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A Glossary of Common Real Estate and Mortgage Terms

A - E|F - P|Q - Z

A | B | C | D | E

A

Abstract - A summary; an abridgment. Before the use of photo static copying public records were kept by abstracts of recorded documents. back to top

Abstract of Title - A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurance title. back to top

Acceleration Clause - Provision in a mortgage document stating that if a payment is missed or any other provision is violated the whole debt becomes immediately due and payable. back to top

Acknowledgment - Formal declaration before a public official that one has signed a document. Prior to recording real estate legal documents, such as grant deeds and deeds of trust, a Notary Public acknowledges the person's signature on the document. back to top

Acre - A measure of land equal to 43,560 square feet. back to top

Action to Quiet Title - A court action to establish ownership of real property. Although technically not an action to remove a cloud on title, the two actions are usually referred to as "Quiet Title" actions. back to top

Adjustable Rate Mortgage (ARM) - A mortgage where the interest rate is not fixed for the life of the loan. These mortgages adjust periodically based on an index that changes with market conditions. The rate of interest is the sum of the index plus a margin ( the margin remains fixed for the life of the loan). Most ARMs have periodic interest rate and payment caps, as well as a life cap. ARM's may also be referred to as AML's or VRM's. back to top

Ad Valorem - Designates an assessment of taxes against property. Literally, according to value; based on the "ability to pay" theory. back to top

Adverse Possession - The actual, exclusive, open notorious, hostile and continuous possession and occupation of real property under an evident claim of right or title. The time required legally to obtain title by adverse possession varies from state to state. back to top

Agency - A contract by which the agent undertakes to represent the principal in business transactions, using some degree of discretion. back to top

Agent - Person authorized to act on behalf of another in dealings with third parties. back to top

Agreement of Sale - An agreement between parties for the sale of real estate. In some states it is synonymous with a Purchase Agreement, Sales Agreement, or Land Contract. In Texas it is known as an Earnest Money Contract. back to top

Alienation Clause - Provision in a mortgage document stating that the loan must be paid in full if ownership is transferred. back to top

Amenities - The qualities and state of being pleasant and agreeable. In appraising, those qualities that attach to property in the benefits derived from other than monetary. Satisfactions of possession and use arising from architectural excellence, scenic beauty and social environment. back to top

American Land Title Association - Title policy that assures a lender that it has the proper rights as the beneficiary on a mortgage loan. back to top

Amortization - Gradual payment of a debt through regular installments that cover both interest and principal. back to top

Annual Percentage Rate (APR) - A measure of the total cost of credit (interest as well as other recurring charges) expressed as a yearly percentage rate. Because all lenders apply the same rules in calculating the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans. back to top

Appraisal and Credit Report Fees - These fees are generally collected by the lender and paid to outside companies performing the services. back to top

Appraised Value - An expert option of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings. back to top

Appraisal Report - Estimate of real estate value, presumably by an expert. An appraisal evaluates the property at a given time based on facts regarding the location, improvements, neighborhood and comparable sales. Generally, the value is based on three approaches: cost, market and income. back to top

Appreciation - Increase in value or worth of property. back to top

Arrears - Payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance. back to top

"as is" - A clause that is sometimes used in the transfer of property. It means that the present property is being transferred with no guarantee or warranty provided by the seller. back to top

Assessment Base - The total assessed value of all property in a given assessment district. back to top

Assessed Valuation - Value placed on real estate by governmental assessors as a basis for levying property taxes; not identical with appraised or market value. back to top

Assignment - Transfer of a contract from one party to another. back to top

Assumption - New owner assumes the responsibility for repaying an existing mortgage. Both FHA and VA loans are fully assumable. Some adjustable rate mortgages may be partially assumable, but the new owners may be required to re-qualify for the loan. back to top

Attached Homes - A home that has one or more common walls adjoining another home. Condominiums and row houses are attached homes. back to top

B

Balloon Loan - Mortgage in which the remaining principal balance becomes fully due and payable at a predetermined time. Most of the time, balloon loans have level payments until the note becomes due and payable. back to top

