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Glossary A – C


abandonmentthe voluntary surrendering of property rights without transferring the actual title to another party.

abeyance:  a lapse in succession during which title to a piece of property in not clearly established.

absentee owner:  owner who lives somewhere other than the property location

absolute title:  a title that is clear of  liens or judgements

absorption rate:  a percentage which a developer uses to estimate the expected annual sales or occupancy of a development.  Example, if there are 100 new homes for sale in a given month and 10 sell while another 10 are built, that months’ absorption rate is 10%.

abstract of judgement:  a lien put on a property as a result of a court judgement filed with the county.

abstract of title search:  review of public records to check for liens or defects of title which might exist on a piece of property that might present a complication which would prevent the property from getting a clear transfer of ownership.

abutting:  property which adjoins or borders another property.

accelerated amortization:  reduction of the term can be achieved by a borrower paying additional principal on a mortgage.

acceleration clause:  loan provision which allows the lender to declare the entire amount immediately due as a result of late payments or other broken covenants.

accession:  rights an owner has including air, mineral, and water rights as well as man made improvements.

access right:  the right of an owner to get to and from his or her own property.

accountant’s opinion:  a letter that precedes a financial report by an independent accountant that describes the scope of the subject statement on the quality of the data presented.  Sometimes referred to as an accountant’s letter.

account reconciliation:  the act of confirming a balance such as in a checkbook matches with the transactions in the corresponding statement.  Also used for impound accounts.

account statement:  a reconciliation of transactions and their effect on account balances over a specified period of time.

accrued expense:  expense that is incurred but not yet paid for.

accumulated depreciation:  the amount of depreciation which is claimed to date for a specific period of time.

acknowledgment:  a written declaration stating that a person has acted voluntarily without duress.

acquest:  the act of acquiring property via a purchase transaction.

acquiescence:  a person who accepts without objecting to a term which implies a waiver of the right to legal action.

acquisition:  securing ownership or majority interest in a property via the purchase transaction.

acquisition cost:  total costs to purchase a property including the sales price and associated fees.

acre:  unit of measure for an area of land which equals 43,560 square feet.

action:  a complaint for demanding a legal right which in Real Estate most often would be to repossess a specific property.

action in personam:  a judicial proceeding which is against a person versus a property of that person.  The most common issues are a breach of contract, making up for a loss or provide a service.

action in rem:  a judicial proceeding which is against a property but in legal idealogy is actually between two parties with the objective of attaching or disposing of property owned.

active income:  income for which a taxpayer performs services such as wages, salaries, tips, bonuses and business income only if the taxpayer materially participates.

Act of God:  an event that occurs that is lack of human intervention such as hurricanes, earthquakes and floods amongst others

addendum:  changes to a contract which are in addition to a transaction of any kind.

additional principal payment:  money paid in excess of the required minimum payment which go to reduce the principal balance or shortening the term of the loan or both.

ad hoc:  “for this” which means consideration for the purpose at hand and not a wider application

ad infinitum:  “without end”.

adjacent property:  property close to but not necessarily touching another property.

adjoining property:  contiguous property sharing a common border.

adjustable-rate mortgage(ARM)a mortgage loan that does not have a specified fixed rate interest rate.  These will normally change rates on a pre-determined schedule like every month, or six months or annually depending on how they’re written.  The interest is usually tied to an index such as the LIBOR or T-bills added to a margin which is set by the lender.  These home loans normally have a low interest rate for a specified period of time too like a two, three, or five year period prior to adjusting.  That is referred to as a teaser rate.  Most of the time there is an interest rate cap which limits the amount of the increase in the interest rate when the lock period ends.

adjusted gross income(AGI)this is a federal tax term which means the difference between a taxpayer’s gross income and the adjustments to that which affect the ultimate tax liability of the taxpayer.

adjustment date:  the date which the interest rate can change  on an ARM loan.

adjustment interval:  the period of time when changes in the interest rate and or monthly payments are allowed on an ARM.

aesthetic value:  the enhancement of a property’s value by appearance or favored location

agency:  this describes the relationship that exists between two people or entities where there is a principal and an agent representing the principal in activities with other parties such as real estate agents or selling for a client.

agency disclosure:  this is a low which varies state to state but basically requires real estate agents to disclose whether they represent the buyer or seller.

agent:  one person empowered to act on behalf of another in dealings with a third party.

agreement of sale:  the terms and sale price for a transaction on a document which also includes a legal description and any limitations.  This obligates the buyer to buy and the seller to sell with potential consequences should one party or the other fail to perform.

agricultural property:  property that’s is zoned for farming including crops and livestock.

alientation clause:  mortgage provision that requires the balance of the loan be paid in full if the property is sold or transferred.

all-inclusive trust deed:  mortgage that encompasses all existing mortgages and is subordinate to them.

allodium:  property that is owned outright with nothing due another party.

allowance:  credits or money offered by builders of new homes which is applied to the cost of items subject to buyer selection such as fixtures, appliances, or carpeting.

alternative mortgage:  any loan which is not a standard fixed-rate home loan.  ARM’s are in this category.

