Glossary of Terms

View the Glossary of Lending Terms as Shown in Alphabetical Order in the Following Tabs

A

ABSTRACT

The notes made by a title examiner based on his examination of the land records. These notes are a concise summary of the transactions affecting the property. The title agency produces a BINDER from the information in the abstract.

ACCELERATION

The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

ACCELERATION CLAUSE

A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the happening of an event, such as the sale of the property, or a delinquency in the repayment of the note.

ACKNOWLEDGEMENT

As a verb, the confirmation by a party executing a legal document that this is his signature and voluntary act. This confirmation is made to an authorized officer of the Court or notary public who signs a statement also called an acknowledgment.

ACRE

43,560 square feet of land.

ADEQUATE PROTECTION ORDER

Forces trustees to release Post petition payments being held prior to the Chapter 13 Confirmation Hearing.

ADJUSTABLE RATE MORTGAGE (ARM)

Is a mortgage in which the interest rate is adjusted periodically based on a preselected index. Also sometimes known as the re-negotiable rate mortgage or the variable rate mortgage.

ADJUSTMENT INTERVAL

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

ADMINISTRATOR

A person appointed by the Court to settle the estate of a person who dies without a will. The feminine form is Administratrix. Compare, EXECUTOR.

ADVERSE POSSESSION

A claim made against land titled in another person based on open, notorious and hostile possession and use of the land to the exclusion of the titled owner.

AGENCY

A relationship in which the agent is given the authority to act on behalf of another person (Principal).

AGENT

One who legally represents another, called a principal, from whom authority has been derived.

AGREEMENT

A change to the correct or alteration to the original document/agreement without changing its principal essence.

AMORTIZATION

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

AMORTIZED LOAN

A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.

AMOUNT FINANCED

The amount applied for less the prepaid finance charges. Prepaid finance charges can be found on the Closing Disclosure. For example, if the borrower’s Note is for $100,000 and the prepaid finance charge total is $5,000, the Amount Financed would be $95,000. The Amount Financed is the amount on which the Annual Percentage Rate (APR) is calculated.

ANNUAL CAP

The limit on the amount an adjustable rate mortgage’s interest rate can change over a 12-month period. An annual cap prevents your payments from changing too dramatically, even if the factors that determine changes in an adjustable mortgage’s rate rise or fall sharply during that period.

 

ANNUAL PERCENTAGE RATE (A.P.R.)

This is not the Note rate for which the borrower applied. It is an interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs, such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

APPRAISAL

An estimate of the value of property, made by a qualified professional called an appraiser. Most states require licenses. Various lenders have their own lists of approved appraisers.

APPRAISED VALUE

An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data.

APPROVED ATTORNEY

An attorney authorized by a title insurance company to handle closings and render title opinions.

APPURTENANCE

Anything attached to the land or used with it passing to the new owner.

ARM’S LENGTH TRANSACTION

A transaction in which the parties involved are entirely independent of each other, deal with each other as strangers, and have no reason for collusion.

ASSESSED VALUE

The determination, for tax purposes, of how much a home and the property it occupies is worth.

ASSESSMENT

A local tax levied against a property for a specific purpose, such as a sewer or street lights.

ASSIGN

To transfer interest.

ASSIGNEE

One who receives an assignment or transfer of rights. An assignment of a contract transfers the right to buy property.

ASSIGNMENT OF MORTGAGE

A document that evidences a transfer of ownership of a mortgage from one party to another.

ASSIGNOR

The one who assigns to another person.

ASSOCIATE BROKER

A person who has qualified as a real estate broker but works for a particular broker licensed in the state.

ASSUMPTION AGREEMENT

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, possibly higher, market-rate interest charges will apply.

ASSUMPTION FEE

The fee paid to a lender resulting from the assumption of a mortgage.

ASSUMPTION OF A MORTGAGE

Assumption by a purchaser of the primary liability for a payment of an existing mortgage or deed of trust. The seller remains secondarily liable unless specially released by the lender.

ATTACHMENT

Seizure of property through Court process to repay a debt.

ATTORNEY IN FACT

A type of agency relationship where one person holds a POWER OF ATTORNEY allowing him to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal.

B

BANKRUPTCY

A provision of Federal Law whereby a debtor surrenders his assets to the Bankruptcy Court and is relieved of the future obligation to repay his unsecured debts. A Trustee in Bankruptcy administers the assets, selling them to pay as much of the debt as possible. If your seller is in bankruptcy, the Trustee in Bankruptcy owns the property and is the party to sign the contract and make decisions. After bankruptcy, the debtor is discharged and his unsecured creditors may not pursue further collection efforts against him. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor.