Balloon Payment - The final payment of a mortgage which is larger than the regular payment; it usually extinguishes the debt. back to top

Bankruptcies - A court action to restructure debt. back to top

Basis - Original cost of property plus value of any improvements put on by the seller minus the depreciation taken by the seller. back to top

Beneficiary - The lender named on the mortgage note. One entitled to the proceeds of property held in trust; also proceeds of wills, insurance policies, or trusts. back to top

Bill of Sale - Written agreement transferring personal property from one person to another. back to top

Binder - Preliminary agreement of sale, usually accompanied by earnest money (term also used with property insurance). back to top

Blanket Mortgage - A mortgage covering more than one property of the mortgage. back to top

Bond - A debt instrument in the capital markets. The US government, corporations and municipalities use bonds to raise money. Bonds can also be backed by real estate loans and the payments from mortgages. back to top

Bridge Financing - A form of an interim loan, generally made between a short term loan and a long term loan when the borrower needs additional time before obtaining permanent financing. back to top

Broker - A person that represents another for a fee in real estate transactions. Real Estate brokers help consumers locate suitable real estate and are paid a fee for their services. back to top

Building Code - Government regulations specifying minimum construction standards. back to top

Building Line or Setback - Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leased, by building codes, or by zoning ordinances. back to top

Buy down - An interest rate buy down is the temporary reduction of the note rate and resulting monthly payments a borrower pays to the lender. The shortfall between the rate on the note and initial payment made by the borrower is usually paid by a third party such as a seller or builder. back to top

Buyer's Broker - Agent who takes the buyer as a client, and is obligated to represent their interest above all others, and owes specific fiduciary duties to the buyer. back to top

C

Capital - Accumulated wealth. A portion of wealth which is set aside for the production of additional wealth; specifically, the funds belonging to the partners or shareholders of a business, invested with the expressed intention of their remaining permanently in the business. back to top

Capital Gain - Taxable profit on the sale of an appreciated asset. back to top

Caps - Caps are used on adjustable rate mortgages (ARM's) to limit the interest rate and/or the payment. Most ARMs have a periodic cap that is around 2% per year and a life cap of around 5%-6% over the life of the loan. "Payment only" caps sometimes create negative amortization where the principal balance of the loan increases rather than decreases over time. back to top

Caveat Emptor - A legal term meaning "let buyer beware". back to top

Certificate of Eligibility - A certificate obtained by a veteran from a Veteran's Administration office which states that the veteran is eligible for a VA insured loan. back to top

Certificate of Occupancy - Document issued by a local governmental agency that states a property meets the local building standards for occupancy. back to top

Certificate of Reasonable Value (CRV) - An appraisal of property for the purpose of insurance by the Veteran's Administration. back to top

Certificate of Title - A certification issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the public records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy. back to top

Certified Copy - A true copy, attested to be true by the officer holding the original. back to top

Cestui Que Trust - One having an equitable interest in property with the legal title being vested to the trustee. back to top

Chain of Title - The chronological order of conveyance of a parcel of land from the original owner to the present owner. back to top

Chattel - Personal property. back to top

Client - Person who employs the agent. Typically the seller is a client. The buyer can be a client (buyer's broker) or customer (seller's broker). back to top

Closing - Conclusion of a real estate sale where the title of the property is transferred to the new owners and funds are transferred to the appropriate parties ( seller, old lender, real estate broker, etc.). back to top

Closing Agent - A neutral third party that facilities the closing of a real estate transaction. The closing agent can be an escrow company, title company or attorney. back to top

Closing Costs - Expenses incurred by the buyer/borrower and the seller in a real estate or mortgage transaction. There can be non-recurring costs that include a one time charge for points, appraisal fees, etc. or a prorating of recurring costs such as taxes and insurance incurred while the new buyer/borrower owns the real estate. back to top

Closing Statement - Statement prepared for the buyer and seller itemizing all of the costs of a real estate transaction. back to top

Closing Day - The day on which the formalities of a real estate sale are concluded. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale. back to top

Cloud on Title - An outstanding claim or encumbrance which, if valid, adversely affects the marketability of title. back to top

