You are hereGlossary D - F

Glossary D - F

DBA:  Doing business as.  The certification by a state that a principal is doing business under an assumed name.

debenture:  bonds issued without security.

debt to income ratio:  The measurement of debt payments to gross household income which may include, in addition to the main wage earner's salary, salaries of other wage earners, commissions, bonuses, overtime, etc.

Deceptive Trade Practices Actpart of the Federal Consumer Protection Act originally passed in 1973 and made specifically applicable to real estate in 1975, which specifically prohibits a number of misleading and deceptive acts or practices. declining market:  market condition which has more sellers than buyers resulting in falling prices.

deduction:  amount that can be subtracted from income that is otherwise taxable.

deeda legal document by which title to land is conveyed. first time home buyer

deed covenant:  any of a number of types of promises to do or not do something which is attached to and passes to any subsequent owners such as architectural style.

deed in lieu (of foreclosure)a means of escaping an overly burdensome mortgage. Under certain circumstances some lenders will accept ownership of the property in place of the money owed on the property.  If the lender won't agree to accept the property, the homeowner can prepare a quitclaim deed that unilaterally transfers the homeowner's property rights to the lender.


deed of trust:  a document that gives the lender the right to foreclose on a piece of property if the borrower defaults on the loan.


defaultnon-performance of a duty arising under a contract or otherwise.

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default judgment:  a judgment issued by a court against a defendant who does not respond to the plaintiff’s lawsuit and doesn’t respond for his own defense.


defeasance clause:  a clause in a deed, lease, will or other legal document that completely or partially negates the document if a certain condition occurs or fails to occur. Defeasance also means the act of rendering something null and void. For example, a will may provide that a gift of property is defeasible-that is, it will be void--if the beneficiary fails to marry before the will maker's death.


defeasible:  clause in a contract, title, or mortgage that is subject to be repealed or revoked upon the satisfaction of a claim or completion of a future event.


defective title:  title obtained via error or fraud without proper signature or consideration, or any other improper action.  This is null and has no effect on the original title.


deferred interest mortgage:  mortgage that has a lower rate of interest and lower payment.  When the house sells, the lender receives the deferred interest plus a fee for postponing the interest that would normally have been paid on a monthly basis.


deficiency judgment:  a court finding that the debtor owes an amount exceeding the value of the collateral put up for the defaulted loan like in the case of a foreclosure.


deliverythe actual transfer of the deed, or an act of a seller showing intent to make a deed effective, without which, there is no transfer of title to the property.


depreciationloss in value.


descentacquisition of property through inheritance laws when there is no will .


detached housing:  freestanding house that’s constructed on its own building lot.


devise:  gift of real estate that is specified for in a will.


disclosuremaking known a fact that had previously been hidden.  For example, in many states you must disclose major physical defects in a house you are selling, such as a leaky roof or potential flooding problem.


discount points:  a type of fee a lender charges to maintain or lower the interest rate charged on a loan.  A point is one percent of the loan amount.


discount raterate charged member banks who borrow from the Federal Reserve System.


dispossess proceedings:  legal action by the owner of a property to exclude an entity from using that property.


Documentary Transfer Tax:  A state enabling act allows a county to adopt a documentary transfer tax to apply on all transfers of real property located in the county.  Notice of payment is entered on face of the deed or on a separate paper filed with the deed.


down paymentthe amount of money the buyer pays that is the difference between the purchase price and the loan amount.


down zoning:  change of zoning of land from a higher density use to a lower density.


dragnet clause:  mortgage provision that compels the mortgagor(borrower) to collateralize more properties, mortgaged or not, as more security in order to do a different loan.


dry mortgage:  a lien created against a mortgagors(borrower) property, but does not permit a lien against their personal property.


dual contract:  the illegal practice of having two contracts for the same transaction.  An example would be a scenario of a party having a higher contract of a larger amount to facilitate more money being borrowed.


dual listing:  listing where a real estate broker represents both sides to the transaction(buyer and seller) which creates two principals.


due diligence:  the process of fully investigating the terms of a contract or business transaction prior to signing.


due on sale provisionclause in a mortgage agreement providing that, if the mortgagor (the borrower) sells or transfers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.


due on transfer provision:  terminology usually used for second mortgages.


duressforcing action or inaction against a person's will.


early occupancy:  occupation of a subject property by the buyer prior to the closing of the transaction.