American Land Title Association(ALTA):  Washington D.C. organization that promotes guidelines for title abstracts and title insurance policies.

American Society of Appraisers(ASA):  this society is designed for the promotion of the appraisal profession and includes education and certification.

amortization:  a regular payment of both principal and interest to pay off a loan.

annual cap:  the percentage an ARM loan can be raised or lowered in any consecutive 12 month period.

annual mortgagor statement:  an annual statement sent to a borrower detailing the principal remaining as well as amounts paid towards interest and taxes(if applicable).

annual percentage rate(APR):  the rate a borrower actually pays when you include the loan costs, expressed as a percentage rate per year if paid until term.  An ARM assumes the loan’s index remains the same for the term.

anticipatory breach:  a communication, usually by letter, informing the other party that the terms of the original contract will not be completed.

application fee:  a fee charged to a potential borrower by a lender at the time of application.

appraisal:  the perceived value of a property based on date by a professional such as a licensed appraiser.

appraisal report:  a detailed report that shows the value of a property.  It is done by a professional who interprets information such as comparable sales, pending sales and listings.

appraiser:  a licensed professional who does appraisals and has the ability to appear in court as an expert witness regarding the evaluation process.

approval:  confirmation of an amount or a loan after review of supporting documents based on the ability of the borrower to repay that loan.

appurtenance:  something outside of the property itself but is considered a part of the property which adds to its value and utility such as a right of way.

arbitration:  dispute solving method which employs a third party for resolution.

arrears:  past due payments which are in default.

as is condition:  title transfer of a property which does not include any warranties or representations.

assessed value:  a value placed on a property by the tax assessor used in order to calculate the tax base.  In California Proposition put limitations to this process.  This value has nothing to do with the appraised value.

assessor:  official charged with determining values of a property for government purposes.

assign:  transference of certain rights to another party.

assignment of mortgage:  sometimes referred to as an assumable loan it means it can be transferred from the old owner to the new owner.

assignment of rents:  a borrower willl give his or her lender the right to receive rents in the property owned by the borrower.

assignor:  person who transfers rights and interests in a property.

assumable mortgage:  a mortgage that can be taken over by a buyer in the case of a sale which in most cases must be approved by the lender.  There are normally some fees associated in this transaction and it is really up to the buyer is that loan will be better than doing a new home loan.

attached garage:  a garage that is physically a part of the same building as the home.

attornment:  tenants agreement to accept a replacement landlord.

automated underwriting:  computer generated home loan underwriting decision which uses a completed home loan application and the system retrieves and weighs factors such as credit history, income and assets to arrive at a decision.  All information needs to be verified later in the process.

back-end ratio:  a lenders calculation which considers the debts of a potential borrower compared to the gross monthly income.  Debts considered are principal, interest, property taxes and hazard insurance on a monthly basis, mortgage insurance, and other monthly bills.

bad title:  clear ownership is not possible as a result of claims and liens on the property.

balloon mortgage mortgage where the final payment is considerably larger than the preceding payments.  Payments are usually level for a specified period of time but at the end of that period a lump sum is required and that loan is finished.  Terms have to really be reviewed by the borrower on this type of loan.

balloon paymenta large final payment due at the end of a loan, typically a home or car loan, to pay off the amount your monthly payments didn't cover.

bankrupt:  financial insolvency.

bankruptcy:  a legal process where an insolvent debtor can be relieved of repaying certain obligations.  This proceeding usually stays on a credit bureau for ten years.

bearer:  legal owner of a piece of property.

bidding war:  a situation where there are multiple offers on a piece of property.  It also applies where there is competition between realtors for the listing of a property.

biennial:  event occurring every two years.

bill of salewritten instrument given to pass title to personal property.

binder:  agreement which is prior to a contract between buyer and seller.  Also applies to the report which is issued by a title insurance company detailing conditions of a home’s title and giving guidelines for the title insurance policy.

bi-weekly payment:  home loan where the payment schedule requires payments to be made every two weeks versus the standard monthly payment.  That creates 26 payments during the course of the year with a result for the borrower of saving a substantial amount of interest during the term of the loan.

