Real Estate Terms - Vocabulary (All Terms)

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appraisal

Back 1

The process of estimating and supporting an opinion of value.

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brokerage

Back 2

Bringing parties together for the purchase, rent, or exchange of real estate.

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commercial property

Back 3

Property used for businesses, such as stores and office buildings.

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demographics

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Refers to characteristics of a population, such as age and economic status.

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fixity

Back 5

An economic characteristic of real estate that refers to the fact that investments in real estate are for the long term.

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immobility

Back 6

A physical characteristic of real estate, meaning that land cannot be moved.

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indestructibility

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A physical characteristic of real estate meaning that land cannot be destroyed.

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industrial property

Back 8

Property used in industry

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market segmentation

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Dividing real estate markets into submarkets.

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modification

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The economic characteristic of real estate meaning that a change in one property affects the value of neighboring properties, either favorably or unfavorably.

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National Association of REALTORS@ (NAR)

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A professional organization for the real estate industry.

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nonhomogeneity

Back 12

A physical characteristic of real estate meaning that no two parcels of land are exactly alike.

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REALTOR@

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A registered trademark of the NAR that can be used only by its members.

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residential property

Back 14

Property used for housing. Includes single-family housing, condos, cooperatives, and apartment buildings.

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scarcity

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An economic characteristic of real estate that refers to the finite amount of land.

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situs

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The economic characteristic of real estate that refers to people's preference for some areas over others.

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vacancy levels

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The percentage of building units that are not occupied.

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air rights

Back 18

Rights a property owner has in the space above the surface of the property.

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allodial system

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A legal system that recognizes private ownership of land.

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attachment

Back 20

The process of changing personal property to real property.

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attorney-at-law

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A person licensed by the state to practice law.

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attorney-in-fact

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A person appointed to act for another under a power of attorney.

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bundle of legal rights

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A concept of land ownership under which an owner holds all legal rights (i.e., possession, enjoyment, disposition, etc.) to the land.

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chattel

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Another name for personal property.

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common law

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A body of laws based on custom and usage. Community Bank Reinvestment Act A law passed to ensure that banks meet the lending needs in the communities where they are located and to prevent redlining.

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competent parties

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Parties who have legal capacity.

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emblements

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Annual crops on a property that are raised by the owner of the property.

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feudal system

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A system of ownership in which the land was controlled by the king, usually associated with England.

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fixture

Back 29

An item that was once personal property but has been attached to the real estate and become real property.

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fruits of industry

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Items such as crops that are on but not part of the real estate.

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fruits of nature

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Items such as bushes and trees that are on and part of the real estate.

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improvements

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Additions to a property that are created artificially rather than by nature.

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intangible property

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Personal property represented by a document but that cannot be detected by the senses. Stock certificates are a representation of intangible property.

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laches

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Loss of legal rights because off failure to assert them on a timely basis.

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land

Back 35

Includes the earth's surface, below to the center, above to infinity, and all natural things attached.

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personal property

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All property that is not classified as real property. The primary characteristic of personal property is mobility.

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raw land

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Land that has no improvements. Also called unimproved land.

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real estate

Back 38

Land plus any artificial things permanently attached.

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real property

Back 39

All components of real estate plus the legal rights and interests associated with its ownership.

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severance

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The process of changing real property to personal property.

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subsurface rights

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Rights a property owner has in any material below the surface of the land.

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tangible property

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Property that can be seen and touched, such as a car.

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trade fixture

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A fixture that remains personal property and can be removed by the tenant.

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brownfields

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Old industrial sites that may contain toxic wastes.

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buffer zone

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In zoning, a strip of land separating one land use from another.

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building codes

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Enacted by local governments under their police powers to protect the public from inferior construction practices.

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building permit

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Issued by local governments' building inspectors to allow construction of new buildings or alteration of existing structures.

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certificate of occupancy

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A certificate of occupancy must be issued before a building can be legally occupied. It is issued only after the building is inspected to make sure it complies with building codes.

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condemnation

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The legal process for taking title to property under the government power of eminent domain.

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conditional-use permit

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In zoning, a permit that the holder a special land use that is inconsistent with zoning in the area. Usually issued to allow buildings for good of the people in the area.

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downzoning

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A change in zoning from higher-density to lower-density use. Often used to prevent overloading of public services in an area.

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eminent domain

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The government power to take private land for the public good. Compensation must be given to the owner of the property.

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enabling legislation

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Laws passed by some states giving local governments the authority to establish local laws.

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encapsulation

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The process of sealing disintegrating asbestos.

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environmental site assessment (ESA)

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A property inspection to determine the presence and level of environmental problems.

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escheat

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The government power to acquire land from owners who die without a will and leave no heirs.

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home rule powers

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Provisions in the constitutions of some states that give local governments the power to regulate real estate to protect the public health and safety.

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Interstate Land Sales Full Disclosure Act

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A federal law that regulates the sale of real estate across state lines (in interstate commerce) under certain conditions.

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inverse condemnation

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Forcing the state to buy an owner's property if government action has forced loss of value or inability to use the property.

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nonconforming use

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A property's use that existed prior to the current zoning laws and is not in compliance with those laws.

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occupancy permit

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Issued by a local government body to establish that a property is suitable for habitation because it meets local safety and health standards.

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planned unit development (PUD)

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Mixed-use developments of several acres that set aside areas for residences; commercial property; and public areas such as schools, parks, etc.

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police powers

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Government powers that give state and local governments the authority to pass laws to protect the public health and safety.

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setback

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In zoning, the amount of space that zoning regulations require between the lot line and the building line.

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spot zoning

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Rezoning of a particular property that is inconsistent with the zoning for the area.

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subdivider

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The party that buys undeveloped land, divides it into smaller lots, and offers the lots for sale.

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subdivision

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A tract of land that has been divided by a subdivider into blocks, lots, and streets. The area is recorded on a subdivision plat following local ordinances and regulations.

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taxation

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A government power by which local governments can raise revenue by taxing real estate.

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variance

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An exception to the zoning law. Often granted if strict enforcement of the zoning law would force an undue hardship on the property owner.

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zoning ordinance

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Zoning laws regulate and control the use of land. example of the government's police powers

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appurtenant easements

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Easement rights belonging to properties that are adjacent to one another and pass with the property to new owners. Include water rights and rights-of-way.

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commercial easement

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The right given to utility companies to go on the land to maintain their equipment. A type of easement in gross.

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deed restriction

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A clause in a deed that limits the owner's use of the property.

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dominant tenement

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A tract of land that benefits from an easement appurtenant right.

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easement

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The right to use another's land.

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easement by necessity

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An easement right granted by law when there is no access to a person's land.

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easement by prescription

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Acquiring an easement right by using the property without the owner's consent for the period of time stated by law.

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easement in gross

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An easement right given to a person or corporation to enter someone's land for a specific purpose.

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encroachment

Back 79

Physical intrusion on another's land.

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encumbrance

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A charge, claim, or liability on the property.

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in gross

Back 81

Same as easement in gross. An easement right given to a person or corporation to enter someone's land for a specific purpose.

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landlocked

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Property that does not have access to a public road to enter or leave the land. This situation may create an easement by necessity.

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license

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A personal privilege to enter another's land for a specific purpose.

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necessity

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Same as easement by necessity. An easement right granted by law when there is no access to a person's land.

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party wall

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A wall built on the line separating two properties. Because the wall is built partly on each property, each owner has an easement on the adjoining owner's land that is covered by the wall.

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prescriptive easement

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Acquiring an easement right by using the property without the owner's consent for the period of time stated by law.

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run with the land

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Easement rights that are passed on to successive owners of the property.

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servient tenement

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A tract of land over which an appurtenant easement right runs.

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tacking

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Combining successive periods of property use.

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ad valorem tax

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A Latin term meaning "according to value." It is a real estate tax based on the value of the property.

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assessed value

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A value put on real and personal property by a taxing authority as a basis to calculate the amount of real estate tax.

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equalizer

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Adjusts property assessments so that they are equitable throughout a state.

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equitable redemption (right)

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A borrower's right to redeem property before a foreclosure sale.

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general lien

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A lien that applies to all of a person's property.

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involuntary lien

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A lien that is created by law, either by statute or by a court.

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judgement

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A decree issued by the court at the conclusion of a lawsuit. After recording in the county records, it usually becomes a general lien on the defendants property.

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lien

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A charge or claim against the property for a debt or obligation of the property owner.

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lienee

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The party whose property is subject to a lien.

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lienor

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The party holding the lien right.

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lis pendens

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A notice in the public records of a lawsuit involving a particular property that may result in a claim against the property.

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mechanic's lien

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A claim against real property by suppliers of goods and services to the real estate.

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special assessment

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A special real estate tax for improvements that benefit the property.

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specific lien

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A lien that applies to a specific property.

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statutory redemption (right)

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The borrower's right to redeem property after the foreclosure sale.

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subordination agreement

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A written agreement between lienholders to change priority of their respective liens.

