of an individual who dies without leaving a will (intestate).

Home Equity Conversion Mortgage (HECM)
Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.

Home Equity Line of Credit
A home equity line of credit is a credit line that is kept open and restored as you pay off what is owed. An equity line of credit also has a high credit limit similar to a credit card that you are allowed to draw upon as needed.

Home Inspection
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

Home Repair Loan
A loan used for repairs and additions to existing structures without affecting existing mortgage. Typically 10 years or less in length. May also be called a “Home Improvement Loan”.

Homeowner's Association
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowner's Insurance
Just like you insure your automobile to protect against theft and damage, you insure your home. Homeowners insurance is required by all lenders to protect their investment, and must be obtained before closing. In most cases, coverage must be equal to the loan balance, or the value of the home.

Homeowner's Warranty
A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

Homestead
The dwelling (house and contiguous land) of the property owner. Some states grant statutory protection for homestead property against the rights of creditors. Property tax exemptions are also available in some states.

HUD
U.S. Department of Housing and Urban Development. The federal department responsible for the major housing programs in the United States, such as FHA.

HUD Median Income
Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 Settlement Statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD-1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the “closing statement” or “settlement sheet.”

I

Impounds
A trust type of account established by lenders for the accumulation of borrower’s funds to meet periodic payments of taxes, mortgage insurance premiums, and/or future insurance policy premiums, required to protect their security.

Inchoate Dower
The dower interest of a wife during the life of her husband. It is an interest, which upon the death of the husband may ripen into possession and use. Most states have abolished dower rights.

Inchoate Curtesy
The curtesy interest of a husband during the life of his wife. It is an interest, which upon the death of the wife may ripen into possession and use. Most states have abolished curtesy rights.

Indemnity
Insurance against possible loss or damage. A title insurance policy is a contract of indemnity.

Index
1. An alphabetical listing in the public records of the names of parties to recorded real estate instruments together with the book and page number of the record.
2. The listing in abstract and title plants of recorded real estate instruments in groups according to land descriptions, known as a geographic index.
3. The alphabetical listing in abstract and title plants, by names of the parties, of all recorded instruments that affect but do not describe particular real estate, such as judgments, powers of attorney, wills and probate proceedings. Such indexes are known by various names, such as “general index”, “judgment index” and “name index”.

Ingress
The right to enter a tract of land. Usually used as part of the term “ingress and egress” and interchangeably with “access”.

Instrument
Any writing having legal form and significance, such as a deed, mortgage, will or lease.

Insurance
A contract under which, for a consideration, one party (the insurer) agrees to indemnify another (the insured) for a possible loss under specific conditions.

Interest
1. A share or right in property.
2. A charge paid for borrowing money.

Interest Rate Disclosure
A description of the conditions applicable to the processing of your loan as well as the terms of your interest rate agreement with the lender.

Interim Financing
Temporary or short term loans. Often used with new construction.

Intestate
Without leaving a will, or leaving an invalid will so that the property of the estate passes according to the laws of succession rather than by direction of the deceased.

J

Joint Tenancy
An undivided interest in property, taken by two or more joint tenants. The interests must be equal, accruing under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Judgment
The determination of a court regarding the rights of parties in an action. Money judgments, when recorded, become a lien on the real property of the party whom the judgment is against.

Judgment Lien
A lien against the property of a judgment debtor. An involuntary lien.

Junior Mortgage
A mortgage lower in lien priority than another.

K

No Entries
No entries.

L

Land Contract
An installment contract for the sale of land whereby the seller (vendor) holds legal title and the buyer (vendee) has equitable title until the sales price is paid in full.

Landmark
Any conspicuous object that helps establish land boundaries.

Lease
An agreement by which an owner of real property (lessor) gives the right of possession to another (lessee), for a specified period of time (term) and for a specified consideration (rent).

Leasehold
An estate in real property held under a lease for a fixed term.

