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INDEX:
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Abstract
A summary an abridgement. Before the
use of photo copying, public records were kept by
abstracts of recorded documents
Abstract of
Title A compilation of the recorded
documents relating to a parcel of land, from which
an attorney may give an opinion as to the
condition of this title. Still in use in some
states, but giving way to the use of title
insurance.
Acceleration
Clause Clause used in an installment note
and mortgage which give the lender the right
demand the payment in full upon the happening of a
certain event, such as failure to pay an
installment by a certain date, change of ownership
without the lender's consent, destruction of the
property, or other event which endangers the
security of the loan.
Acre A
measure, usually of land, equal to 43,560 square
feet in any shape.
Adjustable Rate
Mortgage (ARM) Mortgage loans under which
the interest rate periodically adjusted to more
closely coincide with current rates. The amounts
and times of adjustment are agreed to at the
inception of the loan.
Agent One who
is authorized to act for or represent another.
Authority may be either written or
implied.
Agreement of
Sale In some states it is synonymous with
a purchase agreement. In other states, it is
synonymous with a land contract. This is different
depending upon the area of country.
Alienation
Clause A clause that calls for debt under
a mortgage or deed of trust to be due in its
entirety, upon transfer of ownership of the
property. This is the same as "Due on Sale"
clause.
Amortization
Payment of debt in regular, periodic
installments of principal and interest, as opposed
to interest only payments.
Annual Percentage Rate
(APR) The yearly interest percentage of a
loan, as expressed by the actual rate of interest
paid. Example: 6% add-on interest would be much
more that 6% simple interest, even though both
would say 6%. The APR is disclosed as a
requirement of federal truth in lending
status.
Appraised
Value An opinion of the value of a
property at a given time, based on facts regarding
the location, improvements, etc., of the property
and surroundings.
Arrears
Payment made after it is due is in
arrears. Interest is said to be paid in arrears
since it is paid to the date of payment rather
than in advance.
Assessment A
local tax levied against a property for a specific
purpose, such as a sewer, or street
lights.
Assumption of
Mortgage The agreement by a buyer to
assume the liability under an existing not secured
by a mortgage or deed of trust. The lender usually
must approve the new debtor in order to release
the existing debtor from liability.
Balloon
Note A note calling for periodic
payments which are insufficient to fully amortize
the face amount of the not prior to maturity, so
that a principal sum known as a "balloon" is due
at maturity.
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Binder A
report issued by a title insurance company setting
forth the condition of title to certain property
as of a certain date, and setting forth
conditions, which if satisfied will cause a policy
of title insurance to be issued.
Blanket
Mortgage A mortgage covering more than
one property of the mortgagor, such as a mortgage
covering all the lots of a builder in a
subdivision.
Bridge
Financing A form of interim loan,
generally made between a short term loan and a
long term loan, when the borrower needs to have
more time before taking on long term
financing.
Broker A
person who, for a fee, acts as the agent of
another, assisting in arranging funding or
negotiating contracts for a client's purchase of
real estate.
Buy down A
payment to the lender from the seller, buyer,
third party, or some combination of these, causing
the lender to reduce the interest rate during the
early years of the loan.
Cap
Caps A maximum amount of charge.
Example: An Adjustable Rate Mortgage with a 5%
rate cap could not adjust the interest rate by
more than 5%.
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Closing The
meeting between the buyer, seller, and lender of
their agents, where the property and funds legally
change hands. Also called a settlement
Closing Cost
Expenses incurred in the closing of a real estate
or mortgage transaction. These expenses include
loan fees, title fees, appraisal fees, processing
fees, etc.
Cloud on
Title An invalid encumbrance on real
property which, if valid, would affect the rights
of the owner. Example: "A" sells Lot 1, Tract 1 to
"B". The deed is mistakenly drawn to read Lot 2,
Tract 1. A cloud is created on Lot 2 by the
recording of the erroneous deed. The cloud may be
removed by quitclaim deed, or, if necessary, by
court action.
Co-maker A
surety under a loan. The co-maker is equally
responsible for repayment as the
borrower.
Commitment
Title insurance term for the preliminary report
issued before the actual policy. Said report shows
the condition of title and the steps necessary to
complete the transfer of title as contemplated by
buyer and seller.
Comparables
Properties used as comparisons to determine the
value of a specified property.
Condominium A
structure of two or more units, the interior space
of which are individually owned; the balance of
the property is owned in common by the owners of
the individual units.
Construction
loan Short term financing of real estate
construction. The lender advance funds to the
builder at periodic intervals as the work
progresses. Generally followed by long term
financing called "take out" loan, issued upon
completion of improvements.
Contingency
The dependence upon a stated event which must
occur before a contract is binding.