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acre

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A measure of land equal to 43,560 square feet.

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base lines

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East-west lines that intersect with principal meridians. Used in the rectangular survey system.

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benchmark

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Reference point used in metes-and-bounds descriptions.

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boundary lines

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Used in metes-and-bounds descriptions. They define the boundaries of a property.

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correction lines

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Used in the rectangular survey method to compensate for the convergence of range lines due to the curvature of the earth.

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datum

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Used to measure elevations. While cities may have several datums, the most commonly used is the U.S.G.S. datum, which is based on sea level in New York Harbor.

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fractional section

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Sections that are undersized (less than 260 acres). Used in the rectangular survey method for describing real estate.

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front foot

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A unit of linear measurement (in feet) of the side of a property that faces the street.

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government lots

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Lots that are smaller than full quarter sections. Used in the rectangular survey system of describing real estate.

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government survey system

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also called rectangular survey. Established by Congress as a method of describing real estate. Established a grid of intersecting lines to describe the location of a property.

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guide meridians

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In the rectangular survey method of describing real estate, every fourth range line is a guide meridian and is used in conjunction with correction lines to compensate for the curvature of the earth.

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legal description

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A precise method of describing a parcel of real estate. A description on documents used in the transfer of title to real estate that is acceptable to the courts.

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lot-and-block system

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A method of describing real estate that references a parcel of land by lot and block numbers within a subdivision. Also called recorded plat.

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metes and bounds

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One of the common methods of describing real estate. The description starts at a point of beginning (POB) and describes the circumference of the property, ending at the POB.

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monuments

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Monuments are fixed objects used in the metes-and-bounds method of describing real estate.

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plat

Back 121

A property map recorded in plat books in the public records.

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plat-of-survey method

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Also called recorded plat and lotblock-tract, this is one of the methods used to describe real estate. Divides land into blocks, lots, and tracts.

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point of beginning (POB)

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In the metes-and-bounds method of describing real estate, the description begins and ends at the point of beginning.

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principal meridians

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Lines running north and south and intersected by base lines. Used in the rectangular survey system of describing real estate.

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range lines

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Lines that run north and south and are measured from the principal meridian. Used in the rectangular survey system of describing real estate.

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ranges

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Strips of land running north and south and measured from the principal meridian. Used in the rectangular survey system of describing real estate.

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rectangular survey system

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Established by Congress as a method of describing real estate. Established a grid of intersecting lines to describe the location of a property. Also known as the government survey system.

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sections

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A land measure of one square mile or 640 acres used in the rectangular survey method of describing real estate. See also townships.

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spot survey

Back 129

Shows the location and size of buildings on a property.

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survey

Back 130

A measurement and description of land. Surveys usually are required when property is sold or improvements are being made.

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township lines

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Township lines are six miles apart, run east and west, and are measured from the base lines. Used in the rectangular survey method of describing real estate.

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townships

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Townships are square sections of land that are six miles on a side and contain 36 square miles, or sections. Used in the rectangular survey method of describing real estate.

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accretion

Back 133

The addition of land through natural forces.

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alluvion

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New deposits of land as the result of accretion.

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avulsion

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The sudden removal of land by natural forces. back-end qualifying ratio A ratio used by a lender to qualify a loan applicant. It compares the applicant's gross income with the proposed PITI and long-term debt.

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conditional fee subject to condition precedent

Back 136

An estate that takes effect when a specified condition is performed. The estate ends when the condition is no longer met.

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conventional life estate

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A life estate created by the acts of the parties rather than by statute.

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defeasible, or conditional, fee estate

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An estate in which the holder has a fee simple title to the property that will end on the occurrence or nonoccurrence of some event.

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determinable fee subject to condition subsequent

Back 139

An estate that includes a prohibited use of the property.

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dower

Back 140

The wife's legal life estate in her husband's property.

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erosion

Back 141

The gradual loss of land through natural causes.

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estate in land

Back 142

The degree, extent, quantity, and nature of interest a person has in real property.

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fee simple absolute

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The highest form of ownership recognized by the law. Another name for fee simple estate.

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fee simple defeasible

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An estate that is subject to some condition to determine when it will begin or end. Also referred to as determinable, conditional, or qualified fee.

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freehold estate

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An ownership interest in real estate for an indeterminable length of time.

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heirs

Back 146

Persons legally eligible to receive property of a decedent.

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homestead exemption

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A legal life estate that protects a portion of the value of an owner's principal residence from unsecured creditors. Rules are set by state law.

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leasehold estate

Back 148

A tenant's ownership rights (interest) in real estate. Provides the right of possession but not title to the property.

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legal life estate

Back 149

Life estate created by statute rather than by the actions of the parties. There are three common types: curtesy, dower, and homestead.

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life estate

Back 150

A noninheritable freehold estate based on the life (or lives) of named individuals.

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life tenant

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The party who owns a life estate in the property.

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littoral rights

Back 152

The rights of an owner with property bordering large bodies of water, such as the ocean.

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ordinary life estate

Back 153

An estate based on the tenant's life. package mortgage A loan arrangement used to finance both real and personal property in a real estate transaction.

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prior appropriation

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Ownership and use of water are controlled by the state, and property owners must apply to the state to appropriate (divert) water.

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pur autre vie

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A type of life estate based on the life of someone other than the life tenant. Means "for the life of another."

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reliction

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The gradual subsiding of water that uncovers additional land.

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remainder interest

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A third party who has a future ownership interest in property.

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reversion interest

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Under this arrangement, property "reverts," or returns, to the original owner.

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riparian rights

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Rights pertaining to land bordering flowing water, such as streams or rivers.

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waste

Back 160

Acts that injure a property and reduce its value.

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assignment

Back 161

Transferring contract rights or obligations. In a lease situation, transferring all remaining terms of the lease to someone else.

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constructive eviction

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Occurs when a tenant is forced to leave because the property becomes uninhabitable.

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effective gross income

Back 163

Used in the income approach to estimating value. Effective gross income is found by subtracting an allowance for vacancies and uncollected rent from potential gross income.

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estate for years

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A leasehold estate that continues for a definite period of time. This is the most common type of leasehold estate and usually requires no notice to terminate.

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eviction

Back 165

The process of removing a tenant from the premises if a lease agreement is breached. Implemented by filing a suit for possession after giving sufficient notice to the tenant. The removal of a tenant by the landlord because the tenant breached a condition of the lease.

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graduated lease

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Allows for rent changes at set future dates. Also called a variable lease.

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gross lease

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A lease agreement in which the tenant pays a fixed amount of rent and the owner pays all of the expenses of the building. This is the most common type of lease arrangement.

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ground lease

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A long-term lease of land (50 years or more) that usually requires that the tenant construct a building.

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holdover tenancy

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Occurs when a tenant remains on the property after the right to possess it has expired.

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index lease

Back 170

A lease agreement in which the rent changes are based on some common economic index.

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lease option

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Gives the tenant the right to renew the lease if proper notice is given.

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lease purchase

Back 172

An arrangement in which the tenant leases property for a period of time with the intention of purchasing it.

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lease with option to buy

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Allows the tenant to purchase property within a specified time period, usually with preagreed terms.

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lessee

Back 174

The tenant in a lease arrangement.

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lessor

Back 175

The landlord/property owner in a lease arrangement.

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net income

Back 176

Gross income less operating expenses. Also called net operating income.

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net lease

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A lease arrangement in which the tenant pays a fixed amount of rent plus some or all of the building's expenses.

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oil and gas lease

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A lease under which a property owner receives rent from a company for allowing it to drill for oil and gas on the property.

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percentage lease

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A lease arrangement in which the rent is determined by a percentage of the tenant's gross income.

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periodic estate

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A leasehold estate that continues for an indefinite period of time. Also called an estate from period to period.

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recapture clause

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Allows a lessor to take back the premises if a minimum sales amount is not met. Used in percentage leases.

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right of first refusal

Back 182

In a lease arrangement, allows the tenant the opportunity to buy the property if the owner receives a purchase offer. In a cooperative or condominium, the corporation or condominium board can require the shareholders to offer their shares, or unit, to the corporation or board before selling them to others.

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sale and leaseback

Back 183

An arrangement whereby an owner sells property and then leases it back from the purchaser. Often used with commercial and industrial property.

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security deposit

Back 184

Money deposited by the tenant with the landlord to be used as compensation for damages or maintenance to the property caused by the tenant.

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sublease

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In a sublease, the original tenant becomes the lessor and takes on a new tenant (a sublessee). The sublessee makes payments to the original tenant.

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suit for possession

Back 186

A lawsuit that initiates an action for eviction against the tenant.

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tenancy at sufferance

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This tenancy occurs when a tenant wrongfully remains on the property after the right to possess has ended.

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tenancy at will

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A form of tenancy whereby the tenant possesses the property with the consent of the landlord. The term is for an indefinite period of time and may be canceled without notice.

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variable lease

Back 189

A lease agreement that allows for changes in the rent. May be an index or graduated lease.