Lender
Any person or entity advancing funds which are to be repaid. A general term encompassing all mortgagees and beneficiaries under deeds of trust./p>

Legal Description
A description of land recognized by law, based on government surveys, spelling out the exact boundaries of the entire piece of land. It should so thoroughly identify a parcel of land that it cannot be confused with any other.

Lender's Policy
A title insurance policy which insures the validity, enforceability and priority of a lender’s lien. This policy does not provide protection for the owner.

Lender Fees
Lender Fees are fees paid to the lender.

Lender Processing Fee
The lender processing fee covers the cost of analyzing your loan application and compiling and packaging the necessary supporting documentation to close your loan.

Lessee
A party to whom a lease (the right to possession) is given in return for a consideration (rent).

Lessor
A landlord; one who gives a leasehold to a lessee.

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

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

Lien Waver
Also called “waiver of liens”. A waiver of mechanic’s lien rights, signed by contractors or subcontractors so that the owner or general contractor can receive funds from a construction loan.

Life Estate
A grant or reservation of the right of use, occupancy and ownership for the life of an individual.

Link
In surveying, a length of 7.92 inches.

Lis Pendens
A legal notice recorded to show pending litigation relating to real property, and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

Loan Policy
Also called “mortgage policy”. A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalidity or unenforceability of a lien, or loss of priority of the mortgage or deed of trust.

Lock-In
A guarantee, for which you are usually charged a fee, that you will receive a specific rate when you close your mortgage.

Loss Payable Clause
A provision added to a Fire and Casualty Policy which says any loss will be paid to two or more parties as their interest may appear. Usually the owner and the mortgage lender.

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

M

M Majority
The age at which a person no longer considered a minor and is entitled to contract and enjoy civic rights, such as voting.

Manufactured Home
A factory assembled residence built in units or sections that are transported to a permanent site and erected on a foundation.

Market Value
The price that a home will likely fetch on the market, based on comparisons to similar homes that have sold recently.

Marketable Title
A title which enables an owner to sell his property freely to others and which others will accept without objection.

Maximum Monthly Payment
As part of your loan approval, you are given a maximum monthly payment for which you qualify based on the information you provided. This maximum payment is inclusive of the three major components of a typical mortgage payment: loan principal and interest, taxes, and insurance.

Mechanic’s Lien
A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

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

Minor
One who because of insufficient age or status is legally incapable of making contracts.

Monthly Mortgage Payment
A monthly mortgage payment typically contains three parts called the PITI (principal & interest, taxes, and insurance). If you pay your taxes and insurance on your own, you pay only principal and interest to your lender.

Monthly Principal and Interest (P&I) Payment
Principal and interest is the dollar portion to repay the loan. All interest which occurs is calculated on the current balance owing. The principal reduces the remaining balance of a mortgage.

Monument of Survey
Visible marks or indications left on natural or other objects indicating the lines and boundaries of a survey. May be posts, pillars, stones, cairns and other such objects. May also be fixed natural objects, blazed trees, roads and even a water course.

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-Backed Securities
Securities similar to bonds, but having their value based on a pool of mortgages. The rate of return is based on the interest rate of the mortgages, plus early payoffs, which increases the value of any discounts. The price of the securities will vary as interest rates rise and fall.

Mortgage Banker
A specialized lending institution that lends money solely with respect to real estate and secures its loans with mortgages on the real estate.

Mortgage Broker
A person or company that buys and sells mortgages for another on commission or who arranges for and negotiates mortgage contracts.

Mortgage Commitment
CA 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
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price.

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 Policy
See Lender’s Policy.

Mortgage Term
The length of time given to repay the loan.

Mortgagor
The borrower in a mortgage agreement.

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

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

N

Negative Amortization
A condition created when a loan payment is less than the interest payment due. Even though payments are made on time, the amount of principal owed increases.

Negative Amortization
One who is authorized by the state or federal government, to administer oaths and to attest to the authenticity of signatures.