blanket mortgage:  mortgage that covers more than one parcel of real estate.

blockbustingthe illegal practice of inducing panic selling in a neighborhood by making representations of the entry, or prospective entry, of members of a minority group or any other group which might trigger panic selling.

bond:

  1. A written agreement purchased from a bonding company that guarantees a person will properly carry out a specific act, such as managing funds, showing up in court, providing good title to a piece of real estate or completing a construction project. If the person who purchased the bond fails at his or her task, the bonding company will pay the aggrieved party an amount up to the value of the bond.
  2. An interest-bearing document issued by a government or company as evidence of a debt. A bond provides pre-determined payments at a set date to the bond holder. Mortgage interest rates are in many cases tied to long term bond interest rates.

bond for title:  property sales contract which is binding on both parties.  The title stays with the seller until the buyer pays the purchase price.  Once completed, title is conveyed.

bonus to selling agent (BTSA):  compensation, above and beyond the sales commission, offered to the real estate agent who brings the buyer to the transaction.  A BTSA is used to provide an extra incentive for real estate agents to show a particular property. Often the bonus is tied to closing within a certain time period or the property selling for a certain price.  A buyer's agent should not consider the BTSA a factor in any negotiations between buyer and seller.  Realistically, most BTSA's tend to disappear during initial negotiations, even though they should never be considered as negotiable after they have been offered.  Any bonus to selling agent should be contained in a written agreement between the seller and listing broker.  The BTSA is technically offered by the listing broker, not the seller, and thus should not be a subject of negotiation.

borrower risk:  these are the risks assumed by a borrower which include and not limited to loss of ability to repay mortgage, rising interest rates and payments on ARMS, and or home depreciation or devaluation.

breach of contract:  the failure of one party to fulfill the terms of a contract without excuse or legal reasons.

bridge loan:  a collateralized form of second trust deed by a borrower on a present home(which is usually on the market for sale) in a manner that allows the proceeds to be used for closing on the purchase of a new house prior to the close of sale on the present home.  Is also referred to as a swing loan.

brokerage:  for a commission or a fee this is the bringing together of two parties interested in doing a buy, sell, exchange, or lease of real property.

broker price opinion(BPO):  a real estate brokers or agents estimate of the price a seller can expect to derive from the sale of their property.  Sellers may request several opinions before agreeing to list their property.

broker’s agreement:  a sales contract for a broker(or one of his or her agents) to act on behalf of the principal in selling real estate.  The principal agrees to pay a commission to the broker when a buyer is produced who is prepared to meet the requirements of the sale.

builder breakdown method:  complete estimate of all anticipated costs of a construction which can include land acquisition, material, labor, fees and preparation.

builder upgrades:  materials which exceed the quality of materials offered by the builder or developer to the purchaser.

building permit:  a permit usually issued by a local government allowing construction or renovation of a house or other structure.

building setback:  a governmental ordinance which states the distance from a curb or property line where a building can be located.

bullet loan:  a short term debt(five to ten years) which does not have periodic payments but has a balloon feature due at the time of maturity.

bundle of rights:  the group of rights a property owner has in a property.  A couple of examples are the right of occupancy, use and enjoyment, to sell in whole or in part, to lease any or all of the rights and so forth and so on.

buy down:  a cash payment to the lender of a loan which is normally measured in points for the purpose of reducing the interest rate a borrower must pay on their mortgage.

buyer’s broker:  a real estate broker who represents a potential buyer in a transaction and whose commission is paid by either the buyer or the listing broker via a commission split.  Some brokers specialize in conducting their business by representing buyers only.

cap:  the maximum allowable increase whether it’s based on payment or interest rate, for a specific period of time on an adjustable rate mortgage.  As an example if a per-period cap is 1% and a borrower’s current rate is 5%, the newly adjusted rate has to be between 4 and 6 percent irregardless of what the index is that the lender uses to calculate rate.

capital gain:  the investment profits made upon the sale of assets such as stocks or real estate.  As of this time your primary residence has an exemption for appreciation of a primary residence, $250,000 for single individual, $500,000 for couple.  Call for more details.

capitalizationthe estimation of the value of income producing property by dividing the annual net income by the capitalization rate.

capitalization ratethe rate expected rate of return expressed as a percentage on the income of a piece of investment property.  Value is annual income divided by the capitalization rate.

cap rates:  the absolute highest interest rate a borrower would pay for an adjustable rate mortgage.

carryback financing:  financing provided on the sale of a property by the seller who takes a note and agrees to accept payments or balloon payment for a specified period of time.

cash flow:  the income remaining after the operational and loan expenses are subtracted out from the gross rental income on a rental property.

cash out:  cash received at the time of a new loan which exceeds the balance of the current mortgage which will be based on the current equity in that house.  That amount can be calculated by subtracting the balance of the old loan and fees from the new mortgage loan.  Also can apply to a second position such as a Home Equity Line of Credit.

caveat emptor(Latin):  let the buyer beware meaning make sure you do your due diligence on any purchase.

ceiling(ARM):  maximum allowable interest rate of an adjustable rate mortgage.