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beneficiary

Back 190

The party in a trust who benefits from the assets of the trust. Also, the party receiving personal property under a will.

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common elements

Back 191

In condominiums, the parts of the property used by all residents of the condominium building.

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community property

Back 192

Property acquired by a husband and a wife after marriage. Property acquired prior to the marriage or obtained by gift or inheritance during the marriage is owned separately.

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condominium

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A form of property ownership in the occupants of a multiunit building own their individual dwelling unit separately and have an undivided interest with other owners in the property's common elements (lobbies, hallways, etc.).

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condominium bylaws

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Rules passed by the condominium owners' association that are used to administer the property.

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condominium owners' association

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An association of all the owners in a condominium. They may elect a board of directors to oversee the administration and management of the condominium.

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cooperatives

Back 196

A form of property ownership in which a corporation owns the building and the tenants purchase shares in the corporation that give them a right to occupy a unit in the building.

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corporation

Back 197

An artificial entity created by a corporate charter and run by a board of directors. A corporation may hold title to real estate.

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declaration

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A document that legally establishes a condominium. Also known as a master deed or enabling declaration.

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general partnership

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A partnership in which all of the partners are general partners and have unlimited liability and the right to manage the partnership.

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homeowners' association dues

Back 200

Fees imposed by a condominium or homeowners' association for maintenance of the common areas.

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joint tenancy

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Ownership by two or more people who own an undivided interest with right of survivorship. Four unities are required to create a joint tenancy: time, title, interest, and possession.

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joint venture

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A business entity created for a single project, usually intended to last a limited period of time.

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land trust

Back 203

A trust in which real estate is the only asset.

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limited liability company (LLC)

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Incorporates the tax and liability advantages of corporations and limited partnerships.

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limited partnership

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A type of partnership that includes at least one general partner and one or more limited partners. The limited partners cannot manage the business, and their liability is limited to the amount of their investment.

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partition

Back 206

The right of parties in a tenancy in common or joint tenancy to have the courts force the dissolution of the tenancies.

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partnership

Back 207

An agreement between two or more persons to conduct a business. A partnership can be either limited or general. See also general partnership, limited partnership.

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proprietary lease

Back 208

A lease given by the corporation that owns a cooperative apartment building to the shareholder, giving the shareholder rights as a tenant to one of the units in the building.

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Real Estate Investment Trust (REIT)

Back 209

Allows small investors to participate in real estate investments. Investors transfer title to real estate to a trustee, who manages the property for the benefit and profit of the investors. Funds from the issuance of investment trust certificates to investors are used to purchase real estate investments for the benefit of the investors.

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right of survivorship

Back 210

When tenants in a joint tenancy die, their ownership share goes to the surviving joint tenants.

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S corporation

Back 211

A special form of corporation that is taxed like a partnership but has limited liability.

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severalty

Back 212

The same as sole owner.

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syndication

Back 213

Usually a limited partnership formed by two or more parties to operate a real estate investment.

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tenancy (tenants) in common

Back 214

A form of holding title in which two or more parties have an undivided interest in the property. They may hold unequal shares in the property, and there is no right of survivorship.

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tenancy by the entirety

Back 215

A form of joint tenancy that exists between husband and wife.

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testamentary trust

Back 216

A trust created through a will after a property owner's death.

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time-share (time sharing)

Back 217

Ownership of a specified time interval in a property, usually recreational or resort property.

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trust

Back 218

A three-party arrangement (trustor, trustee, beneficiary) in which title to real estate or other assets is placed with the trustee.

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trustee

Back 219

The party in a trust that holds title to the assets for the benefit of the beneficiary.

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trustor

Back 220

The party that creates a trust by transferring title to assets to a trustee.

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accession

Back 221

Acquiring additions to real estate as a result of adding a fixture or of accretion.

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acknowledgment

Back 222

A voluntary statement before a notary or officer of the court by a person who signed a document that indicates that the signature is genuine and made by the signer's free will.

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adverse possession

Back 223

A method of acquiring title to real property by using the property without the owner's consent and following statutory requirements.

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alienation

Back 224

The act of transferring property to another. Alienation may be voluntary, such as gift or sale, or involuntary, such as adverse possession or eminent domain.

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bargain and sale deed

Back 225

A deed that may come with or without guarantees. The only guarantee usually associated with this deed is a guarantee against encumbrances for the period the grantor held title.

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bequest

Back 226

The disposition of personal property under a will.

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codicil

Back 227

An amendment or addition to a will.

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contract for deed

Back 228

also called installment sales contract. A sales contract in which the buyer takes possession of the property but the seller retains title until the loan is paid.

Front 229

covenants

Back 229

Guarantees given in deeds by the grantor. Covenants include seisin, encumbrances, further assurance, quiet enjoyment, and warranty forever.

Front 230

deed

Back 230

A written instrument that transfers title to real property from one owner (the grantor) to another (the grantee).

Front 231

deed in lieu of foreclosure

Back 231

A type of nonjudicial foreclosure in which the lender accepts title to the property from the borrower in exchange for ending the debt.

Front 232

delivery and acceptance

Back 232

The time at which title to real estate passes, when a deed is delivered to and accepted by the grantee.

Front 233

descent

Back 233

Rules used by state law to determine how title to property will pass if the owner dies leaving no will.

Front 234

devise

Back 234

The disposition of real property under a will.

Front 235

devisee

Back 235

The party receiving real property under a will.

Front 236

due-on-sale clause

Back 236

also called alienation clause. The clause in a mortgage that allows the lender to make the entire loan balance due if title to the property is transferred.

Front 237

evidence of title

Back 237

Proof of ownership of property. Usually a certificate of title, an abstract of title with lawyer's opinion, title insurance, or a Torrens registration certificate.

Front 238

executor

Back 238

A male named in a will as the person to oversee the administration of a will's provisions.

Front 239

executrix

Back 239

A female named in a will as the person to oversee the administration of a will's provisions.

Front 240

further assurance

Back 240

A guarantee in a deed by which the grantor promises to perform any reasonable acts necessary to correct defects in the title being given.

Front 241

general Warranty deed

Back 241

A type of deed that provides the greatest protection to the grantee because the grantor provides various covenants (guarantees) that the title being given is good.

Front 242

grant deed

Back 242

Grantors provide assurance only that there were no encumbrances on the property while they held title. Similar to a special warranty deed.

Front 243

grantee

Back 243

The one who receives an ownership interest in property.

Front 244

granting clause

Back 244

States the grantor's intention to transfer title and the type of ownership interest conveyed. Also called words of conveyance.

Front 245

grantor

Back 245

The party who gives an ownership interest in property.

Front 246

habendum clause

Back 246

A clause in a deed that defines or limits the estate being granted. Starts with "To have and to hold".

Front 247

holographic will

Back 247

A will created in the testator's own handwriting and not witnessed.

Front 248

instrument

Back 248

A legal document such as a contract, deed, or note.

Front 249

inter vivos trust

Back 249

A living trust created by an owner during the owner's lifetime.

Front 250

intestate

Back 250

Having died without making a will.

Front 251

involuntary alienation

Back 251

Transferring title to real estate without the will and consent of the owner.

Front 252

nuncupative will

Back 252

A will created orally by a person near death.

Front 253

power of attorney

Back 253

A written instrument authorizing one person (called the attorney-in-fact) to act as an agent for another person.

Front 254

probate

Back 254

The legal process of determining a will's validity, paying the debts of the estate, and distributing the estate's remaining assets.

Front 255

quiet enjoyment

Back 255

A guarantee in a deed that the title being given is good against third parties.

Front 256

quitclaim deed

Back 256

A deed that conveys whatever interest, if any, is held by the grantor and does not provide the grantee with any guarantees.

Front 257

renouncing the will

Back 257

A spouse's election to receive the benefits of the estate that are allowed under state law rather than those given by the will.

Front 258

seisin

Back 258

A guarantee in a deed that the grantor has the power and authority to convey title.

Front 259

special warranty deed

Back 259

A deed that limits the guarantee given by the grantor to encumbrances acquired while title was held by the grantor. Used by someone acting on behalf of the owner, such as an executor or administrator.

Front 260

testate

Back 260

Having died and left a will.

Front 261

testator

Back 261

A male person who has made a will.

Front 262

testatrix

Back 262

A female person who has made a will.

Front 263

transfer tax

Back 263

A tax on the transfer of real property that is assessed by state and local law. The seller in the real estate transaction is usually required to pay the tax.

Front 264

trust deed

Back 264

A deed that creates security for a loan by conveying title to a trustee, who holds it as security for the benefit of the lender (the beneficiary). Also called a deed of trust.

Front 265

voluntary alienation

Back 265

Transferring title to real estate by the will and consent of the owner.

Front 266

warranty forever

Back 266

A guarantee given in a deed that gives assurance that the grantor will pay for expenses to defend the title against claims by third parties.

Front 267

will

Back 267

A written document, properly witnessed, detailing the transfer of property owned by the deceased.