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

Obligee
One to whom an obligation (promise) is owed.

Obligor
One who legally binds (obligates) oneself, such as the maker of a promissory note.

Original Cost
The purchase price of property, paid by the present owner. The present owner may or may not be the first owner.

Origination Points

Original Cost
The purchase price of property, paid by the present owner. The present owner may or may not be the first owner.

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

Ownership
The right to possess and use property to the exclusion of others.

P

Parcel
Any area of land contained within a single description.

Partnership
An association of two or more persons who have contracted to join in business and share the profits.

Party Wall
A wall erected on a property boundary or between two lots for the common benefit and use of the property owners on either side.

Patent
A conveyance of title to land by the Federal or State Government.

Payment Schedule
The method for disclosing your payment schedule varies by loan type. For fixed rate loans, this section indicates what your required monthly payment will be throughout the life of your loan. The payment schedule for VA, FHA, one-time MIP and uninsured conventional loans should also indicate a fixed monthly payment. The payment schedule for fixed-rate insured loans may gradually decrease over time due to a declining insurance premium. For adjustable rate loans, the payment schedules will vary by loan type and are based on conservative assumptions of future interest rates.

Personal Property
Any property that is not designated by law as real property (e.g., money, goods, evidences of debt, rights of action, furniture, automobiles).

Personal Representative
A person appointed by the probate court to administer a decedent’s estate. See also “Executor”.

P.I.Q.
A title term referring to Property In Question.

PITI
Abbreviation for principal, interest, taxes and insurance, all of which are lumped together in your monthly mortgage payment.

Planned Unit Development (PUD)
A planned unit development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by an owner’s association for the benefit and use of the individual units within the project. For a project to qualify as a PUD, the owners’ association must require automatic, non-severable membership for each individual unit owner, and provide for mandatory assessments.

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.

P.M.I.
Private Mortgage Insurance. An insurance contract which insures that the named lender will recover a specific percentage of the loan amount from the insurer in the event the loan goes bad. Many lenders require this on higher percentage loans.

Points (Discount Points)
The term “point” refers to one percent of the loan amount. For example, one “point” on a $100,000 loan would equal $1,000. On most programs (and with certain limitations), you may pay “points” at the closing to lower the interest rate on your loan. The more points you pay, the lower your rate.

Policy
The term “point” refers to one percent of the loan amount. For example, one “point” on a $100,000 loan would equal $1,000. On most programs (and with certain limitations), you may pay “points” at the closing to lower the interest rate on your loan. The more points you pay, the lower your rate.

Power of Attorney
A document by which one person (called the “principal”) authorizes another person (called the “attorney-in-fact”) to act for him/her in a specific manner in designated transactions.

Power of Sale
A clause in a will, mortgage, deed of trust or trust agreement authorizing the sale or transfer of land in accordance with the terms of the clause.

PRE, PRELIM or Preliminary Title Report
A written report issued by a title company, prior to issuing title insurance, which shows the recorded condition of title of the property in question. See Commitment.

Premium
The amount paid for an insurance policy.

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.

Prepayment Penalty
A prepayment penalty is a fee that is charged if the loan is paid off earlier than the specified term of the loan. Depending on your loan program and applicable state law, you may or may not incur a prepayment penalty. Contact your loan officer for specific information.

Prepaid Interest
Prepaid Interest is interest on your new mortgage that is paid at closing. The amount of interest will vary from 0 to 30 days, as it is calculated from the date of closing to month end. For example, if the loan closed on March 20th, prepaid interest would be owed from March 20th through March 31st. A normal monthly principal and interest payment would cover interest due for the previous month. If the loan closed on March 20th, the first payment would be due May 1st. The May 1st payment would cover interest due for the month of April.

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

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.

Priority
The order of preference, rank or position of the various liens and encumbrances affecting the title to a particular parcel of land. Usually, the date and time of recording determine the relative priority between documents.