Certificate of Eligibilitya document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes.  Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of Occupancy:  document issued by a building department of a town or other governing body stating that the house has met all of the building codes and is habitable.

cession deed:  a deed which is used to transfer property rights to a governmental agency.

chain of titlea history of conveyances and encumbrances of a property from some starting point, whereby the present owner derives title.

change frequency:  in an adjustable rate mortgage this is the adjustment schedule.

channelingthe illegal practice of directing people to, or away from, certain areas or neighborhoods because of minority status.

chattel:  personal property that is not affixed to the land or building such as a mobile home which is not on owned land or in a park.

cleaning feea nonrefundable fee charged by a landlord when a tenant moves in. It covers the cost of cleaning the rented premises after you move out, even if you leave the place spotless. Cleaning fees are illegal in some states and specifically allowed in others, but most state laws are silent on the issue.

clear titleland title that doesn't have any liens (including mortgages) against it.

closed-end mortgage:  a mortgage in which the collateralized property cannot be used as security for another loan.

closingthe conclusion of a real estate transaction when the seller transfers title to the buyer in exchange for consideration.  Included are the signing of documents, disbursement of funds and the recording of the deed.

closing costscosts the buyer must pay at the time of the closing of the sale in addition to the down payment.  Some of the more common costs are points, title charges, credit report fee, document preparation fee, loan tie-in fees, appraisals, prepayments for property taxes, recording fee, and homeowners insurance. There might be more which are not listed here. Closing costs can vary considerably from one escrow company or financial institution to another.

closing escrow:  when all the conditions of the purchase agreement have been satisfied and the escrow agent has prepared the written summary of funds received in the escrow, those funds are now disbursed to facilitate the closing of this transaction.

closing of title:  if a property’s title has been investigated and there is confirmation of no problems which might prevent a transfer to a new owner, the closing of title is the legal procedure in which that property ownership is transferred.

closing statementa detailed written summary of the financial settlement of a real estate transaction, showing all charges and credits made, and all cash received and paid out.  Refer to HUD-1.

cloud on title:  conditions revealed as a result of a title search that would adversely affect the title to that property.  Clouds can be a real challenge to remove.

co-brokerage:  when two or more brokers agree to work together in representing a principal for the completion of a real estate sale.

collateral:  something of value deposited with a lender as a pledge to secure repayment of a loan.

collateral loan:  a loan secured by the pledge of collateral against a specific asset.

collateral security:  additional security supplied by a borrower to obtain a loan.

commingling:  the mixing together of money which is hold in trust for one reason with other money which is for a separate purpose.

commitment:  the formal offer by a lender which states the terms under which it agrees to loan money to a homebuyer.  This is also referred to as a loan commitment.  The components are dollar amount, term(number of years), origination fee, points, annual percentage rate and the monthly charges.  This document has a time limitation for receipt.

common-law state:  the property and income of each spouse belongs to him or her separately.

Community Reinvestment Act(Federal):  the Federal law which encourages the loaning of money in neighborhoods where minority depositors live.

co-mortgagor:  when two or more parties share a joint liability for a mortgage.

comparable sales:  widely used method by real estate brokers of estimating value by using similar sales in similar neighborhoods.

comparative market analysis(CMA):  estimated value of a property based on comparisons of like properties.  Usually used by Realtors to establish pricing.

compressed buy-down:  a buydown mortgage where the level of rate reduction is changed every six months.

concession:  benefits granted by a seller to induce a sale.

condemnationthe act of taking private property for public use, through due process under the right of eminent domain, with compensation to the owner

conditional commitment:  a written promise from a lender to make a loan based on the fulfillment of certain conditions by the borrower.

conditional offer:  an offer to purchase a piece of real estate provided certain conditions are met.

conditional sale:  a contract where the title remains with the seller until certain conditions are fulfilled by the buyer.  Sometimes call a conditional conveyance.

condominiuma form of real estate, usually a dwelling with individual ownership of separate portions of the building plus shared ownership of the common areas.