Contract of
Sale Depending on the area of country, it
may be a Land Sale Contract or a Purchase
Agreement.
Conventional
loan A mortgage or deed of trust not
obtained under a government insured program (such
as FHA or VA)
Credit Report
A report documenting the credit and
payment history, and current status of a
borrower's credit standing.
Debt-to-Income
Ratio The ratios, expressed as a
percentage, between a borrower's monthly payment
obligation on long term debts, and his gross
monthly income
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Declaration of
Restrictions A set of restrictions filed
by a subdivider to cover an entire tract or
subdivision.
Deed of trust
In some states, this document is used in place of
a mortgage. Property is transferred to a trustee
by the borrower (trustor), in favor of the lender
(beneficiary), and reconveyed upon payment in
full.
Default
Failure to meet legal obligations in a
contract, specifically, failure to make the
monthly payments on a mortgage.
Defective
Title Title to a negotiable instrument
obtained by fraud. Title to real property which
lacks some of the elements necessary to transfer a
good title.
Delinquency
Failure to make payments on time.
Department of Veterans
Affairs (VA) An independent agency of the
federal governments which guarantees long-term,
low-or-no-down payment mortgages to eligible
veterans.
Depreciation
Decrease in value to real property improvements
caused by deterioration or
obsolescence.
Devise Real
estate left by will
Devisee One
to whom real estate is given by will.
Devisor A
testator who leaves real estate.
Disbursements
Payments made at closing.
Discount
Points Prepaid interest assessed at
closing by the lender. Each point is equal to one
percent of the loan amount. Example: 3 points on a
$100,000 mortgage would cost $3,000
Down Payment
Money paid to make up the difference between the
purchase price and the mortgage amount. Depending
upon the loan type, down payments are usually 3 to
20 percent of the sales price
Due-on-Sale A
clause included in the mortgage that allows the
lender to call the loan due and payable at its
option, if the borrower sells the
property
Earnest
Money Money given by a buyer to a
seller as part of the purchase price to bind a
transaction
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Easement A
right created by grant, reservation, agreement,
prescription, or necessary implication, which one
has in the land of another.
Eminent
Domain A Government right to acquire
private property for public use by condemnation,
and the payment of just compensation.
Encroachment
Generally construction onto the property of
another, such as a wall, fence, building,
etc.
Encumbrance A
claim, lien, charge, or liability attached to and
binding real property. Any right to, or interest
in, land which may exist in one other than
the owner, but which will
not prevent the transfer of fee title.
Equal Credit
Opportunity Act (ECOA) A federal law that
requires lenders and other creditors to make
credit equally available without discrimination
based upon race, color, religion, national origin,
age, sex, martial status, or receipt of income
from public assistance programs
Equity The
value an owner has in real estate over and above
the obligation against the property
Escrow
Delivery of a deed by a grantor to a third party
for delivery to the grantee upon the happening of
a contingent event.
Farmers
Home Administration (FmHA) The
federal agency which makes, participates, and
insures loans for rural housing and
farms.
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Federal Home Loan Bank
Board (FHLBB) A regulatory and
supervisory agency for federally chartered savings
institutions
Federal Home Loan
Mortgage Corporation (FHLMC or Freddie
Mac) A semi-governmental agency that
purchases mortgages in the secondary market. Also
known as "Freddie Mac"
Federal Housing
Administration (FHA) A division of the
Department of Housing and Urban Development whose
main activity is the insuring of residential
mortgage loans made by private lenders. FHA also
sets standards for underwriting
mortgages
Federal National
Mortgage Association (FNMA or Fannie Mae)
A tax-paying corporation created by Congress that
purchases and sells conventional residential
mortgages as well as those insured by FHA or
guaranteed by VA. Also known as "Fannie
Mae"
Fee Simple An
estate under which the owner is entitled to
unrestricted powers to dispose of the property,
and which can be left by a will or
inherited.
FHA Loan A
loan insured by the Federal Housing Administration
open to all qualified home purchasers. While there
are limits to the size of the FHA loans, they are
generous enough to handle moderately price homes
almost anywhere in the United States
FHA Mortgage
Insurance Requires a fee paid at closing
or a portions of this feed added to each monthly
payment of an FHA loan to insure the loan with
FHA
Fixed Rate
Mortgage A mortgage for which the
interest rate is set for the term of the
loan.
Foreclosure A
proceeding, in or out of court, to extinguish all
rights, title, and interest, of the owner(s) of
property in order to sell the property to satisfy
a lien against it.
Government
National Mortgage Association (GNMA or Ginnie
Mae) A federal association,
working with FHA, which offers special assistance
in obtaining mortgages, and purchases mortgages in
a secondary capacity.