BENCHMARK

A permanent reference mark for surveyors.

BENEFICIARY

A person named to receive a benefit from a TRUST. A contingent beneficiary has conditions attached to his rights, usually someone else must die first.

BID

An offer.

BINDER

A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder.

BORROWER (MORTGAGOR)

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full

BREACH OF CONTRACT

Failure to perform provisions of a contract.

BROKER

An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

BUILDING RESTRICTION LINE

A required set-back a certain distance from the road within which no building may take place. This restriction may appear in the original plat of subdivision, restrictive covenants or by building codes and zoning ordinances.

BY-LAWS

Rules and regulations governing an association or corporation.

C

CALL

An option to buy a specific security at a specified price within a designated time.

CALL PROVISION

In a mortgage or deed of trust, it refers to the mortgagee’s or beneficiary’s ability to speed up payment of the obligation under certain conditions. In bonds, it refers to the right to redeem the bond before maturity.

CAPITAL GAINS

Profit earned from a sale of real estate.

CAPITALIZATION

A method used to estimate value of a property based on the rate of return on investment.

CAPS (INTEREST)

Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

CAPS (PAYMENT)

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

CAVEAT EMPTOR

Buyer beware. The buyer must inspect the property and satisfy himself it is adequate for his needs. The seller is under no obligation to disclose defects but may not actively conceal a known defect or lie if asked.

CERTIFICATE OF OCCUPANCY

A certificate issued by a local governmental body stating that the building is in a condition to be occupied.

CERTIFICATE OF SALE

A certificate issued to the buyer of real property at a judicial sale.

CERTIFICATE OF SATISFACTION

A document signed by the Noteholder and recorded in the land records evidencing release of a DEED OF TRUST, MORTGAGE or other lien on the property.

CERTIFICATE OF TITLE

A written opinion by an attorney setting forth the status of title to the property as shown on the public records. The certificate does not certify as to matters not of record and affords no protection unless the author was negligent. Compare, TITLE INSURANCE.

CERTIFIED MORTGAGE BANKER (CMB)

A professional designation of the mortgage banking industry.

CHAIN OF TITLE

The series of transactions from GRANTOR to GRANTEE as evidenced in the land records.

CHAPTER 13

Wage Earner Plan (Voluntary) All payments delinquent at the time of filing a chapter 13 bankruptcy (Pre-Petition Payments) are scheduled for repayment over a period of time, often 60 months. All payments due after the date of filing must be paid on time to the mortgagee. Foreclosure is not permitted unless mortgagor defaults in payments due after the bankruptcy is filed (Post Petition Payments).

CHAPTER 7

Insolvency (Involuntary) Unsecured debts are extinguished. Secured creditors may continue to be paid, or they may force the trustee to sell the secured property to receive payment, or they may obtain permission to foreclose, depending on circumstances and equity.

CHATTEL

Personal Property, such as a mobile or manufactured home which is not affixed to real property (real estate).

CLEAR TITLE

Title not encumbered or burdened with defects.

CLOSED-END MORTGAGE

A fixed amount mortgage where the debt cannot be increased. It is the opposite of an open-end mortgage.

CLOSING

The meeting between the buyer, seller and lender or their agents where the property and funds legally change hands. Also called settlement.

CLOSING COSTS

The fees and charges a buyer and seller must pay at the time of closing on a home sale. These can include, among other things, broker commissions, lender discount points, insurance premiums, attorney’s fees, an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The cost of closing usually are about 3 percent to 6 percent of the mortgage amount.

CLOUD ON TITLE

An evidence of encumbrances.

COLLATERAL

Property pledged to secure a loan.

COMMITMENT

A promise by a lender to make a loan on specific terms or conditions to a borrower or builder.  An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

COMPARABLES

Properties used as comparisons to determine the value of a specified property.

CONSERVATOR

Also called a Committee or Guardian, a person designated by the Court to protect and preserve the property of someone who is not able to manage their own affairs. Examples include the mentally incompetent, minors and incarcerated persons.

CONSTRUCTION LOAN

A short term interim loan to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as he progresses. These are generally done by lenders with offices or representatives local to the site of the construction. This enables the lender or their agent to monitor the progress of the construction.

CONTRACT

A legally enforceable agreement between two parties.

CONTRACT SALE OR DEED:

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale.

CONVENTIONAL LOAN

A mortgage not insured by FHA or guaranteed by the VA.

COST APPROACH

A method used by an appraiser to estimate replacement cost of improvements less depreciation.

COTENANCY

Ownership in the same land by more than one person. See, TENANTS IN COMMON, JOINT TENANTS, TENANTS BY THE ENTIRETY.