earnest moneydeposit made by the buyer as evidence of good faith in offering to purchase real estate and to secure performance of the contract. Earnest money is typically held by a title company, in an escrow account, during the period between acceptance of the contract and the closing.


earnest money contract (EMC)a contract for the sale or purchase of a property in which the purchaser is required to tender earnest money to evidence good faith in completing the contractual obligations.


easement:  a right of way giving a party other than the owner access to or over a property.


easement by necessity:  legal right to travel to a landlocked property.


easement by prescription:  legal right acquired by adverse land use for a statutory period of time.


easy credit:  a situation where very few prospective borrowers of real estate are rejected for approval on loans.  This is usually a result of large money supplies and relaxed credit standards.


economic obsolescenceloss of value of real property due to external forces.  An example of this would be a sewer plant built next door to the subject property.


effective interest rate:  the cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note.  This is not the same as the APR.


egress:  access from a parcel of land to a public road or other means of exit.  Also it is the right to exit and enter through land owned by another.


ejectment:  the process to remove somebody from real property who has no contractual basis to be there.


eleemosynary:  real estate donated to a charity whose value would then be tax deductible.


emblementsannual crops produced by cultivation. They are deemed to be personal property.


eminent domainright of government to take private property for public use, through court action known as condemnation.  The Fifth Amendment to the United States Constitution allows the government to take private property under specific situations. 


encroachmentan improvement such as a wall or fence, which invades a portion of a property belonging to another. 


encumbrancecloud against clear title to a property which does not prevent conveyance, but certainly complicates it.  Things such as unpaid taxes, easements, deed restrictions, and mortgage loans are such examples.


endorsementwriting one's name, either with or without additional words, on a negotiable instrument.  It can also be a statement attached to an insurance policy that changes the original terms.


endorser:  person who signs over title of a property to someone else.


enforceable:  agreement, debt, judgment or law that can be put into effect like a lien put on a property upon default of the loan.


Equal Credit Opportunity Act:  federal law which requires fairness and impartiality without discrimination on the basis of race, color, religion, national origin, sex or marital status, or receipt of income from public assistance programs in the extension of credit.


equalization:  appraisal of all properties within a jurisdiction for the purpose of equalizing values which assures each taxpayer is bearing a fair share of the tax burden.


equitydifference in dollars between a house's value and the mortgage amount.


equity sharing:  arrangement whereby a party which provides financing will get a portion of the ownership.  Oft times government programs will have this clause.


equity-to-value ratio:  ratio of the purchase price of a property compared to its appraised value for example if a property appraises for $300,000 and the price paid is $240,000, you have a ratio of 80%.


escalation clause:  a provision in a loan agreement in which the entire balance of a loan becomes immediately due up certain events such as missing three consecutive payments.


escalator clausea clause in a contract that permits adjustments of the payments.


escheat:  when the ownership of a property reverts to the state because the owner dies without leaving a will (intestate) and has no heirs to whom the property may pass by lawful(descent).


escrow:  a neutral party which holds documents and money for a real estate transaction insuring all the conditions of the sale are met.


escrow accountaccount used to save monies required for the payment of a predetermined debt such as property taxes, hazard insurance and association dues, etc.

Normally they are non-interest bearing for contributions but may pay interest to the entity holding the account.  Sometimes referred to as an impound account.


escrow analysis:  a periodic examination by the lender for an escrow account to determine if the amount being accumulated is sufficient to pay the expenses the account is intended for such as the property taxes, etc.


escrow closing:  basically the conclusion of a real estate transaction when all the conditions are completed and the title to the property is transferred to the buyer.


escrow fees:  monies earned by the escrow company for accumulating and monitoring data from various sources and for distributing it to the parties involved.


escrow payment:  funds withdrawn from a borrower’s escrow account by a mortgage services to pay the intended items that are being collected.  First time home buyer


estate:  a taxable entity that is established upon the death of a taxpayer.  It consists of the  decedents assets and exists until the final distribution of those assets to the heirs and other beneficiaries.


estate at will:  occupation of real estate by a tenant for an indefinite period of time which can be terminated by either party at will.


estate for life:  interest in a property which terminates with the death of the specified person.       


estimate of valuean appraisal done which establishes the appraised value.


et al(Latin):  abbreviation meaning and others.


et con(Latin):  legal abbreviation meaning with husband.


et ux(Latin):  legal abbreviation meaning with wife.