condominium conversion:  title change from single ownership of an entire building to multiple owners of multiple units which means it transforms from a rental apartment house to individual condo ownership.

conforming loan:  a loan amount that is less than $417,000.  Larger amounts are called non-conforming or jumbo loans and normally carry a higher interest rate.

considerationthe price or subject matter, which induces a contract.  It can be in money, commodity, exchange, or a transfer of personal items.

consolidation loan:  a loan that combines small obligations into a single larger loan.

construction loan:  a temporary loan used during the construction of a house.

construction to permanent loan:  construction loan that converts to a traditional mortgage upon completion of the construction.

constructive evictionthe provision of housing that is so substandard that, for all intents and purposes, a landlord has evicted the tenant.  As an example a landlord may refuse to provide light, heat, water or other essential services, destroy part of the premises or refuse to clean up an environmental health hazard, such as lead paint dust.  As the premises are unlivable, the tenant has the right to move out and stop paying rent without incurring legal liability for breaking the lease.  Usually, the tenant must first bring the problem to the landlord's attention and allow a reasonable amount of time for the landlord to make repairs.

contingency:  a stipulation that must be satisfied before a contract is legally binding.

contingency reserve:  normally used on purchase-rehabilitation type of loans.  It is a reserve for the project to allow for cost overruns.  Only used for unforeseen repairs or deficiencies found during the rehab.

contingent sale:  sale that is finalized only in the case of a particular occurrence.

contract for deed:  a contract where the seller agrees to defer all or part of the  sale price for a specified period of time.

contract of sale:  written agreement between a buyer and seller on the purchase price, terms and conditions of a sale.

conventional loan:  a long term loan for the purchase of a home which is not insured by the FHA or guaranteed by the VA.  This loan generally conforms to standards required for sale into the secondary market.  Normally will require a substantial down payment and has credit score and credit history requirements.

conveyance:  a written instrument that evidences a transfer of some or all ownership in a real property from one person or entity to another.

conveyance tax:  a tax assessed on the transfer of real property.

co-op/cooperative:  an apartment building where each resident owns a specific share of the corporation that owns the entire building.

cooperative sale:  a sale of property where a buyer is brought to the transaction by a real estate agent that works for a different broker than the listing agent.  Both brokers have agreed to work together in closing the property and typically figure a commission split.

cosign:  situation where a person signs a note for the benefit of another but also assumes the liability for the debt.

cost approach to value:  one of the appraisal methods of evaluation which is based on current construction costs less depreciation and adding in land value.

cost of capital:  the rate of return that is necessary to maintain the market value of a real estate project and also is used for evaluation purposes.

cost of development:  expenditures incurred to develop real estate.

cost of funds index(COFI):  one of the indices used many times to calculate adjustments in an ARM payment.  It’s the weighted-average interest rate paid by savings institutions.

counter offer:  a rejection of an offer to purchase or sell that simultaneously makes a different offer by changing the terms is some way.  As an example, a Buyer offers $200,000 to purchase a home and the Seller replies by saying he will accept the terms but wants $215,000.  The Seller rejected the Buyer’s offer of $200,000 but indicated they would accept $215,000.  Basically the original offer is rejected for the $200,000.

covenant:  a binding agreement made by two or more or more parties to do or keep from doing a specific thing. 

covenants, conditions & restrictions(CC&Rs):  restrictions governing the use of real estate which is normally enforced by a homeowners’ association and passed on to subsequent purchasers of the properties.  As an example they can tell you how big your house can be built, the type of landscaping and whether you can have pets of not.

credit bureau:  a private profit making company that is a repository for information about peoples credit history.  They will normally include private information such as identification, transactions for credit cards, installment loans, mortgages and also include public information such as liens and bankruptcies.

credit insurance:  insurance a lender can offer or require a borrower to purchase which will cover the loan.  If the borrower has a disabling event or dies prior to the payoff of the loan, the policy will pay off the balance.  Terms and costs must be disclosed by law.

credit limit:  the maximum amount of money a prospective borrower can qualify for.

credit report:  recap of a persons credit history  prepared by one of the credit bureaus.  This report includes credit information along with personal history such as former addresses, aliases, employment and lawsuits along with lines of credit and the history of each account.  Credit reports need to be reviewed regularly for accuracy.

credit score:  a number based on the information received from one of the credit repositories in the form of the credit report.  This information predicts the likelihood a potential borrower would repay the debt.  In the mortgage industry the scores will be in the 300 – 900 range.  The higher your credit score the better.  Many other factors go into creating the score such as the number of inquiries.

credit worthiness:  lenders judgement of a borrower  to be worthy of future credit.