Code of Ethics - Standards subscribed to by members of the National Association of Realtors. back to top

Co-Maker - Equally responsible for repayment as the borrower. back to top

Commercial Property - Property intended for use by all types of retail and wholesale stores, office buildings, hotels and service establishments. back to top

Commission - Fee paid to a broker or other entity for services rendered. Real estate brokers and mortgage brokers receive a commission for the services they provide; a real estate broker secures a buyer for a property that is for sale and a mortgage broker secures a mortgage loan for the buyer to finance the purchase of a property. Commissions are generally paid as a percentage of the sales price in a real estate transaction or the loan amount in a mortgage transaction. back to top

Commitment - A written promise to make or insure a loan for a specified amount and on specified items. back to top

Common Law - Rules based on usage as demonstrated by decrees and judgments from the courts. back to top

Community Property - Property owned jointly by husband and wife. back to top

Comparables - Properties which are similar in value to a particular property and are used as comparisons to determine the fair market value of a specified property. back to top

Condemnation - The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use. back to top

Conditional Commitment - A lenders promise to issue a loan subject to certain conditions. Generally, the lender will not fund the loan until the conditions have been met. back to top

Conditional Offer - Purchase offer in which the buyer proposes to purchase property only after certain events (sale of another home, finding a loan commitment, etc.) occur. back to top

Condominium - A structure of two or more units, the interior space of which are individually owned. back to top

Consideration - Anything of value given to induce another to enter into a contract. Earnest money deposit on a sales contract is consideration. back to top

Construction Loan - Short-term financing for real estate construction. Generally followed by long term financing called a "take out" loan issued upon completion of construction. back to top

Contingency - Condition which must be satisfied before the buyer can consummate the purchase of a property. Contingencies are generally outlined in the purchase contract between the buyer and seller. back to top

Contract of Purchase - An agreement between parties for the sale of real estate. In some states it is synonymous with a Purchase Agreement, Sales Agreement, or Land Contract. In Texas it is known as an Earnest Money Contract. back to top

Contract of Sale - A purchase transaction in which the buyer receives possession of the property, but the seller retains title. back to top

Contract Sales Price - The full purchase price as stated in the contract. back to top

Conventional Loan - A mortgage loan that is not guaranteed or insured by the government. FHA and VA loans are not conventional loans. back to top

Convertible ARMs - ARMs that have a provision allowing the borrower to convert the mortgage to a fixed rate term. The conversion feature is outlined in the mortgage note and has certain restrictions. back to top

Conventional Mortgage - A loan neither insured by the FHA nor guaranteed by the VA. back to top

Cooperative Housing - An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchase stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock. back to top

Cost Plus Contract - A building contract setting the builder's profit at a set percentage of actual cost of labor and materials. back to top

Cost Basis - Accounting figure that includes original cost of property plus certain expenses to purchase, money spent on permanent improvements and other costs, minus any depreciation claimed on tax returns over the years. back to top

Counteroffer - A new offer made as a result of another offer, which cancels the original offer back to top

County - A division within a state, usually encompassing one or more cities or towns. back to top

Covenant - An agreement written into deeds and other instruments promising performance or nonperformance of certain acts or stipulating certain uses or non users of the property. back to top

Customer - Typically, the buyer (before buyer agency laws), as opposed to the principal (seller). back to top

D

Declaration of Restrictions - A set of restrictions filed by a sub divider to cover an entire tract or subdivision. back to top

Dedication - The voluntary giving of private property to some public use by the owner, as the dedication of land for streets, schools, etc., in a development. back to top

Deed - Formal written document transferring title to real estate; a new deed is used for each transfer. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. (See also deed of trust, general warranty deed, quitclaim deed, and special warranty deed.) back to top

Deed of Trust - An instrument given by the borrower to a third party (trustee) vesting title to the property in the trustee as security for the borrower's repayment of the mortgage loan. back to top

Deed of Trust Rider - The document required by the lender to be recorded along with the security instrument for an ARM. back to top

Deed Restriction - Restrictions placed on use of real property by writing in a deed to control use and occupancy of the property by future owners. back to top