Front 268

abstract of title

Back 268

A summary of all legal instruments affecting title to a property from the original source of the title to the present. If the buyer's lawyer examines the abstract and writes a report of the title's condition, it is called an abstract and lawyer's opinion.

Front 269

actual notice

Back 269

Information a person has gained by actually reading, hearing, or seeing.

Front 270

bill of sale

Back 270

Transfers title to personal property in a transaction.

Front 271

certificate of title

Back 271

A document signed by a lawyer or a title examiner stating that the seller has marketable title on a property. Unlike a title insurance policy, it does not provide protection against title defects not found in the public records.

Front 272

chain of title

Back 272

A chronological history of all the conveyances of a property. Includes who purchased and sold the property and the dates. This information is obtained from the public records.

Front 273

cloud on title

Back 273

Anything that impairs the marketability of a title. Clouds include liens, easements, and deed restrictions on the title.

Front 274

color of title

Back 274

A claim to title that is defective.

Front 275

commitment to insure

Back 275

A binder issued by an insurance company stating its intention to grant a policy to an applicant.

Front 276

constructive notice

Back 276

Information that has been made public. The law presumes a person knows all information made available to the public.

Front 277

gap

Back 277

A defect in the chain of title that raises doubt as to the ownership of a parcel of real estate.

Front 278

marketable title

Back 278

Title that is free from major defects that would deter potential buyers of the property.

Front 279

perfecting title

Back 279

The process of removing defects on the title.

Front 280

quiet title lawsuit

Back 280

Used to clear up defects or uncertainty in a title.

Front 281

subrogation

Back 281

Obtaining the legal rights of another party. Used by title insurance companies to defend the insured title against lawsuits from other parties. This clause in the policy prevents the insured from collecting both from the insurance company and from the party causing the loss.

Front 282

suit to quiet title

Back 282

A court action to settle a cloud on the property's title.

Front 283

title

Back 283

The legal evidence of ownership rights to real property.

Front 284

title cloud

Back 284

Same as cloud on title.

Front 285

title insurance

Back 285

Insures the existence of rights in real estate and pays for losses to the insured because of successful claims to the title by other parties. A policy is issued after a search of the public records. There are lenders' and owners' policies.

Front 286

title report

Back 286

The results of a search of the public records by a title insurance company. The report lists anyone who has an ownership interest in the property being examined.

Front 287

title search

Back 287

A search of the public records to determine past and present facts regarding ownership of the property. Also called title examination.

Front 288

Torrens system

Back 288

A system used for both assuring and recording title to real estate. This system is used in only a small number of states. When a property is registered in Torrens, a Torrens certificate establishing title to the owner on the certificate is issued by the registrar of title.

Front 289

accrued expense

Back 289

An expense that has occurred but not been paid.

Front 290

actual-number-of-days-in-the-month method

Back 290

A variation of the statutory month method for prorating expenses at closing. It takes into account the actual number of days in the month of closing.

Front 291

actual-number-of-days-in-the-year method

Back 291

A method of proration using the actual number of days in the proration period.

Front 292

closing

Back 292

The consummation of a real estate transaction. Includes delivery of the deed, signing of forms, and disbursement of funds to complete the transaction.

Front 293

closing agent

Back 293

The party who schedules and coordinates the closing process. Usually a representative of a title company or lender or the lawyer for the buyer or the seller.

Front 294

closing statement

Back 294

A document used for detailing the financial information (funds received and paid) in a closing.

Front 295

escrow

Back 295

Placing something (e.g., money, documents, or property) with a third party to be delivered to a designated person when certain conditions, such as the closing of a transaction, are fulfilled.

Front 296

escrow closing

Back 296

A closing procedure in which an appointed agent handles all the closing details rather than having them handled in a face-to-face meeting between buyer and seller.

Front 297

final walk-through

Back 297

The final inspection of property by a buyer shortly before closing.

Front 298

good-faith estimate

Back 298

An estimate required by RESPA and provided to the buyer by the lender stating the expected closing costs the buyer will incur.

Front 299

HUD-I

Back 299

A standard settlement form required by RESPA. See also Uniform Settlement Statement.

Front 300

percolation (perc) test

Back 300

A soil test to determine the absorption rate of effluent from a septic system.

Front 301

prepaid expense

Back 301

An expense that has been paid but not yet incurred.

Front 302

prorated expenses

Back 302

Expenses shared between the buyer and the seller.

Front 303

Real Estate Settlement Procedures Act (RESPA)

Back 303

The primary purpose of this federal law is to ensure that the parties in a residential real estate transaction are informed of settlement costs. The law's requirements include giving a good-faith estimate of closing costs, using HUD's settlement statement, providing a HUD information booklet, and prohibiting kickbacks.

Front 304

settlement statement

Back 304

Same as closing statement.

Front 305

statutory month method

Back 305

A method of proration that treats every month as though it had 30 days.

Front 306

Uniform Settlement Statement (HUD-I)

Back 306

A form required by RESPA to be used at closings that details financial information of the transaction.

Front 307

agency

Back 307

The relationship between an agent and a principal.

Front 308

agency by necessity

Back 308

An agency created because of an emergency situation.

Front 309

agency coupled with an interest

Back 309

An agency in which the agent is given an estate or interest in the property by the principal.

Front 310

agent

Back 310

The party who acts on behalf of a principal.

Front 311

antitrust laws

Back 311

Laws designed to protect free competition.

Front 312

as is

Back 312

A contract clause indicating the seller will not fix any problems with the property.

Front 313

broker

Back 313

One who acts as an intermediary on behalf of others for a fee.

Front 314

broker-sales associate agreement

Back 314

A written agreement between a broker and the broker's sales agents.

Front 315

CAN-SPAM Act

Back 315

Establishes requirements for those who send commercial e-mails and gives consumers the right to "opt out" and have e-mailers stop e-mailing them. capital gain (loss) The profit (or loss) from the sale or exchange of an asset. It is computed as the difference between an asset's adjusted basis and the net selling price.

Front 316

caveat emptor

Back 316

A Latin phrase meaning "let the buyer beware." Under this concept, buyers make purchases at their own risk.

Front 317

commingle (commingling funds)

Back 317

Mix the broker's personal or operating money with the client's, usually by placing both in the same account. This is illegal under real estate licensing laws.

Front 318

designated agent

Back 318

A licensed person authorized by a broker to act as the agent for a specific principal in a real estate transaction.

Front 319

dual agency

Back 319

Representing both parties in the same transaction.

Front 320

employee

Back 320

A working relationship between a broker and the broker's sales agents in which the broker has control over how agents perform their duties. The broker can withhold for taxes and Social Security and offer benefits such as pensions, health insurance, and profit sharing.

Front 321

errors and omissions insurance

Back 321

A type of coverage that protects brokers from loss due to errors, mistakes, and negligence.

Front 322

expressed agency

Back 322

An agency created by words (either oral or written).

Front 323

fiduciary

Back 323

One legally placed in a position of trust and confidence.

Front 324

fiduciary relationship

Back 324

A relationship that involves great trust and confidence.

Front 325

fraud

Back 325

The intentional misstatement of a fact to induce someone to take a particular action.

Front 326

general agent

Back 326

Represents the principal in a related range of activities.

Front 327

independent contractor

Back 327

A working relationship between a broker and the broker's sales agents in which the broker may control what the agent will do but not how it will be done. The broker may not withhold for taxes or Social Security or provide benefits. See also employee.

Front 328

Junk Fax Prevention

Back 328

Act Prohibits unsolicited fax advertisements or solicitations but does allow for an established business relationship exception.

Front 329

latent defects

Back 329

Hidden defects in property.

Front 330

Megan's Law

Back 330

Requires states to develop a procedure to notify community residents of sex offenders living in the area.

Front 331

misrepresentation

Back 331

A false statement or concealment of a material fact.

Front 332

National Do Not Call Registry

Back 332

A list of phone numbers of consumers who do not want to be contacted by commercial telemarketers.

Front 333

price-fixing

Back 333

An illegal practice (violation of the antitrust laws) in which brokers conspire to establish a standard commission rate.

Front 334

procuring cause

Back 334

The broker whose actions resulted in completion of the sales transaction.

Front 335

puffing

Back 335

Statements of opinion and exaggeration by the broker.

Front 336

real estate assistant

Back 336

An individual who assists a broker or sales agent in the real estate business. Assistants may be licensed or unlicensed.

Front 337

seller disclosure statement

Back 337

A listing by a seller of any property defects.

Front 338

special agent

Back 338

A representative of the principal in a specific transaction.

Front 339

stigmatized property

Back 339

Property that has been involved with some undesirable event, such as a crime or a suicide.

Front 340

subagents

Back 340

Parties who assist the agent.

Front 341

tie-in agreement

Back 341

An agreement in which one transaction depends on another, usually less desirable, transaction. Tie-in agreements may violate state and federal antitrust laws.