evidence of title:  document such as a deed that demonstrates ownership of a property.


examination of title:  the review of public records and other related documents by a title company to determine the chain of ownership of a specific property.


exceptionan exception is the exclusion of some part of a property conveyed, with title of that excepted part remaining with the grantor.  Say for instance in most subdivisions mineral rights are not conveyed to the purchaser of a developed or undeveloped lot, but remain the property of the developer.


exchange:  transfer of property for another property or services rendered.  In real estate  an exchange of like-kind property is a popular method of deferring tax obligation.


excluded gain:  gains realized on the sale of a principal residence which are government regulated as far determining tax liability and implications.


exculpatory clause:  a mortgage provision which allows a borrower to surrender a property to a lender without personal liability for the balance of the loan.

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facilitator:  real estate professional who helps in a transaction but doesn’t have an agency relationship with that party and can be known as an intermediary.


Fair Credit Billing Act:  a Federal law covering credit and charge card billing errors.  Credit card companies who violate this law can be sued by consumers for damages.


Fred Credit Reporting act:  consumer protection law that regulates disclosure of consumer credit reports by reporting agencies and establishes procedures for correcting mistakes on an individual’s credit report.


Fair Housing Act & Fair Housing Amendments Act:  Federal laws that prohibit housing discrimination on the basis of race or color, national origin, religion, sex, familial status or disability.  This act applies to all aspects of the landlord/tenant relationship.


Fair Housing Lawsthe Federal, state, and local laws, especially Title VIII of the 1968 Civil Rights Act, Title VI of the Civil Rights Act of 1964, and the Civil Rights Act of 1866, which forbids discrimination because of race, sex, color, religion, or national origin as it applies to the selling or renting of homes or apartments, and in other specific transactions.  These laws have been recently been expanded to include familial status (having children) and disabilities (Americans with Disabilities Act).


Fair, Isaac, and Co.:  the leading company that created the credit score technology which is used by the major credit reporting agencies.  This company whose credit predicting decision analysis services are instrumental in billions of lending decisions was founded in 1956.


falling out of escrow:  a situation where one or the other party in a purchase and sale contract is unable to fulfill the terms of that transaction.


Fannie Maethis congressionally chartered shareholder-owned company purchases mortgages from lenders, securitizes them and resells them on the secondary mortgage market.  The loans it purchases are underwritten to their specific guidelines.  In 1968, Fannie Mae became a private company operating with private capital on a self-sustaining basis.  Its role was expanded to buy mortgages beyond traditional government loan limits, reaching out to a broader cross-section of Americans.  Recently Fannie Mae has operated under a congressional charter which has directed it to channel its efforts into increasing the availability and affordability of homeownership for low,moderate, and middle-income Americans.  As the largest buyer of mortgage loans in the US, these guidelines have become the industry standard for the majority of home loans.  Any loan that meets these Fannie Mae guidelines is called a "conforming loan".


Federal Home Loan Mortgage Corporation(FHLMC or Freddie Mac):  agency which buys mortgage loans that are underwritten to their specific guidelines.  Those loans are then pooled and sold in shares to investors.


Federal Housing Administration(FHA):  a federal agency within the U.S. Department of housing and Urban Development(HUD) which is charged with the responsibility of insuring residential mortgage loans made by private lenders under their specific underwriting guidelines.


federally related mortgage:  any mortgage loan that follows federal guidelines because it’s guaranteed, insured or regulated in some form by a governmental agency.


fee simple:  the type of ownership which is the maximum interest a person or party can have in a piece of real estate.  It entitles the owner to use the property in any manner prescribed within state and local laws.


FHAFederal Housing Administration which insures mortgage loans made by approved lenders, in accordance with FHA guidelines.


fiduciaryrelationship of trust, honesty and confidence between agent and principal.  Acting in a legal capacity in the best interests of  their principal.


fifteen year mortgage:  fixed rate mortgage loan which is a level payment and fully amortized for a shorter period than the  traditional 30 year term.  The savings is realized in a higher payment which over the term saves a significant amount of interest.


finance charge:  interest and all other charges that make up the fees incurred in borrowing money.


financed closing costs:  all the costs for closing of title that are added to the base loan amount versus paying out of escrow or up front in the transaction.  This will add to the loan amount which results in an increase in the monthly payments.


financial index:  a number upon which an Adjustable Rate Mortgage(ARM) rate change is based.  Normally that number is published and available to the public.  Along with that a margin, which is dictated by the lender, is added and the sum of the two becomes the adjusted interest rate.  The rate is subject to any caps or floors if included as part of the loan.  As an example;

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A loan is coming into its adjustment and has a 2.5% margin and is tied to the six month LIBOR index with a 5.5% floor.  Let’s assume the 6 month LIBOR is 2% at adjustment, you would add the margin which is 2.5% with 2.0%, the index and the sum of the two is 4.5%. That would not be the adjusted rate because the floor is 5.5% so that would become the new rate.