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Grandfather Clause
The clause in a law permitting the
continuation of a use, business, etc. which, when
established, was permissible but because of a
change in the law, is now not
permissible.
Hazard
Insurance Real estate insurance
protecting against loss caused by fire, some
natural causes, vandalism, etc., depending upon
the terms of the policy.
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Heir and
Assigns Words usually found in a deed
showing the interest the grantee is
receiving.
Home Owner
Association (HOA) An
association of people who own homes in a given
area formed for the purpose of improving or
maintaining the quality of the area.
Housing
Expenses-to-Income Ratio The ratio,
expressed as a percentage, between a borrower's
montly housing expenses, and his gross monthly
income
Impound
Account An account held by a
lender for payment of taxes, insurance, or other
periodic debts against real property. The
mortgagor or trustor pays a portion of, for
example, the yearly taxes, with each monthly
payment. The lender pays the tax bill from the
accumulated funds.
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Installment
Sale A tax term used to describe a sale
wich is usually accomplished by use of a land
contract. If the seller receives less than 30% of
the sale price in the year of the sale (not
including interest), the tax on the profit (gain)
from the sale may be paid over the installment
period, provided the 30% rule is followed each
year.
Insured
Mortgage A mortgage insured against loss
to the mortgagee in the event of default and a
failure to the mortgaged property to satisfy the
balance owing plus costs of
foreclosure.
Interest Rate
The percentage of an amount of money
which is paid for its use for a specified time.
Usually expressed as an annual percentage
rate.
Investor A
money source for a lender
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 death of a joint tenant the
interest passes to the surviving joint tenants,
rather than to the heirs of the
deceased.
Judgement
The decision of a court of law. Money judgements,
when recorded, become a lien on real property of
the defendant.
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Jumbo Loan A mortgage loan exceeding the price limit of the conforming loans that Fannie Mae and Freddie Mac can purchase. Lenders who offer jumbo loans usually charge a higher interest rate.
Late
Charge A penalty for failure to pay
an installment payment on time.
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Lease with Option to
Purchase A lease under which the lessee
has the right to purchase the property. The price
and terms of the purchase must be set forth for
the option to be valid. The option may run for the
length of the lease or only for a portion of the
lease period . Lender Any person or entity
advancing funds which are to be repaid. A general
term encompassing all mortgagees and beneficiaries
under deeds of trust.
Letter of
Intent A formal method of stating that a
prospective developer, buyer or lessee, is
interested in property. Not an offer and creates
no obligation.
Lien An
encumbrance against property for money, either
voluntary or involuntary. All liens are
encumbrances are not liens.
Life Estate
An estate in real property for the life of a
living person. The estate then reverts back to the
grantor or on to a third party.
Limited
Partnership A partnership consisting of
one or more general partners who conduct the
business and are responsible for losses, and one
or more special partners, contributing capital and
liable only to the amount contributed.
Loan Package
The file of all items necessary for the lender to
decide to give or not give a loan. These items
would include the information on the prospective
borrower and information on the
property.
Loan-to-Value
Ratio The ratio, expressed as a
percentage, between the amount of the mortgage
loan and the appraised value of the
property
Margin The
amount a lender adds to the index on an adjustable
rate mortgage to establish the adjusted interest
rate
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Market Value
The highest price that a willing buyer would pay
and a willing seller accept, both being fully
informed, and the property exposed for a
reasonable period of time. The market value may be
different from the price a property can actually
be sold for at a given time.
Mechanics
Lien A lien created by statute for the
purpose of securing priority of payment for the
price of 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.
MIP (Mortgage
Insurance Premium) The premium paid by
the borrower on the insurance policy from FHA to
the lender, against incurring a loss due to the
borrower's default
Mortgagee The
party lending the money and receiving the
mortgage.
Mortgagor The
party who borrows the money and gives the
mortgage.
Negative
Amortization A condition created
when a loan payment is less than interest alone.
Even though payments are made on time, the amount
owing increases.
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Non-Assumption
Clause A statement in a mortgage contract
forbidding the assumption of the mortgage without
the prior approval of the lender
Non-Conforming Use A
property which does not conform to the zoning of
the area.
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.
Open End
Mortgage A mortgage permitting
the mortgagor to borrow additional money under the
same mortgage with certain conditions, usually as
to the assets of the mortgage.
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Origination
Fee A fee made by a lender for making a
real estate loan. Usually a percentage of the
amount loaned, such as one percent.
Partial
Release A release of a portion of
property covered by a mortgage.
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Perk Test
(Percolation) The test to determine the
capability of the soil to absorb liquid, both for
construction and septic systems.
Permanent
Mortgage A mortgage on completed
construction for a long period of time.
PITI Payment
consisting of principal, interest taxes and
insurance. Used to indicate what is included in a
monthly payment on real property. These are the
four major portions of a usual monthly
payment.