Priority Inspection
A title term referring to the type of inspection made in connection with insuring a new construction loan. In making the inspection of the property, the title company must be assured that the work of improvement had not yet begun when the lender’s deed of trust was recorded.

Private Mortgage Insurance (PMI)
Private Mortgage Insurance (PMI) is the insurance a borrower is required to pay if they have less than 20% (in some cases 25%) equity in their home. Lenders use several insurance companies to obtain PMI coverage. If you are required to pay PMI, the monthly amount must be calculated and included in the proposed mortgage payment and also included when estimating the amount needed to establish your escrow account. In order to calculate PMI, four pieces of information are needed: loan amount, loan term, loan-to-value (LTV) and the PMI factor which is based off of the required coverage amount and whether the mortgage is fixed or adjustable.

Pro Rate
To allocate between seller and buyer their proportionate share of an obligation paid or due.

Property Taxes
The taxes assessed on the property by the local government (e.g. city, county, village or township) for the various services provided to the property owner. Such services may include police and fire department services, garbage pick up and snow removal.

Public Domain
Land owned by the government and belonging to the community at large.

Public Records
The records of all documents, which are necessary to give notice and are available to the public.

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

Q

Quiet Title
To free the title to a piece of land from the claims of other persons by means of a court action called a “quiet title” action. The court decree obtained is a “quiet title” decree.

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

R

Range
A part of the government survey, being a strip of land six miles in width, and numbered east or west of the principal meridian.

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

Real Estate Broker
A middle man or agent who buys and sells real estate for a company, firm or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

REALTOR®
A federally registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and subscribes to its strict Code of Ethics.

Realty
A brief term for real estate.

Reconveyance
An instrument used to transfer title from a trustee to the equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a trust deed. Also called a deed of reconveyance or release.

Recording
Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors or other interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to be recorded.

Redeem
Literally, to buy back. The act of buying back lands after a mortgage foreclosure, tax foreclosure or other execution sale.

Refinancing
The process of the same mortgagor paying off one loan with the proceeds from another loan.

Reinsurance
A contract which one insurer makes with another to protect the first insurer, wholly or partially, against loss or liability by reason of a risk under a separate and distinct contract as insurer of a third party. Reinsurance differs from coinsurance in that, in the case of reinsurance, only one insurer has a direct contractual relationship with the insured, and that insurer (commonly referred to as the “lead insurer”) purchases reinsurance in order to lessen or spread the risk. The “lead insurer” will assume a risk up to a limit (the amount of which is referred to as the “retention”) and any loss which exceeds this limit would be borne by the reinsurers. In the case of coinsurance, each coinsurer has a direct contractual relationship with the insured, and the risk is shared in agreed-upon proportions from the first dollar of loss.

REIT
Real Estate Investment Trust. A business trust or corporation formed under federal and state statues for the purpose of investing in real estate.

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

Rent Free
If you are living with a relative or friend without paying rent, this is considered “rent- free”.

Requested Cash Out
The amount of money you requested to get back from your mortgage transaction. Remember, your closing costs and escrows will be subtracted from this amount.

Restrictions
Often called restrictive covenants. Provisions in a deed or other instrument whereby an owner of land prohibits or restricts certain use, occupation or improvement of the land.

Reverse or Reverse Annuity Mortgage
Real Estate Mortgage Investment Conduit. A product of 1986 Federal tax legislation in which a business entity such as a corporation, partnership or trust in which substantially all of the assets consist of qualified mortgages and permitted investments, elects to be treated as a REMIC. Qualification avoids treatment as a corporation for tax purposes.

Right of Way
1. The right to pass over property owned by another, usually based upon an easement.
2. A path or thoroughfare over which passage is made.
3. A strip of land over which facilities such as highways, railroads or power lines are built.

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

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

S

Sale Agreement
A contract entered into between a buyer and seller, setting forth the terms, provisions and conditions of a sale of real estate.