Front 342

transactional broker

Back 342

A licensee who does not act as the agent for either party in a real estate transaction. The broker's function is to assist the parties with the required paperwork and other activities in the transaction but not negotiate on behalf of either party.

Front 343

universal agent

Back 343

An agent who represents a principal in all activities.

Front 344

bilateral contract

Back 344

A type of contract in which both parties promise to act.

Front 345

binder

Back 345

A short version of a contract that includes all of the essential contract terms.

Front 346

consideration

Back 346

Anything of value given by parties to a contract.

Front 347

contingency

Back 347

A provision in a contract requiring certain acts to be done before the contract is binding.

Front 348

contract

Back 348

An agreement among competent parties to do or not to do some legal act(s) and supported by legal considerations.

Front 349

conversion

Back 349

Occurs when a broker uses clients' funds in an escrow account for personal expenses.

Front 350

duress

Back 350

The inability of a person to exercise free wilt because of fear from another party.

Front 351

earnest money

Back 351

A deposit given by the potential buyer of real estate after a purchase contract is signed to demonstrate the buyer's good-faith intention to purchase the property. The money is held by a third party (usually the seller's broker) until closing.

Front 352

escrow account

Back 352

An account maintained with a lender to hold money to pay real estate taxes and insurance. Also used by brokers to hold buyers' earnest money that comes into brokers' possession during real estate transactions.

Front 353

executed contract

Back 353

A contract in which the parties have performed all of the provisions.

Front 354

executory contract

Back 354

A contract in which some of the terms remain to be completed (an incomplete contract).

Front 355

implied contract

Back 355

An agreement created by the actions of the parties.

Front 356

installment sales contract

Back 356

A sales contract in which the buyer takes possession of the property but the seller retains title until the loan is paid.

Front 357

novation

Back 357

Substituting a new contract for an old one.

Front 358

option

Back 358

An option creates a contractual right. Typically used to keep open, for a definite period of time, an offer to sell or lease real property.

Front 359

parol evidence rule

Back 359

Oral evidence will not be allowed to contradict a written contract.

Front 360

rider

Back 360

An additional amendment annexed to a document that becomes part of the agreement.

Front 361

specific performance

Back 361

A suit to force another party to complete the contract terms.

Front 362

statue of limitations

Back 362

The law pertaining to the period of time within which certain actions must be brought to court.

Front 363

statutes of frauds

Back 363

State laws that require certain contracts to be in writing to be enforceable.

Front 364

time is of the essence

Back 364

A clause in a contract that stipulates that time limits stated in the contract must be met.

Front 365

unilateral contract

Back 365

A type of contract in which one party makes a promise to induce a second party to do something.

Front 366

Vendor and Purchaser Risk Act

Back 366

A law that defines which party suffers a loss if property is destroyed before closing a transaction.

Front 367

void contract

Back 367

An agreement that does not satisfy the required contract elements and has no legal force or effect.

Front 368

voidable contract

Back 368

An agreement that can be rejected or disaffirmed by one or both of the parties.

Front 369

broker protection clause

Back 369

Also called carryover provision. A clause in a listing agreement that provides that the broker may be entitled to a commission after the listing contract has expired. Also referred to as an extended clause, automatic extension clause, or broker Protection clause.

Front 370

carryover provision

Back 370

A clause in a listing agreement that provides that the broker may be entitled to a commission after the listing contract has expired. Also referred to as an extended clause, automatic extension clause, or broker Protection clause.

Front 371

comparative (competitive) market analysis (CMA)

Back 371

A simplified version of the sales comparison approach used by brokers to help sellers set a likely selling price for property.

Front 372

exclusive-agency listing

Back 372

A type of listing in which the seller hires a single broker. If the seller rather than the broker actually sells the property, however, a commission is not owed the broker.

Front 373

exclusive-right-to-sell listing

Back 373

A type of listing in which the seller hires a single broker. In this type of listing, a commission is owed the broker no matter who sells the property.

Front 374

listing contract

Back 374

An agreement between an owner and a licensed broker in which the broker is employed to sell the real estate within a given time in return for a commission, to be paid by the owner.

Front 375

multiple listing

Back 375

A method of sharing listing information among brokers.

Front 376

multiple-listing service (MLS)

Back 376

An organization composed of member brokers who agree to share their listing information with the intention of more quickly finding buyers for a property.

Front 377

net listing

Back 377

A listing in which a specified amount is due the seller and the broker's commission is any amount above that. This type of listing is illegal in some states because of the potential for fraud by the broker.

Front 378

open listing

Back 378

Listing in which the seller employs any number of brokers at the same time but owes a commission only to the broker who sells the property.

Front 379

ARELLO

Back 379

The Association of Real Estate License Law Officials. A federation of real estate law officials to assist each other in the administration and enforcement of license laws.

Front 380

associate broker

Back 380

A license category. A person holding this type of license has passed the requirements for a broker license but is employed by another broker.

Front 381

blind ad

Back 381

Advertising that does not include the broker's name or the name of the real estate company. State licensing laws usually prohibit blind ads.

Front 382

broker license

Back 382

A type of real estate license category that allows the licensee to operate a real estate office.

Front 383

reciprocal agreements (reciprocity)

Back 383

Agreements between states that make it easier for brokers to obtain licenses in other states.

Front 384

recovery fund

Back 384

An account operated by the state to pay uncollectible judgments against licensees.

Front 385

salesperson license

Back 385

An entry-level real estate license category. A person holding a salesperson license must be employed by a broker to perform selling activities.

Front 386

administrative law judge

Back 386

Judges who operate under HUD in resolving discrimination complaints.

Front 387

Americans with Disabilities Act (ADA)

Back 387

A law that requires that property that is open to the public includes features that facilitate access to the building. The ADA is designed to eliminate discrimination against individuals with disabilities by providing equal access to jobs, public accommodations, government services, public transportation, and telecommunications.

Front 388

blockbusting

Back 388

Inducing owners to sell or rent based on representations that persons of a particular race, religion, national origin, etc., are moving into the area.

Front 389

conciliation agreement

Back 389

The successful result of mediation between the parties in a discrimination complaint.

Front 390

Department of Housing and Urban Development (HUD)

Back 390

One of the duties of this federal agency is to administer the FHA loan programs. Primarily responsible for enforcing the Fair Housing Act of 1968.

Front 391

Fair Housing Act of 1968

Back 391

A federal law that prohibits discrimination in the sale and rental of housing based on race, color, religion, gender, handicap, familial status, and national origin.

Front 392

familial status

Back 392

As defined by the Fair Housing Act, a protected class consisting of one or more persons under the age of 18 living with a parent or person with legal custody. Also includes pregnant women, foster parents, and people in the process of securing legal custody.

Front 393

Housing and Community Development Act

Back 393

A 1974 amendment to the 1968 Fair Housing Act that added gender as a protected class.

Front 394

steering

Back 394

Channeling homeseekers to areas on the basis of their race, color, religion, etc.

Front 395

substantially equivalent laws

Back 395

State or local government fair housing laws that are similar to the federal fair housing laws.

Front 396

anticipation

Back 396

A principle of value used in appraisal. The value of property may increase or decrease based on some future event that is expected to occur.

Front 397

Appraisal Foundation

Back 397

A private nonprofit group that establishes uniform appraisal standards.

Front 398

Appraisal Qualifications Board

Back 398

A board of The Appraisal Foundation. Sets minimum criteria for state certified appraisers and endorses uniform examinations for certification.

Front 399

assemblage

Back 399

The process of merging adjoining lots together. It is used to take advantage of the principle of value called plottage.

Front 400

change

Back 400

A principle of value used in appraisal. States that real estate conditions, both physical and economic, do not remain constant, thus affecting the value of real estate.

Front 401

competition

Back 401

A principle of value used in appraisal. States that if substantial profits are being made, competition will be attracted. The increased competition may reduce profit and property value.

Front 402

conformity

Back 402

A principle of value used in appraisal. States that the value of property is maximized if it conforms to the surrounding land use.

Front 403

contribution

Back 403

A principle of value used in appraisal. States that an improvement's value is equal to the value added to the property.

Front 404

highest and best use

Back 404

The one legal use that provides a property with its greatest value. A principle of value used in appraisal.

Front 405

increasing and diminishing returns

Back 405

The relationship between the cost of improvements and the value they add to the property. Improvements may initially add substantial value (increasing return) but will reach a point where they add less value (diminishing return). A principle of value used in appraisal.

Front 406

market value

Back 406

The most probable price a property should bring if payment is made in cash and the buyer and the seller are unrelated, well informed, and acting without pressure.

Front 407

Member of the Appraisal Institute (MAI)

Back 407

A designation awarded by the Appraisal Institute.

Front 408

plottage

Back 408

Combining lots to increase the value of the new larger lot over the sum of values of the smaller ones. A principle of value used in appraisal.

Front 409

price

Back 409

In appraisal, what a property actually sells for.

Front 410

progression

Back 410

The economic principle that the value of a poorer property will increase if it is near a better quality property. A principle of value used in appraisal.