COVENANT

A written agreement or restriction on the use of land or promising certain acts. Homeowner Associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner’s association.

COVENANTS, CONDITIONS, AND RESTRICTIONS.

The basic rules establishing the rights and obligations of owners of real property within a subdivision or other tract of land in relation to other owners within the same subdivision or tract and in relation to an association of owners organized for the purpose of operating and maintaining property commonly owned by the individual owners.

CREDIT LIFE

Declining term life insurance taken out by a borrower as added security for repayment of a loan.

CREDIT REPORT

A report documenting the credit history and current status of a borrower’s credit standing.

D

DEBT COVERAGE RATIO

The ratio of effective annual net income to annual debt service.

DEBT SERVICE

A borrower’s periodic payment comprising repayment of principal plus payment of interest on the unpaid balance.

DEBT-TO-INCOME RATIO

The ratio, expressed as a percentage, which results when a borrower’s monthly payment obligation on long-term debts is divided by his or her gross monthly income. See housing expenses-to-income ratio.

DEED

The written document conveying real property. The Deed must be executed (signed), ACKNOWLEDGED, and DELIVERED to the Grantee. Once recorded at the Courthouse, the original piece of paper is not needed to convey title in the future.

DEED IN LIEU

A deed given by a mortgagor to a mortgagee to satisfy a debt and avoid foreclosure.

DEED OF TRUST

A type of security instrument conveying title in trust to a third party covering a particular piece of property. It is used to secure the payment of a note. Compare, MORTGAGE. In some states, this document is used in place of a mortgage to secure the payment of a note.

DEFAULT

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

DEFERRED INTEREST

When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See negative amortization

DEFICIENCY JUDGMENT

If the foreclosure sale does not bring sufficient proceeds to pay the costs of sale and the note in full, the holder of the note may obtain a judgment against the maker for the difference.

DELINQUENCY

Failure to make payments on time. This can lead to foreclosure.

DELIVERY

The final, unconditional and absolute transfer of a DEED to the Grantee so that the Grantor may not revoke it. A Deed, signed but held by the Grantor, does not pass title.

DEPOSIT

A sum of money given to bind a sale of real estate, or a sum of money given to assure payment, or an advance of funds in the processing of a loan. Also known as earnest money.

DISCHARGE

Unsecured debts are extinguished and the bankruptcy is closed.

DISCOUNT

In loan origination, a discount refers to an amount withheld from loan proceeds by a lender. In a secondary marketing sale, a discount is the amount by which the sale price of a note is less than its face value. In both instances, the purpose of a discount is to adjust the yield upward, either in lieu of interest or in addition to interest. The rate of the amount of the discount depends on money market conditions, the credit of the borrower, and the rate or terms of the note.

DISCOUNT POINT

The amount of money you can choose to pay when you first get a loan to reduce its overall interest rate. Discount points are usually a small fraction of the total amount of your loan i.e., 1, 2, or 3% and can lower the interest rate for the entire life of the loan, or just part of it. See Point

DOWER

A spouse’s interest in the property of a deceased spouse.

DOWN PAYMENT

Money paid to make up the difference between the purchase price and the mortgage amount.

DUAL AGENCY

Representation of opposing parties (buyer and seller) at the same time in the same transaction. This situation most often refers to cases where the Realtor is the agent for both parties.

DUE ON SALE CLAUSE

A clause in the MORTGAGE that makes the loan non-assumable by providing the noteholder may call the loan immediately due and payable upon a sale or conveyance of an interest in the property. The FNMA/FHLMC form provides that a lease of more than three years or a lease with an option to buy also triggers this provision.

E

EARNEST MONEY

Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment. A good faith deposit.

EASEMENT

The right to use the land of another for a specific limited purpose. Examples include utility lines, driveways, and INGRESS AND EGRESS. Easements can be temporary or permanent.

ECOA (EQUAL CREDIT OPPORTUNITY ACT)

ECOA is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt from public assistance programs.

ECONOMIC LIFE

The estimated period of time during which a property can be utilized profitably.

EFFECTIVE AGE

For purposes of an appraisal, the physical age given to a building based on its present condition, which may be longer or shorter than its actual age.

EMINENT DOMAIN

The power of the state to take private property for public use upon payment of just compensation.

ENCROACHMENT

The physical intrusion of a structure or improvement on the land of another. Examples include a fence or driveway over the property line.

ENCUMBRANCE

Any lien, liability or charge against a property.

ENDORSEMENT

A writing on a negotiable instrument by which title to a property mentioned therein is assigned and transferred. A notation added to an instrument after execution to change or clarify its contents. In insurance, coverage may be restricted or enlarged by endorsing a policy. In FHA loans, a notation placed on the note by the FHA indicating that the loan is insured under the National Housing Act.