Sale and Leaseback
A situation in which the grantor in a deed to a parcel of property sells it and retains possession by simultaneously leasing it from the grantee.

Second Mortgage
A second mortgage is a lien in which you are given a lump sum amount which you pay off in installments over a specified period of time. When the second mortgage is paid off, the obligation is considered closed. Home improvement and debt consolidation loans are considered second mortgages.

Security
This refers to the address of the property being pledged as security for your loan.

Search
In title industry parlance, a careful exploration and examination of the public records in an effort to find all recorded instruments relating to a particular chain of title.

Second Mortgage
A mortgage ranking in priority immediately below a first mortgage.

Section or Section of Land
A parcel of land comprising one square mile or 640 acres.

Separate Property
Real property owned by one spouse exclusive of any interest of the other spouse.

Set Back Lines
Those lines which delineate the required distances for the location of structures in relation to the perimeter of the property.

Single Family Residence
A residence that houses one family.

Site Condominium
A single family residence that is a detached dwelling which is characterized as a site condominium by the way it is platted by the builder.

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.

Squatter
One who lives on another’s land without legal claim or authority. (See Adverse Possession.)

Starter
A copy of the last policy or report issued by a title insurer which described the title to land upon which a new search is to be made. In some states, this is called a back title letter or back title certificate.

Street Improvement Bonds
Interest-bearing bonds issued, usually by a city or county, to secure the payment of assessments levied against land to pay for street improvements. The property owner may pay off the particular assessment against the property, or may allow the assessment to “go to bond” and pay installments of principal and interest over a period of years, usually at the city or county treasurer’s office. The holder of a bond received payments from these offices.

Subdivision
An area of land laid out and divided into lots, blocks, and building sites, and in which public facilities are laid out, such as streets, alleys, parks and easements for public utilities.

Subject Property
The home that you intend to obtain the mortgage on is called the subject property. If you are doing a refinance, the subject property is typically the address of the home you are living in now. If you want to refinance your second home, list the address of that home as the subject property. If you are purchasing a home, the subject property is the address of the home you are buying.

Subordination
The act or process by which a person’s rights are ranked below the rights of others. For example, a second mortgagee’s rights are subordinate to those of the first mortgagee.

Subordination Agreement
An agreement by which one encumbrance (for example, a mortgage) is made subject (junior) to another encumbrance. To “subordinate” is to “make subject to,” or to make of lower priority.

Subrogation
The substitution of one person for another, so that the former may exercise certain rights or claims of the latter. Used primarily when a surety relationship exists, as in insurance.

Subsurface Rights
The rights of ownership to things lying beneath the physical surface of the property.

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

Surface Rights
Rights to enter upon and use the surface of a parcel of land, usually in connection with an oil and gas lease or other mineral lease. They may be “implied” by the language of the lease (no explicit reservation or exception of the surface rights) or “explicitly” set forth.

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.

Survey Fee
A survey is a bird’s eye sketch of your property which shows the boundary lines of your lot, and details any encroachments between you and your neighbors. The survey fee covers the cost of the survey.

T

Tax
As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State.

Tax Deed
A deed executed by the tax collector to the state, county or city after a period of non-payment of taxes according to statute.

Tax Sale
1. Property on which current county taxes have not been paid is “sold to the state.” No actual sale takes place. The title is transferred to the state and the owner may redeem it by paying taxes, penalties and costs. If it has not been redeemed within five years, the property (referred to as “tax sold property”) is actually deeded to the state. (Similar “sales” to cities take place for unpaid city taxes.)
2. A public sale of property at auction by a governmental authority after a period of non-payment of property tax.

Tax Service Fee
In some cases, we engage a third party to monitor and/or handle the payment of your property tax bills. The Tax Service Fee covers the cost of this service.

Tenancy by the Entirety
Ownership by married persons where each owns the entire estate, with the survivor taking the whole upon the other’s death.