Front 411

regression

Back 411

The idea that the value of a better property will decrease if it is near a property of poorer quality. A principle of value used in appraisal.

Front 412

supply and demand

Back 412

In the real estate market, property values change as these two forces adjust themselves. As supply increases or demand decreases, values decrease. As supply decreases or demand increases, values increase.

Front 413

Uniform Residential Appraisal Report (URAR)

Back 413

The most common appraisal report form used today. Most government agencies use the form.

Front 414

broker price opinion (BPO)

Back 414

Broker's estimate of the probable selling price, rather than an estimate of value. Used by lenders, Fannie Mae, and Freddie Mac. Not considered an appraisal, and may not be used for originating a federally related loan.

Front 415

capitalization rate

Back 415

The rate of return or yield from a property that is expected by an investor. The rate is used in the income approach to estimating value and is determined by dividing a property's net income by its sales price.

Front 416

comparable property

Back 416

Comparable properties are recently sold properties that are similar to the subject property. Used in the sales comparison approach to estimating value.

Front 417

cost

Back 417

In appraisal, the total in dollars of the value of the land and constructing the improvements on the property.

Front 418

cost approach

Back 418

An approach to estimating the value of property through the concept of substitution. The value of the subject property is found by (l) estimating the cost of construction, (2) subtracting depreciation, and (3) adding the land value.

Front 419

curable depreciation

Back 419

Depreciation that is worth fixing. That is, the cost of fixing does not exceed the value of the property. curtesy The husband's legal life estate in his wife's property.

Front 420

deductible

Back 420

The amount an insured has to pay before the insurance company is liable.

Front 421

economic obsolescence

Back 421

Loss of value caused by variables external to the property. May result from economic, social, or environmental forces such as zoning changes, etc. One of the three types of depreciation calculated in the cost approach to estimating value. The property owner has little or no control over these forces; therefore, this type of depreciation is always considered incurable.

Front 422

full replacement coverage

Back 422

A method of settling an insurance claim in which no depreciation is subtracted from the cost of replacing the property.

Front 423

functional obsolescence

Back 423

Loss of value caused by outdated features in the property, such as outdated bathroom fixtures. Functional obsolescence may be either curable or incurable. One of the three types of depreciation calculated in the cost approach to estimating value.

Front 424

gross income multiplier (GM)

Back 424

A shortened method of estimating the value of income-producing property. The multiplier is found by dividing the selling price by gross annual income of comparable properties. The GIM is used to find the value of the subject property by multiplying the gross annual income of the subject property by the multiplier.

Front 425

gross living area (GLA)

Back 425

In calculating the GLA or room count of a house, appraisers only include the finished area above grade (ground) level.

Front 426

gross rent multiplier (GRM)

Back 426

A shortened method of estimating the value of income-producing rental property. The multiplier is found by dividing the selling price by the residential gross monthly rent of comparable properties. The GRM is used to find the value of the subject property by multiplying the gross monthly rent of the subject property by the multiplier. Usually used for single-family rental property.

Front 427

income approach

Back 427

An approach to estimating the value of property by finding the net income and applying it with the capitalization rate. The value of the subject property is estimated by (1) finding the annual potential gross income; (2) subtracting a vacancy rate to find the effective gross income; (3) subtracting operating expenses to find the net income; (4) finding the capitalization rate; and (5) applying the capitalization rate to the subject property. See also capitalization rate.

Front 428

incurable depreciation

Back 428

When present, the cost of fixing the property will be more than the increase in value or the corrections are not physically possible. Used in appraisal.

Front 429

market data approach

Back 429

Same as sales comparison approach. An approach to estimating the value of property by comparing the subject property with various similar (comparable) properties. The value of the subject property is found by (1) locating at least three comparable properties, (2) making adjustments for differences between the comparables and the subject property, and (3) reconciling the adjusted sales price of the comparables.

Front 430

market price

Back 430

The actual sales price of a property, usually different from the market value.

Front 431

mill

Back 431

An amount equal to one tenth of a cent ($0.001). Sometimes used to express a real estate tax rate.

Front 432

obsolescence

Back 432

Loss of value owing to being outmoded or less useful.

Front 433

physical deterioration

Back 433

Loss of value caused by wear and tear on the building, such as a leaking roof or peeling paint. Physical deterioration may be either curable or incurable. One of the three types of depreciation calculated in the cost approach to estimating value.

Front 434

replacement cost

Back 434

Estimates the current cost of constructing similar or equivalent improvements. Used in the cost approach to estimating value.

Front 435

reproduction cost

Back 435

Estimates the current cost of constructing duplicates of the property improvements. Reproduction creates an exact replica, while replacement cost creates similar improvements. Used in the cost approach to estimating value.

Front 436

sales comparison approach

Back 436

An approach to estimating the value of property by comparing the subject property with various similar (comparable) properties. The value of the subject property is found by (1) locating at least three comparable properties, (2) making adjustments for differences between the comparables and the subject property, and (3) reconciling the adjusted sales price of the comparables.

Front 437

subject property

Back 437

The property that is being appraised.

Front 438

acceleration clause

Back 438

A clause in the mortgage that allows the lender to demand immediate payment of the loan balance if the borrower breaks the terms of the note or mortgage.

Front 439

alienation clause

Back 439

The clause in a mortgage that allows the lender to make the entire loan balance due if title to the property is transferred. Also called a due-on-sale clause.

Front 440

borrower

Back 440

A person who receives a loan (also known as the mortgagor).

Front 441

collateral

Back 441

Property pledged as security for a debt.

Front 442

conventional loan

Back 442

A loan that is not insured or guaranteed by a government agency. The lender assumes the full risk of default in a conventional loan.

Front 443

credit unions

Back 443

Associations that maintain savings accounts for their members, while providing primarily home improvement and home equity real estate loans.

Front 444

deed of trust

Back 444

An agreement among three parties for the purpose of securing a real estate loan. Parties to the trust are the trustor (the borrower), the trustee (usually a title company or bank), and a beneficiary (the mortgagee). Used in many states in place of a mortgage.

Front 445

defeasance clause

Back 445

Stipulates that the mortgage lien is void when the loan is repaid.

Front 446

equity

Back 446

A property's value minus any loans against it.

Front 447

first mortgage

Back 447

A real estate loan that has priority over any subsequent mortgages.

Front 448

fixed interest rate

Back 448

An interest rate that does not change during the loan term.

Front 449

fixed rate mortgage

Back 449

A loan in which the interest rate does not change.

Front 450

hypothecation

Back 450

Pledging property as security for a loan without giving up possession.

Front 451

interim financing

Back 451

A short-term loan often used to finance real estate construction.

Front 452

junior mortgage

Back 452

A loan that is subordinate to a prior mortgage.

Front 453

margin

Back 453

In finance, the rate markup over the index rate in an adjustable rate mortgage.

Front 454

mortgage

Back 454

A contract between a borrower and a lender that provides security for the loan by creating a lien on the property.

Front 455

mortgagee

Back 455

The lender or obligee who receives a pledge from a borrower to repay a loan.

Front 456

mortgagor

Back 456

The borrower or obligor who gives the lender a pledge to repay a loan.

Front 457

negotiable instrument

Back 457

A written promise or order to pay a specific amount of money. The instrument may be transferred to someone else by endorsing the document. A mortgage note and checks are examples of negotiable instruments.

Front 458

nonconforming loan

Back 458

A mortgage not eligible for sale and delivery to either Fannie Mae or Freddie Mac for various reasons, including the loan amount, loan characteristics, or underwriting guidelines.

Front 459

note

Back 459

A written promise to pay a sum of money at a stated rate during a specific term.

Front 460

predatory lending

Back 460

Loans that take advantage of poorly informed borrowers to earn the lender high profit by charging exorbitant fees and stripping the property of its equity.

Front 461

prepayment clause

Back 461

A mortgage clause that determines the borrower's rights and duties if the loan is prepaid.

Front 462

promissory note

Back 462

A contract agreement between a borrower and a lender whereby the borrower commits to pay the lender the loan amount following specific terms. The note is a negotiable instrument, allowing the lender to sell the note to investors.

Front 463

redlining

Back 463

Refusing to make loans or issue insurance policies in certain areas, based on the presence of a protected class.

Front 464

reinstatement

Back 464

In finance, the right a defaulting borrower has to stop a foreclosure and restore the loan. Typically, the borrower must pay the amount in arrears and other costs.

Front 465

release deed

Back 465

A deed given by a trustee when a loan is repaid. Also called a trustee's deed of reconveyance.

Front 466

satisfaction of mortgage

Back 466

A document issued by a lender verifying that a loan has been repaid.

Front 467

thrifts

Back 467

Aslo called savings banks. Lenders that have traditionally been an important source of loans for residential property. Their role has greatly diminished in recent years.

Front 468

assumption

Back 468

Also called loan assumption. Occurs when someone other than the original borrower becomes primarily liable for the loan.