EQUITY

The difference between the fair market value and current indebtedness, also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property. When you first buy a home, your ownership equals your down payment; your mortgage lender owns the rest. To figure out your equity, subtract the amount you owe on your loan from your home’s current market value.

ESCHEAT

Property that reverts to the state when an individual dies without heirs and without a will.

ESCROW

A bank account where you deposit money that will be used to pay charges that come with your purchase of a house. An escrow account is sort of a neutral area between you and your mortgage lender that stores money you’ve deposited until you need it to pay for certain aspects of your loan, like closing costs, taxes or insurance fees.

ESCROW ACCOUNT

The segregated trust account in which escrow funds are held.

ESCROW AGENT

The person or organization having a fiduciary responsibility to both the buyer and seller (Or lender or borrower) to see that the terms of the purchase/sale (or loan) are carried out.

ESCROW ANALYSIS

The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay tax, insurance, and other bills when due.

ESCROW OVERAGE OR SHORTAGE

The difference determined by escrow analysis, between the escrow funds on deposit and the escrow funds required.

ESCROW PAYMENT

The portion of a mortgagor’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as impounds or reserves in some states.

EVICTION

Also known as Ejectment in some jurisdictions, the legal removal of former property owners, tenants or squatters from a foreclosed property.

EXECUTED SALES CONTRACT

A contract where all the terms have been successfully completed by the buyer and the seller.

EXECUTOR

A person named in a will to carry out its terms and administer the estate. The feminine form is Executrix. Compare, ADMINISTRATOR.

F

FACE VALUE

Par value; the principal or nominal value of a bond, note, mortgage, etc.. The amount of principal the issuer contracts to pay.

FAIR MARKET VALUE

A term that refers how much a home or property is worth, given the current conditions of the local real estate market. The fair market value of a home is usually used in conjunction with the amount of tax its owner must be charged.

FANNIE MAE

See Federal National Mortgage Association.

FARMERS HOME ADMINISTRATION (FMHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

FEE SIMPLE

The absolute total interest in real property. Compare, LIFE ESTATE, REVERSION.

FIDUCIARY

One who acts in a capacity of trust and confidence for another.

FIDUCIARY RELATIONSHIP

A relationship of trust and confidence between principal and agent; lawyer and client; doctor and patient; etc.

 FINANCE CHARGE

The amount of interest, prepaid finance charge, and certain insurance premiums (if any) which the borrower will be expected to pay over the life of the loan.

FINANCING STATEMENT

Lenders record financing statements to evidence personal property, such as a new furnace, siding or windows, is subject to a lien.

FIRST MORTGAGE

A real estate loan that creates a primary lien against real property.

FIXED RATE MORTGAGE

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

FIXTURE

An item of personal property attached to real property so that it cannot be removed without damage to the real property. A FIXTURE becomes part of the real property.

FLOATING RATE OF INTEREST

An interest rate that instead of being a fixed percent is stated as an amount above or below another rate, usually the prime rate, so that as the prime rate moves up and down the interest rate moves with it.

FLOOD INSURANCE

An insurance policy that covers damage your home may receive due to flooding. If the home you’re buying is in an area prone to flooding, then you may be required by your home loan provider to get flood insurance.

FORBEARANCE

Formal or informal agreement the mortgagee will forebear (withhold) legal action permitting the mortgagor an extended period of time to catch up on delinquent payments.

FORECLOSURE

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property. Under a DEED OF TRUST, foreclosure is by public auction after appropriate advertisement. A MORTGAGE may require the lender to obtain Court approval prior to sale.

FULL DISCLOSURE

A legal requirement that says a person selling a home must inform a potential buyer of everything they know about the home’s physical and economic condition.

FULLY INDEXED NOTE RATE

As related to adjustable rate mortgages, the index value at the time of application plus the gross margin stated in the note.

G

GENERAL WARRANTY DEED

The Grantor warrants title against all claims.

GIFT LETTER

A form stating that a relative is giving you money to help you buy a home, and that they will not ask you to it pay back. The letter also provides proof, by referring to bank statements and other records, that the relative does, in fact, have enough money to cover the amount of the gift, and that the money has been transferred to your possession.

GRANTEE

The person receiving an interest in property. Compare, GRANTOR

GRANTOR

The person granting, selling or giving up an interest in property. Compare, GRANTEE.

GROSS INCOME

Income before taxes and deductions.

GROSS MARGIN

With regard to an adjustable rate mortgage, an amount expressed as percentage points, stated in the note which is added to the current index value on the rate adjustment date to establish a new note rate.