PMI (Private Mortgage
Insurance) Insurance against a loss by a
lender in the event of default by a borrower. The
insurance is similar to insurance by a
governmental agency such as FHA or VA, except that
it is issued by a private insurance company. The
premium is paid by the borrower and is included in
the mortgage payment.
Power of
Attorney A legal document authorizing one
person to act on behalf of another
Pre-paid
Expenses Necessary to create an escrow
account or to adjust the seller's existing escrow
account. Can include taxes, hazard insurance,
private mortgage insurance, and special
assessments
Pre-payment A
privilege in a mortgage permitting the borrower to
make payments in advance of their due
date
Pre-payment
Penalty A penalty under a note, mortgage,
or deed or trust, imposed when the loan is paid
before it is due.
Principal The
amount of debt, not counting interest, left on a
loan
Pro Rate To
divide in proportionate shares, such as taxes,
insurance, rent, or other items which the buyer
and seller share as of the time of closing or
other agreed upon time.
Recision
of a Contract The annulling or
cancellation of a contract and placing the parties
to it in a position as if there had not been a
contract. With respect to mortgage refinancing,
the law that gives the homeowner three days (the
recision period) to cancel a contract if the
transaction uses equity in the primary home as
security
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Recital
Setting forth in a deed or other writing some
explanation for the transaction.
Recording Fee
The amount paid to the recorder's office in order
to make a document a matter of public
record.
Refinance
Obtaining a new mortgage loan on a property
already owned. Often to replace existing loans on
the property
Reissue Rate
A charge for a title insurance policy if a
previous policy on the same property was issued
within a specified period. Reissue is less than
the original charge.
REIT (Real Estate
Investment Trusts) A method in investing
in real estate in a group, with certain tax
advantages. Federal and state statutes dictate
procedure.
Release An
instrument releasing property from the lien of the
mortgage, judgement, etc.
RESPA (Real Estate
Settlement Procedures Act) A federal
statute effective June 20, 1975, requiring
disclosure of certain costs in the sale of
residential improve property which is to be
financed by a federally insured lender.
Second
Mortgage A mortgage made
subsequent to another mortgage and subordinate to
the first one
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Secondary Mortgage
Market The market where primary mortgage
lenders sell the mortgages the make to obtain more
funds to originate more new loans. It provides
liquidity for the lenders security
Security Real
or personal property pledged by a borrower as
additional protection for the lender's
interest.
Servicing The
steps and operations a lender performs to keep a
loan in good standing, such as collection of
payments, payment of taxes, insurance, property
inspections and the like
Settlement
Statement A statement prepared by broker,
escrow, or lender, giving a complete breakdown of
costs involved in a real estate
transaction.
Simple
Interest Interest which is computed only
on the principal balance
Statutory
Lien An involuntary lien, includes tax
liens, judgement liens, mechanic liens,
etc.
Substitute of
Trustee A document which is recorded to
change the trustee under the deed of
trust.
Survey A
measurement of land, prepared by a registered land
surveyor, showing the location of the land with
reference to known points, its dimensions, and the
location and dimensions of any
buildings.
Sweat Equity
Equity created by a purchaser performing work an a
property being purchased
Tax
Sale Public sale of property at
auction by governmental authority, after a period
of nonpayment of property taxes.
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Tenancy by
the Entirety A form of ownership by husband and
wife whereby each owns the entire property. In
event of the death of one, the survivor owns the
property without probate.
Testator One
who dies leaving a testament or will.
Title The
document that gives legal evidence of an
individual's ownership of property
Title
Insurance Insurance against loss
resulting from defects of title to a specifically
described parcel of real property. Defects may run
to the fee (chain of title) or to
encumbrances.
Title Search
A review of all recorded documents affecting a
specific piece of property to determine the
present condition of title.
Truth-in-Lending The
federal law requiring disclosure of the Annual
Percentage Rate (APR) to home buyers shortly after
they apply for the loan.
Underwriting
The decision whether to make a loan to a potential
home buyer based upon credit, employment, assets,
other factors and the matching of this risk to an
appropriate rate and term or loan
amount.
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VA Loan
A long term, low-or-no-down payment loan
guaranteed by the Department of Veterans Affairs.
Restricted to individuals qualified by military
service or other entitlements.
Verification of
Deposit (VOD) A document signed by the
borrower's financial institution verifying the
status and balance of his financial accounts. Most
lenders require that the funds used for real
estate purchase be "seasoned", or on deposit in
the account for at least 60 days.
Verification of
Employment (VOE) A document signed by the
borrower's employer verifying his position and
salary. Most lenders require a minimum of a two
year history of stable and constant
employment.
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