Front 469

certificate of sale

Back 469

Given to the winner at a foreclosure sale. It entitles the 'Winner to a deed after the redemption period is over.

Front 470

commercial banks

Back 470

Banks that are either federally or state chartered and that make mortgage, construction, and home improvement loans.

Front 471

commitment fee

Back 471

A fee paid by a potential borrower to the lender for the lender's promise to lend money at a specified rate within a certain time period.

Front 472

commitment to lend

Back 472

Also called loan commitment. A commitment by a lender to make a loan on a property for a stated amount within a certain period of time. Given to loan applicants when their credit has been approved by the lender.

Front 473

conforming loans

Back 473

Loans that follow the established guidelines of the secondary mortgage market.

Front 474

credit report

Back 474

A report issued by a service bureau detailing an individual's credit history. It is used as a guide in determining the likelihood of an individual's paying loans in the future.

Front 475

credit score

Back 475

A number based on statistical analysis of a person's credit information. A higher score means it is more likely a person will repay loans in a timely manner.

Front 476

debt-to-income ratio

Back 476

A ratio used by lenders to qualify borrowers. It is used to calculate the percentage of gross income allowed for the monthly PITI payment.

Front 477

deficiency judgment

Back 477

A judgment against a debtor's personal assets if the sale of real estate is not sufficient to satisfy the loan.

Front 478

discount point

Back 478

Interest points charged by a lender to raise the yield on a loan. One point is equal to 1 percent of the loan amount,

Front 479

disintermediation

Back 479

The rapid outflow of funds from savings institutions.

Front 480

Fannie Mae

Back 480

Formerly known as the Federal National Mortgage Association (FNMA). Operates in the secondary mortgage market. It handles FHA, VA, and conventional loans and is the largest mortgage purchaser.

Front 481

foreclosure

Back 481

The process of liquidating a borrower's assets to satisfy a debt.

Front 482

Freddie Mac

Back 482

Formerly known as the Federal Home Loan Mortgage Corporation (FHLMC), Freddie Mac is government agency that works closely with thrifts to provide a secondary market for their loans.

Front 483

friendly foreclosure

Back 483

The mortgagor in default conveys title to the lender to avoid a record of foreclosure. Also called deed in lieu of foreclosure.

Front 484

front-end qualifying ratio

Back 484

A ratio used by a lender to qualify a loan applicant. It compares a loan applicant's gross income with the proposed PITl.

Front 485

Ginnie Mae

Back 485

A wholly owned government corporation that guarantees investors the timely payment of principal and interest on securities backed by federally insured or guaranteed loans.

Front 486

judicial foreclosure

Back 486

Foreclosure procedures that use the courts. These procedures include judicial sale and strict foreclosure.

Front 487

judicial sale

Back 487

A type of judicial foreclosure in which the lender uses the acceleration clause in the mortgage and then files a suit to have the property sold and the loan paid.

Front 488

loan assumption

Back 488

Occurs when someone other than the original borrower becomes primarily liable for the loan.

Front 489

loan commitment

Back 489

A commitment by a lender to make a loan on a property for a stated amount within a certain period of time. Given to loan applicants when their credit has been approved by the lender.

Front 490

loan-to-value ratio

Back 490

The relationship between the amount of a loan and the appraised value of a property. The ratio is expressed as a percentage of the appraised value.

Front 491

mortgage banking company

Back 491

Originates loans and pack* ages them to investors, who may use their own money or money borrowed from other lenders. They also service loans.

Front 492

mortgage bond financing

Back 492

The process of selling tax exempt bonds by municipalities to raise money for low. rate loans to first-time homebuyers.

Front 493

mortgage broker

Back 493

One who arranges a loan between a lender (mortgagee) and borrower (mortgagor) for a fee.

Front 494

mutual savings banks

Back 494

Similar to savings banks, they use most of their funds for residential real estate loans.

Front 495

nonjudicial foreclosure

Back 495

Foreclosure procedures used by lenders that do not involve the courts. Common types are power of sale clauses and deeds in lieu of foreclosure.

Front 496

pension funds

Back 496

These funds invest in packages of real estate loans, primarily from mortgage bankers and brokers.

Front 497

PITI

Back 497

An acronym describing principal (P), interest (I), taxes (T), and insurance (l), the most common components of a mortgage payment.

Front 498

points

Back 498

Points are interest, usually payable at closing. A point is I percent of the loan amount.

Front 499

portfolio lenders

Back 499

Lenders who hold loans they originate rather than selling them to investors.

Front 500

preapproved

Back 500

The lender collects the buyer's financial and employment information, performs a credit check, and determines the maximum loan amount for which the lender approves the buyer.

Front 501

prepayment penalty

Back 501

A charge imposed by the lender on the borrower for early payment of the loan.

Front 502

prequalified

Back 502

An informal process in which the buyer provides the lender with financial information, but there is no credit check and the lender states the maximum loan amount for which the buyer might qualify.

Front 503

principal

Back 503

1. In lending, the amount financed. 2. In an agency, the party an agent represents. Also called the client.

Front 504

private mortgage insurance (PMI)

Back 504

Insurance written by a private company that protects a mortgage lender against loss if a borrower defaults. The insurance is usually used when the loan-to-value ratio exceeds 80 percent. PMI insures the top 20 percent to 25 percent of the loan, and borrowers are charged a fee at closing as well as an annual fee.

Front 505

redemption

Back 505

The rights of an owner whose property is sold (or is being sold) to satisfy a lien against the real estate to recover the property. Redemption rights are commonly given when property is being sold to satisfy mortgage loans and real estate taxes. See also statutory redemption, equitable redemption.

Front 506

savings banks

Back 506

Also called thrifts. Lenders that have traditionally been an important source of loans for residential property. Their role has greatly diminished in recent years.

Front 507

secondary mortgage market

Back 507

A market where existing mortgages are bought and sold. Mortgages are originated in the primary mortgage market.

Front 508

short sale

Back 508

When the lender agrees to accept less than the loan balance from the sale.

Front 509

strict foreclosure

Back 509

A foreclosure procedure in which the court awards the lender title and all equity to the property.

Front 510

subject-to mortgage

Back 510

An arrangement in which the buyer assumes the seller's mortgage and makes payments but is not personally liable for the debt.

Front 511

adjustable-rate mortgage (ARM)

Back 511

A mortgage in which the interest rate changes at predetermined intervals according to a predetermined financial market index. There are usually ceilings (caps) that limit the amount the rate can change every year and over the life of the loan.

Front 512

amortization

Back 512

Systematic repayment of a debt through periodic installments. Loans can be fully amortized (the entire balance is extinguished), partially amortized (only part of the balance is paid), or negatively amortized (the balance increases).

Front 513

balloon loan

Back 513

A loan in which the payments do not fully amortize the loan balance. The remaining loan balance is included in the last payment, called a balloon payment.

Front 514

biweekly loan

Back 514

A loan in which a payment is made every tv,'0 weeks. Under this arrangement a borrower pays less interest and pays the loan off sooner than under a standard loan arrangement with monthly payments.

Front 515

blanket loan

Back 515

A loan that covers more than one property and contains a partial release clause that releases the lien on individual properties as the loan is paid.

Front 516

budget loan

Back 516

A loan arrangement in which a portion of the property's real estate taxes and insurance is collected by the lender as part of the loan payment.

Front 517

buydown

Back 517

A loan arrangement in which the lender is paid an interest subsidy in exchange for a reduced loan rate in the first years of the loan.

Front 518

certificate of eligibility

Back 518

Issued by the VA to qualified veterans and includes the maximum loan amount guarantee for the veteran, which is set by the VA based on eligibility period and prior use.

Front 519

certificate of reasonable value (CRV)

Back 519

Sets the maximum VA loan amount for a property after it is appraised by a VA appraiser and the appraisal is reviewed by the VA.

Front 520

construction loan

Back 520

A loan that provides funds for real estate projects. The lender usually disburses the money as work is completed (called draws).

Front 521

Department of Veterans Affairs

Back 521

A federal agency also known as the VA. One of its functions is to administer the guaranteed loan program for loans made to qualified veterans by approved lenders.

Front 522

Federal Agricultural Mortgage Corporation

Back 522

A federal agency that establishes a secondary mortgage market for farm real estate loans.

Front 523

FHA loan

Back 523

A loan made by an approved lender and insured by the Federal Housing Administration.

Front 524

fifteen-year loan

Back 524

A fully amortized loan with a 15-year term. Reducing the loan term from 30 to 15 years saves the borrower interest with only a moderate increase in the payment amount.

Front 525

home equity loan

Back 525

A loan based on a homeowner's equity in property, usually an adjustable rate, second (junior) mortgage. The interest is usually deductible for income tax purposes.

Front 526

impound account

Back 526

An account maintained by the lender that holds money collected from the borrower for the payment of real estate taxes and insurance. Also called an escrow or a reserve account.

Front 527

insured loans

Back 527

A loan insured by FHA or a private mortgage insurance company that protects the lender against default.