Default - Failure to make mortgage payments or violations other provisions of the mortgage note. back to top

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

Deficiency Judgment - Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the loan (s) and accrued interest. back to top

Deposit - Also called Earnest Money Deposit, the deposit is money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its return to the buyer. back to top

Depreciation - Decrease in value to real property improvements due to wear and tear, adverse changes in the neighborhood, or any other reason. back to top

Devise - Real Estate left by will. back to top

Devisee - One to whom real estate is given by will. back to top

Devisor - A testator who leaves real estate. back to top

Direct Endorsement - A lender that can complete the processing and closing of an FHA loan without prior approval from FHA. back to top

Direct Reduction Mortgage - An amortized mortgage in which principal and interest are computed on the remaining balance. back to top

Discount - A loan funded below par (100%). Lenders or investors will fund loans at a discount in order increase the overall yield on the note. back to top

Disbursements - Payments made during the course of an escrow or at closing. back to top

Documentary Tax Stamps - Stamps affixed to a deed showing the amount of transfer tax. In Nebraska the documentary tax is $1.75 for each thousand dollars of the selling price. back to top

Dower - The rights of a widow to a portion of her deceased husband's property. back to top

Down Payment - Cash to be paid by the buyer at closing to consummate a real estate transaction. Down payment is the difference between the sales price and the mortgage amount.. Buyer cash required at closing includes the down payment, closing costs and prepaid expenses. back to top

Dragnet Clause - A clause in a mortgage or deed of trust which places the real estate as security for existing debts between the parties. back to top

E

Earnest Money - The earnest money is the deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its return to the buyer. back to top

Easement - A right-of-way created by grant, reservation, agreement, prescription or necessary implication which one has in land owned by another. back to top

Economic Obsolescence - Impairment of desirability or useful life arising from economic forces, such as changes in optimum land use, legislative enactments which restrict or impair property rights and changes in supply-demand relationships. Loss in the use and value of property arising from the factors of economic obsolescence is to be distinguished from loss in value from physical deterioration and functional obsolescence. back to top

Eminent Domain - A government right to acquire private property for public use by condemnation and the payment of just compensation. back to top

Encroachment - Unauthorized intrusion of a building or improvement such as a wall, fence, etc. onto another's land. back to top

Encumbrance - A legal right or interest in land that affects a good or clear title and may diminish the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent the transfer of real property. It is up to the buyer to determine whether to purchase with the encumbrance. back to top

Equity - The market value of the property less the homeowner's unpaid mortgage balance and any outstanding liens or other debts against the property. back to top

Escheat - Reversion of property to the State by reason of failure to find persons legally entitled to hold or lack of heirs. The State must try to find heirs. back to top

Escrow - The deposit of instruments and/or funds into the care of a neutral third party with instructions to carry out the provisions of an agreement or contract once all instruments and/or funds have been deposited. Many closings are handled by escrow agents. In this situation, the seller deposits the deed and the buyer deposits the funds necessary with the escrow agent. Once all requirements of the purchase contract are in the control of the escrow agent, the money and deed are distributed accordingly. back to top

Escrow Payment - That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, mortgage insurance, hazard insurance, lease payments and other items as they become due. Also known as "impounds" in some states. back to top

Escrow Reimbursement - The buyer reimburses the seller for the current balance of his escrow (or impounded) funds. back to top

Estate at Will - Possession of property at the discretion of the owner. back to top

Estate for Years - Tenant has rights in real property for a designated number of years. back to top

Estimated Closing Costs Statement - The statement which lists the financial settlement between buyer and seller and the costs each must pay. A separate statement for buyer and seller is sometimes prepared. back to top

Estoppels - An impediment to a law of action, whereby one is forbidden to contradict or deny one's own previous statement or act. back to top

Exclusive Agency - Listing agreement in which only the listing office may sell the property and earn the commission. If the owner sells the house, the listing office would not receive any commission. back to top

Exclusive Right-to-Sell - Listing agreement under which the owner promises to pay a commission if the property is sold during the listing period by anyone, even the owner. back to top