Some of the most popular indices are:

LIBOR:  London Interbank Offered Rate

COFI:  11th District Cost of Funds Index

MTA:  12 Month Moving Average Treasury Index

COSI:  Cost of Savings Index


There are more but these are just a few of the available indices.  If you have an ARM and you want to verify your contract just review your loan docs where the index should be disclosed.


financing:  the process of lending and borrowing money to buy property.


first mortgagea mortgage which takes priority over all other liens (which are financial encumbrances) and is satisfied before any other liens.  In foreclosure, the first gets paid off before any other mortgage gets any funds.


fixed-period adjustable-rate mortgage:  an ARM(adjustable rate mortgage) that maintains the same initial interest rate for a specified period of time like two, three five or 10 years depending on the loan.  After that period the rate adjusts annually and the rate can move up or down based on the adjustment terms.


fixed rate mortgagea mortgage with an interest rate and monthly payment that doesn't change for the term of the loan.


flood certification:  the determination as to whether a property is located in a flood zone or not.  A property located in one will require federally provided flood insurance.


flood insurance:  special insurance coverage that is provided to properties in a designated flood plain or zone.  It covers risks that are not typically covered by hazard insurance.


flood plain or zone:  level land area which is subject to flooding because of its proximity to bodies of water.  During floods, that property may be underwater.  First

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forbearance:  a lender’s decision to refrain from taking legal action on a delinquent loan in hopes they can resolve the default in a timely manner.


forced sale:  a property sale where the seller is under some form of duress and unable to allow current market prices and conditions to determine the selling price.


force majeure:  delay or failure to perform an obligation on a timely basis due to an unpreventable and irresistible force.  Sometimes referred to as an “Act of God”.


foreclosure legal process instituted by a mortgagee or lien creditor after a debtor defaults on their obligation.  The lender takes the interest back from the debtor and then sells it to cover the mortgage amount and legal costs from the proceeds of the sale, if there is enough to do so.  This is usually a last step that lenders will take after efforts to work out a solution have been exhausted.


foreclosure sale:  after the foreclosure process has been properly completed, this is the subsequent sale of the property to satisfy the terms of the foreclosure.


forfeit:  to relinquish a right.


forfeiture:  the loss of property or a privilege due to breach of legal obligation. 


Freddie Mac(Federal Home Loan Mortgage Corporation (FHLMC):  chartered by Congress in 1970, Freddie Mac is a publicly held corporation that purchases mortgages in the secondary mortgage market under their guidelines.  By supplying lenders with the money to make mortgages and packaging the mortgages into marketable securities which are sold to investors, Freddie Mac also helps to sustain a stable mortgage credit system which in turn, reduces the mortgage rates paid by homebuyers.  It is estimated that over the years of its existence, Freddie Mac has been responsible for helping one out of six home buyers in America who might not have qualified otherwise.


free and clear title:  a property that has no encumbrances or liens.


freehold estate:  this is an estate in which ownership is for an indefinite length of time.  Otherwise known as unlimited interest in a property.


front end ratio:  this is a lender calculation used in qualifying potential borrowers which uses the monthly housing expense(principal, interest, taxes and insurance) to the gross monthly income.  As an example a person who had a projected housing expense of $2,000 and a gross monthly income of $5,000 would have a 40% front end ratio.  Remember the back end ratio is different and usually has different underwriting parameters.


fully amortized mortgage:  a mortgage that is  paid in full and has no balance due.


fully indexed rate:  the interest rate that is used to calculate monthly payments in the absence of constraints imposed by the initial rate and or caps.


future advance clause:  in an open-ended mortgage there is a clause that permits the mortgagor to borrow additional amounts of money by pledging the same real estate as collateral.  A construction loan has a future advance clause providing additional loan guarantees as the construction progresses at predetermined steps.