Front 528

land contract

Back 528

The seller accepts a down payment and finances the rest of the purchase price. Title to the property remains with the seller until the loan is repaid. Also called an installment sales contract and contract for deed

Front 529

mortgage insurance premium (MIP)

Back 529

An insurance fee paid by the borrower either to the FHA or to a private mortgage insurer to protect the lender against default.

Front 530

negative amortization

Back 530

A loan arrangement in which the loan balance increases with each payment rather than decreasing because the payment amount is not sufficient to cover the interest.

Front 531

open-end loan

Back 531

A loan arrangement whereby the mortgagor may borrow additional money up to the original amount of the loan using the same property as collateral.

Front 532

private conduits

Back 532

Organizations that often purchase and pool nonstandardized loans for selling in the secondary market.

Front 533

purchase-money mortgage (PMM)

Back 533

A loan given by the seller to finance part of the purchase price, also called a take-back mortgage.

Front 534

reverse equity mortgage (REM)

Back 534

A loan designed for elderly people with little or no debt on their houses. The lender pays the borrower a fixed amount of money each month based on the equity in the property and the owner's life expectancy. The loan is repaid when the owner dies, sells the house, or moves out of the house.

Front 535

term loan

Back 535

A loan arrangement in which payments include only interest and the loan balance is due at the end of the loan period. They are usually nonamortizing loans for short terms. Also called a straight loan.

Front 536

wraparound loan

Back 536

A loan arrangement in which an existing loan on a property is assumed by a lender, who then gives the borrower a new, larger loan.

Front 537

annual percentage rate (APR)

Back 537

A term used in the Truth in Lending Act to represent the true yearly cost of a loan. The APR is a yearly rate and includes the loan's interest rate plus other loan fees.

Front 538

discount rate

Back 538

The interest rate charged other banks by the Fed for loans. By adjusting the discount rate, the Fed can control interest rates and the flow of money in the economy.

Front 539

Equal Credit Opportunity Act

Back 539

Protects borrowers from discrimination when applying for loans. A lender may deny a borrower credit based only on valid business reasons.

Front 540

Fair Credit Reporting Act

Back 540

A law passed to regulate the action of credit bureaus and consumer credit information. It protects consumers from the reporting and use of inaccurate or obsolete credit information. A lender who rejects a loan request because of adverse credit bureau information must inform the borrower of the source of the information.

Front 541

Federal Deposit Insurance Corporation (FDIC)

Back 541

A government agency that manages two insurance funds used to insure deposits in both commercial banks and savings banks or thrifts.

Front 542

Federal Housing Administration (FHA)

Back 542

The FHA is a division of the Department of Housing and Urban Development (HUD). The FHA's principal role is to insure residential mortgage loans made by private lenders.

Front 543

Federal Reserve System

Back 543

Called the Fed, it was established by Congress in 1913 to help maintain a sound credit and economic environment and counteract inflation and deflation trends. The Fed regulates money supply and interest rates.

Front 544

Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)

Back 544

A federal law passed as a result of the troubles experienced by the savings and loan industry. The act included amendments intended to improve the competency of appraisers.

Front 545

Home Mortgage Disclosure Act

Back 545

A law passed to prevent real estate lenders from redlining. Lenders must make annual disclosures showing areas where loans are being made.

Front 546

Office of the Comptroller of the Currency (OCC)

Back 546

A federal government office responsible for monitoring and regulating the nationally chartered banking industry.

Front 547

Regulation Z

Back 547

Federal regulation issued by the Fed to implement the Truth in Lending Act. See also Truth in Lending Act.

Front 548

reserve requirement

Back 548

The portion of a bank's deposits that may not be loaned. By adjusting the reserve requirement, the Fed can control interest rates and the flow of money in the economy.

Front 549

Truth in Lending Act

Back 549

A federal law implemented by Regulation Z that requires lenders to inform borrowers of the true costs of obtaining a loan. Primary disclosures include the finance charge, annual percentage rate, the amount financed, and the total payments. The law also provides certain restrictions when advertising financing terms.

Front 550

usury laws

Back 550

Laws passed by states that limit the interest rates lenders can charge borrowers.

Front 551

actual cash value

Back 551

A method of settling an insurance claim in which depreciation is subtracted from the original cost of the property.

Front 552

Building Owners and Managers Association (BOMA) International

Back 552

An association of owners and managers of primarily office buildings.

Front 553

coinsurance clause

Back 553

A clause in the insurance policy whereby the owner may take on some of the risk if the house is insured for less than a certain percentage (usually 80 percent) of the replacement cost stated in the policy.

Front 554

endorsement

Back 554

A rider added to an insurance policy that changes the coverage.

Front 555

homeowners' policy

Back 555

A package of several types of insurance coverage available to homeowners.

Front 556

Institute of Real Estate Management (IREM)

Back 556

The largest property management organization. It is affiliated with the National Association of REALTORS@.

Front 557

liability coverage

Back 557

Protection against claims by others for injuries caused by an owner's negligence.

Front 558

management agreement

Back 558

A contract by which a property owner employs a property manager.

Front 559

management plan

Back 559

A document developed by a property manager that outlines the owner's objectives and how the manager intends to meet them.

Front 560

National Flood Insurance Program (NFIP)

Back 560

A program administered by a division of the Federal Emergency Management Agency (FEMA) that helps provide coverage to homeowners for losses due to flooding.

Front 561

perils

Back 561

Hazards or risks that may be protected against with insurance policies.

Front 562

property management agreement

Back 562

A document that establishes the working relationship between a building owner and a property manager. A contract between the parties that establishes an agency in which the manager is the agent and the owner is the principal.

Front 563

acquisition debt

Back 563

An income tax term used to describe money borrowed to purchase, construct, or improve a residence.

Front 564

adjusted cost basis

Back 564

The original cost of an asset plus capital improvements less certain deductions. Used to determine the amount of gain or loss realized when the asset is sold.

Front 565

deductions

Back 565

Expenses that taxpayers are allowed to include on their income tax returns to reduce their taxable income.

Front 566

installment sale method

Back 566

A method of selling real estate in which the gain on the sale is received from the buyer over several years and recognized as a taxable gain over the same period.

Front 567

accelerated cost recovery system (ACRS)

Back 567

An alternative method of calculating depreciation in which more depreciation is taken in earlier years and less in later years.

Front 568

appreciation

Back 568

The increase in a property's value over a period of time, which can be caused by inflation or by the characteristics of the property.

Front 569

basis

Back 569

The original cost of the property plus capital improvements less accrued depreciation. Used for accounting and income tax purposes.

Front 570

blue-sky laws

Back 570

Laws passed to protect the public from fraudulent investment schemes.

Front 571

boot

Back 571

Additional cash or nonqualifying property received as part of a like-kind exchange. Boot is taxable to the recipient.

Front 572

cash flow

Back 572

The dollars remaining from income after all expenses have been paid. Cash flow can be either positive or negative.

Front 573

depreciable basis

Back 573

The total monetary value of an asset that is used to calculate depreciation.

Front 574

depreciation

Back 574

(1) In appraisal, a loss of property value due to any cause. Depreciation is used in the cost approach to estimating value. See also cost approach, curable depreciation, economic obsolescence, functional obsolescence, incurable depreciation, physical deterioration.

Front 575

depreciation

Back 575

(2) For tax purposes, a deduction that allows the cost of assets used in business or as investment property to be recovered over a period of time. Noninvestment property (such as principal residences) cannot be depreciated. The rules for calculating tax-deductible depreciation are established by the IRS.

Front 576

leverage

Back 576

The use of borrowed money to purchase investments.

Front 577

life insurance companies

Back 577

A source of money for large industrial and commercial real estate projects. They deal with intermediaries rather than individual borrowers.

Front 578

like-kind property

Back 578

As defined by the tax code (Section 1031), personal property that can be exchanged for other personal property or real estate that can be exchanged for other real estate.

Front 579

liquidity

Back 579

The speed at which an investment can be converted into cash.

Front 580

pyramiding

Back 580

Obtaining additional investment property by borrowing on the equity of existing investments.

Front 581

Real Estate Mortgage Investment Conduit (REMIC)

Back 581

Issues investor securities backed by mortgage loan pools.

Front 582

Real estate owned (REO)

Back 582

Property acquired by the lender through foreclosure and held in inventory.

Front 583

Section 1031

Back 583

The section of the IRS code that authorizes the deferment of tax on a gain through an exchange of like-kind property.

Front 584

Starker exchange

Back 584

A delayed exchange of properties that qualifies as a tax-deferred exchange.

Front 585

straight-line method

Back 585

A method of depreciating an asset in which equal amounts of depreciation are taken annually over the asset's useful life.

Front 586

tax shelter

Back 586

An investment intended to lower (or protect) taxable income through tax-deductible expenses.

Front 587

useful life

Back 587

The length of time an asset will be useful to the owner and can be depreciated. For tax purposes, this is defined by the IRS.