GROUND LEASE

The owner grants a long term lease of the land (usually 99 years) and allows the lessee to build and use the land as agreed. At the end of the term, the land and all improvements revert to the owner.

GUARANTY

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract

H

HAZARD INSURANCE

A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

HOUSING EXPENSES-TO-INCOME RATIO

The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

HOUSING RATIO

The ratio, expressed as a percentage, which results when a borrower’s housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

I

IMPOUND

That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

INCOME APPROACH

A method used by an appraiser to estimate the value of a property by calculating it’s generated income.

INDEMNITY

A protection against actual loss or damage as a result of the matter mentioned. An indemnity is not an absolute guarantee that something won’t happen, it states the terms under which an actual loss will be compensated.

INDEX

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

INGRESS AND EGRESS

Applied to EASEMENTS, meaning the right to go in and out over a piece of property but not the right to park on it.

INITIAL NOTE RATE

With regard to an adjustable rate mortgage, the note rate upon origination. This rate may differ from and is usually less than the fully indexed rate.

INSURABLE TITLE

Title subject to a defect or claim which a title insurance company is willing to insure against. Compare, MARKETABLE TITLE.

INSURED CLOSING LETTER

An Indemnity given to a lender from a title insurance company, agreeing to be responsible if the closing agent does not follow the lender’s instructions or misappropriates the loan proceeds. Lenders usually require an insured closing letter be on file for each settlement.

INSURED MORTGAGE

A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure.

INTEREST

The amount of money a lender charges you to borrow money to buy a home. The interest you pay is a percentage of your total loan, and is paid over time.

INTEREST RATE

The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage.

INTERIM FINANCING

A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

INTESTATE

An estate without a Will. Compare, TESTATE

INVESTOR

A money source for a lender.

J-L

JOINT OWNERSHIP AGREEMENT

An agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between and investor and an occupant or the occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant’s payment is deemed rent for tax purposes. Compare, EQUITY SHARING.

JOINT TENANTS

Two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent’s will. Creditors may sue to have the property divided to settle claims against one of the owners. Compare, TENANTS IN COMMON, TENANTS BY THE ENTIRETY.

JUDGMENT LIEN

A judgment is a lien against all real property owned by the judgment debtor in the county where the judgment is docketed (recorded).

LAND CONTRACT

See CONTRACT FOR DEED.

LATE CHARGE

An additional charge a borrower is required to pay as penalty for failure to pay a regular installment when due.

LENDER

A financial institution, like a bank, that loans you money to buy a home, and expects you to pay the money back to them in a stated period of time, usually with interest.

LIEN

A claim upon a piece of property for the payment or satisfaction of a debt or obligation. Property is said to be encumbered by a lien and the lien must be removed to clear title.

LIFE CAP

With regard to an adjustable rate mortgage, a ceiling the note rate cannot exceed over the life of the loan.

LIFE ESTATE

The right to use, occupy, and own for the life of an individual. Compare, FEE SIMPLE.

LIQUIDITY

Cash position based upon assets that can readily be converted to cash.

LIS PENDENS

Recorded document showing a pending litigation filed in the court. These show up on the preliminary title report and must be dealt with when transferring ownership or refinancing.

LOAN APPLICATION

The loan application is the source of information on which the lender bases a decision to make the loan; defines the term of the loan, gives the name(s) of the borrower(s) , place of employment, salary, bank accounts and credit references, and describes the real estate that is to be mortgaged. It also stipulates the amount of the loan being applied for and the repayment terms.

LOAN TERM

The total amount of time you are given by a lender to pay off your home loan. Loan terms vary, but are generally set at 15 or 30 years.

LOAN-TO-VALUE RATIO (LTV)

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

LOSS MITIGATION

Mortgagees attempt to devise a delinquency resolution without having to resort to lengthy and expensive litigation (foreclosure). Loss Mitigation methods include: Creative Forbearance Plans, Pre-Foreclosure Short Sales, Deed-in-Lieu of Foreclosure, Deferments, Modifications, Refinances.

M

MAJORITY

The age at which a person may handle his or her own affairs.

MARGIN

The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

MARGIN CALL

A call for the deposit of additional funds or collateral to offset trading losses on an outstanding position that is subject to margin.

 MARKET APPROACH TO VALUE

In appraising, the market value estimate is predicated upon actual prices paid in market transactions. It is a process of correlation and analysis of similar recently sold properties.

MARKET VALUE

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

MARKETABLE TITLE

Title without defects or claims so as to be readily accepted without fair or reasonable doubt. Compare, INSURABLE TITLE.