Tenancy in Common
An estate or interest in land held by two or more persons, each having equal rights of possession and enjoyment, but without any right of succession by survivorship between the owners.

Tenant
Any person occupying real property with the owner’s permission.

Testate
Leaving a legally valid will at death. See Intestate.

Third Party Fees
Fees paid to a third party for services requested by the lender on your behalf.

Title
Individuals who will have legal ownership in the property are considered “on title” and will sign the mortgage and other documentation. Note: if you are married, your spouse will need to be “on title” even if you are not using his/her income for qualifying purposes.

Title Company Closing Fee
This fee is paid to the title insurance company which conducts your closing and handles the transfer of funds among the parties.

Title Covenants
Covenants ordinarily inserted in conveyances and in transfers of title to real estate for the purpose of giving protection to the purchaser against possible insufficiency of the title received. A group of such covenants known as “common law covenants” includes: covenants against encumbrances; covenants for further assurance (in other words, to do whatever is necessary to rectify title deficiencies); covenants of good right and authority to convey; covenants of quiet enjoyment; covenants of seisin; covenants of warranty.

Title Defect
1. Any possible or patent claim or right outstanding in a chain of title that is adverse to the claim of ownership.
2. Any material irregularity in the execution or effect of an instrument in the chain of title.

Title Insurance
Title insurance protects a lender and owner against any title dispute that may arise over a particular property. It is required by lenders to close on your home.

Title Insurance Premium
Premium required by lenders in order to determine that the property is properly owned and not subject to any unacceptable liens,  a search is required of the local real estate records, and a title insurance policy insuring the lender that there are no defects in title. The Title Insurance Premium covers the cost of the search and the insurance. The cost of title insurance varies both by state and by county.

Total Payments
This is the total amount you will have paid over the life of the loan for principal, interest and prepaid finance charges, assuming you keep the loan to maturity and make only the required monthly payments.

Title Plant
An area of land laid out and divided into lots, blocks, and building sites, and in which public facilities are laid out, such as streets, alleys, parks and easements for public utilities.

Title Search or Examination
An area of land laid out and divided into lots, blocks, and building sites, and in which public facilities are laid out, such as streets, alleys, parks and easements for public utilities.

Tract
A parcel of land.

Trust
A fiduciary relationship under which one holds property for the benefit of another.

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.

U

Underwriter
An insurance company that issues insurance policies to the public or to another insurer.

Underwriting Fee
The underwriting fee covers the cost of evaluating your entire loan package, including your credit report and appraisal, to determine whether the lender can approve your loan request.

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.

V

VA Guarantee
An insurance contract in which the Veterans Administration (VA) insures that the named lender will recover a specific percentage of the loan amount from the insurer in the event the loan goes bad.

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
Purchaser or buyer, especially on a land contract.

Vendor
The person who transfers property by sale. Another word for “seller”.

Vendor’s Lien
A lien either express or implied given to a vendor for the remaining unpaid and unsecured part of a purchase price.

Venue
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.

Vested
Present ownership rights, absolute and fixed.

W

Waiver
The voluntary and intentional relinquishment of a known right, claim or privilege.

Warranty
A legal, binding, promise, given at the time of a sale, whereby the seller gives the buyer certain assurances as to the condition of the property being sold.

Warranty Deed
A deed used in many states to convey fee title to real property. A warranty deed contains provisions under which the seller becomes liable to the purchaser for defects in or encumbrances on the title.

A legal, binding, promise, given at the time of a sale, whereby the seller gives the buyer certain assurances as to the condition of the property being sold.

Will
A written expression of the desire of a person as to the disposition of that person’s property after death. Must follow certain procedures to be valid.

Wire Transfer Fee
On occasion, funds will be transferred to you, your prior lender, and/or the title insurance company conducting your closing via the inter-bank wire transfer system. This fee covers the cost of such transfer.

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