MATURITY DATE

The scheduled date for your final payment on a loan. After making the payment on a loan’s maturity date, you assume complete ownership of your home from the lender.

MECHANIC’S LIENS

The right of an unpaid contractor, laborer or supplier to file a lien against property to recover the value of his work

METES AND BOUNDS

A means of describing land by directions and distances rather than reference to a lot number. Generally used when land has not been subdivided into lots.

MIP (MORTGAGE INSURANCE PREMIUM)

An insurance from FHA to the lender against incurring a loss on account of the borrower’s default.

MONTHLY HOUSING ALLOWANCE

The percentage of a person’s income they can comfortably use each month to pay for where they live with enough left over to spend on food, clothing, and other luxuries. As the result of a series of mind-numbing calculations, mortgage experts have determined that most folks can spend approximately 28% of their total income on housing.

MORTGAGE

A voluntary lien filed against property to secure a debt, usually a loan. It states that if you don’t make your payments on the loan in a timely fashion, you may lose your rights to ownership of the home. To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure. Compare, DEED OF TRUST.

MORTGAGE BANKER

A firm or individual who originates loans for sale to other investors. The mortgage banker generally continues to service the loans.

MORTGAGE BANKING

The packaging or mortgage loans secured by real property to be sold to a permanent investor with servicing retained for the life of the loan for a fee. The origination, sale, and servicing of mortgage loans by a firm or individual. The investor-correspondent system is the foundation of the mortgage banking industry.

MORTGAGE BROKER

A firm or individual who brings the borrower and lender together, receiving a commission if a sale results. A mortgage broker does not retain servicing.

MORTGAGE INSURANCE

Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.

MORTGAGE PORTFOLIO

The aggregate of mortgage loans held by an investor, or serviced by a mortgage banker.

MORTGAGEE

The lender

MORTGAGOR

The borrower or homeowner

N-O

NEGATIVE AMORTIZATION

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

NEGOTIABLE INSTRUMENT

Under the Uniform Commercial Code, an instrument that meets certain legal requirements and can be transferred by endorsement or delivery.

NET EFFECTIVE INCOME

The borrower’s gross income minus federal income tax.

NET WORTH

The difference between total assets and total liabilities.

NON ASSUMPTION CLAUSE

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

NOTARY PUBLIC

One authorized by law to acknowledge and certify documents and signatures.

NOTE

A written promise to pay a certain sum of money at a certain time. A negotiable note starts Pay to the order of and is transferable by endorsement similar to a check.

OBLIGATIONS

The things you have to pay for consistently each month, excluding housing costs. Obligations include things like car loans, credit card bills, student loans, and alimony or child support.

OFFER

A proposal; after acceptance it becomes a contract.

ORIGINATION FEE

The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

ORIGINATOR

A person who solicits builders, brokers, and others to obtain applications for mortgage loans. Origination is the process by which a mortgage banker or direct lender brings into being a mortgage secured by real property.

OWNER OF RECORD

The actual owner of a property, according to public records.

P

PAR

A situation where the face value of a mortgage (or bond) principal equals its actual selling price — that is, with no discount or premium.

PARCEL

A piece of land or property under one ownership. Parcels are created when a single large property is sub-divided into many smaller pieces of property.

PARTITION

The forced division of land among parties who were formerly co-owners. A partition suit may ask to divide the land or if that is not practical, sell the land and divide the proceeds.

PAY-OFF AMOUNT

A total balance, amount of a full payment on existing loan or lien.

PAYOFF SCHEDULE

The dollar figure in the Payment Schedule represent the principal, interest, plus Private Mortgage Insurance (if applicable) over the life of the loan. These figures will not reflect taxes and insurance escrows or any temporary buydown payments contributed by the seller.

PER-DIEM INTEREST

Interest charges that cover the period of time usually a matter of days, or a few weeks between when you close on your home, and the first day of the first month of your regular loan payments.

PERMANENT LOAN

A long term mortgage, usually ten years or more. Also called an end loan.

PIPELINE

Term used to express loan applications in process up until closing or until the mortgage is sold; used when analyzing mortgage loan inventory or commitment coverage.

 PITI

Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

PLAT

A map showing the division of piece of land with lots, streets and, if applicable, common area.

POINTS (LOAN DISCOUNT POINTS)

Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

POWER OF ATTORNEY

A written document authorizing another to act on his behalf as an ATTORNEY IN FACT. One does not need to be a licensed attorney to act as an attorney in fact but, power of attorney forms are powerful legal documents that should be used only under advice of a licensed attorney at law.

PRE-FORECLOSURE SHORT SALE

Mortgagor may sell the secured property for an amount that will produce insufficient proceeds to pay the mortgagee in full. The Mortgagee agrees to accept a payoff which is short of the full amount in lieu of incurring the expense and time of foreclosing. Pre-foreclosure Short Sales are usually the product of a reduced market value.

PREPAID EXPENSES

Necessary to create an escrow account or to adjust the seller’s existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

PREPAID FINANCE CHARGE

Certain charges made in connection with the loan and which must be paid upon closing. The charges are defined by the Federal Reserve Board in Regulation Z and the charges must be paid by the borrower. Examples include, loan origination fees, points, PMI, and tax service fees. Prepaid finance charges are totaled and then subtracted from the Loan Amount. The net figure is the amount financed.

PREPAYMENT

A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

PREPAYMENT CLAUSE

A condition written into a mortgage that gives a borrower the privilege of paying off a loan in full before the final scheduled payment date. The borrower usually must agree to pay a pre-determined fee to do so.

PREPAYMENT PENALTY

An additional charge imposed by the lender for paying off a loan before the due date. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.

PRIME RATE

The most favorable interest rate charged by lenders on a short term loans to qualified customers.

PRINCIPAL

The amount of debt, not counting interest, left on a loan.

PRIVATE MORTGAGE INSURANCE (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment – as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on you loan’s structure.

PROBATE

Court process to prove a valid will.

PROMISSORY NOTE

A written unsecured note promising to pay a specified amount of money on demand, transferable to a third party.

PROPERTY PRESERVATION

Taking adequate steps to preserve a vacated property from casual entry and inclement weather such as changing locks, repairing/replacing/boarding windows or doors, fixing leaking roofs and general maintenance and upkeep.

PRORATE

To divide in proportionate shares, such as taxes, insurance, rent, or other items which the buyer and seller share as of the time of closing, or other agreed upon time.

PUBLIC RECORDS

The documents that are evidence of real estate transactions, which are usually stored at the county courthouse and are accessible, by law, to the general public.

PUBLIC SALE

Sale, auction open to the public.

PUNCH LIST

A written inventory of things that need to be done to a home in order to meet the requirements of a sales contract.

PURCHASE AGREEMENT

An unconditional sales contract that defines the terms and conditions under which real property is conveyed.

PURCHASE CAPITAL

The total amount of money a person uses to buy a home, regardless of the source.

PURCHASE MONEY MORTGAGE (PMM)

Seller financing as a part of the purchase price.

Q-R

QUIET TITLE

A suit brought to remove a claim or objection on title.

QUIT CLAIM DEED

A deed releasing whatever interest you may hold in a property but making no warranty whatsoever. Compare, SPECIAL WARRANTY DEED and GENERAL WARRANTY DEED

RATE LOCK

A way you can establish that the interest rate on your loan remains the same between the time of your application, and when you qualify for the loan. When applying for a loan, you can lock the interest rate for a specific amount of time; depending on the length of the lock, this feature may cost as much as 1% of the total value of the loan, although often it is offered free of charge by the lender.

REAFFIRMATION AGREEMENT

Debtor who has filed bankruptcy reconfirms the promise to pay a debt after filing bankruptcy.

REAL ESTATE

Land and anything permanently affixed to the land, and those things attached to the building.

REALTOR

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

REASONABLE INVESTIGATION

Statutory process in some foreclosure court jurisdictions mandating the procedures required to certify to the court that the defendant (mortgagor) cannot be found for the purpose of serving (hand delivering) a notice of a complaint in foreclosure, thereby permitting alternate service, usually publication of the complaint in an approved newspaper or nailing it to the door of the property which is called Posting.

REASSESSMENT

The process of updating the understood value of a property for tax purposes.

RECISION

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

RECONCILED VALUE

The Fair Market Value of a property as determined by the weighted analysis of different types of opinions of value such as an Appraisal, BPO (Broker’s Price Opinion), CMA (Comparative Market analysis), Property Inspections, Electronic Data, and other methodology such as interviews with the producers of these products and corporate field inspections.

RECORDING

The noting in the registrar’s office of the details of a property executed legal document, such as a deed, mortgage, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

RECORDING FEES

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

REDLINING

The practice of restricting or denying mortgage loans for certain areas in a discriminatory pattern.

REFINANCE

Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.

REINSTATEMENT

The curing of all defaults by a borrower; the restoration of a loan to current status through payment of arrearages.

REISSUE RATE

A discounted rate for title insurance when the title was previously insured with an owner’s title insurance policy issued within the last ten years.

RENEGOTIABLE RATE MORTGAGE

A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

REPURCHASE AGREEMENT

An agreement to sell mortgage-backed securities to a party with a simultaneous agreement by the purchaser to resell them to the original party at a specified future date and price.

RESPA

Short for the Real Estate Settlement Procedures Act. RESPA is a federal law that allows consumers to review information on known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

RETIRE A DEBT

When you pay off your home loan completely, thereby fulfilling your obligation under the loan contract.

REVERSION

A provision in a conveyance that the land will return to the grantor upon the happening of an event or contingency. Compare, FEE SIMPLE.

RIPARIAN RIGHTS

The rights of an owner of land adjacent to water.

ROLLOVER

Renewal of a loan at the time of maturity; Reinvestment of the proceeds of the sale of a housing unit into another, which defers payment of the tax on the gain from the sale.

ROLLOVER MORTGAGE

A mortgage that provides for renegotiation of the interest rate and payment terms, typically at each five-year period of its term. Sometimes referred to as a Canadian rollover mortgage.

S

SECOND MORTGAGE

A mortgage recorded after a First mortgage, ranks second in priority.

SECONDARY FINANCING

A loan secured by a second mortgage on a property, sometimes used to refer to any financing technique other that equity or first-mortgage debt.

SECONDARY MARKET

A market for the purpose of purchase and sale of existing mortgages usually at discounted prices to provide greater liquidity to the mortgagee/lender.

SECONDARY MORTGAGE MARKET

The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders.

SECURED PARTY

The party holding a security interest or lien; may be referred to as a mortgagee, the conditional seller, or the pledge.

SECURITY

Real or personal property pledged by a borrower, as additional protection for the lender’s interest.

SECURITY INSTRUMENT

The mortgage or trust deed evidencing the pledge of real estate security as distinguished from the note or other credit instrument.

SELF-AMORTIZING LOAN

A loan that gets paid back through regular monthly installments, each of which is a combination of a pay-backs to the principal of the loan, and its interest charges.

 SERVICE OF THE COMPLAINT

Hand delivery of a Complaint in Mortgage Foreclosure to all mortgagors of a mortgage being foreclosed. Service is usually perfected (completed) by a Sheriff, Deputy Sheriff, or authorized process server. Foreclosure cannot be continued until such time as the complaint has been served and the mortgagor has had the prescribed time to reply, usually 21 days.

SERVICING

All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

SERVICING AGREEMENT

A written agreement between an investor and mortgage servicer stipulating the rights and obligations of each party.

SERVICING INCOME

Income derived from servicing.

SERVICING RUNOFF

The dollar amount of principal paid off on a mortgage or mortgage portfolio.

SETTLEMENT STATEMENT

A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale.

SETTLEMENT/SETTLEMENT COSTS

See closing/closing costs

SIMPLE INTEREST

Interest which is computed only on the principle balance.

SITE ASSESSMENT

A mandatory environmental inspection that checks for the existence of hazardous waste on the premises of a home that’s being sold.

SPECIAL WARRANTY DEED

The seller warrants he has done nothing to impair title but makes no warranty before his ownership. Compare, GENERAL WARRANTY DEED and QUITCLAIM DEED.

SPECIFIC PERFORMANCE

A legal action to complete the performance of a contract.

STANDBY COMMITMENT

A commitment to purchase a loan or loans with specified terms, both parties understanding that delivery is not likely unless circumstances warrant. The commitment is issued for a fee with willingness to fund in the event that a permanent loan is not obtained. Such commitments are typically used to enable the borrower to obtain construction financing at a lower cost on the assumption that permanent financing of the project will be available on more favorable terms when the improvements are completed and the project is generating income.

STANDBY CONTRACT

An option to sell a specified amount of mortgages or mortgage-backed securities by or on a specified date at a specified price.

STANDBY FEE

A nonrefundable fee paid by a borrower to a lender for a standby commitment.

STANDING MORTGAGE

A loan where no amortization payments are required and the entire loan comes due at maturity. Interest is normally paid at periodic intervals while the loan is standing.

STATUTE OF LIMITATIONS

The time period to file a law suit to enforce a claim or it is barred by law.

SURVEY

A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

T-Z

TAX LIEN

A claim against property for the amount of its due and unpaid taxes.

TENANTS BY THE ENTIRETY

A husband and wife own the property with the common law right of survivorship so, if one dies, the other automatically inherits. One may not sue the other to PARTITION the property. A creditor of one may not claim the property or the proceeds of sale. Compare, TENANT IN COMMON, JOINT TENANTS.

TENANTS IN COMMON

Two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner. Either party, or a creditor of one, may sue to PARTITION the property. Compare, TENANTS BY THE ENTIRETY, JOINT TENANTS.

TERM

The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.

TESTATE

To die with a Will. Compare, INTESTATE.

TESTATOR

One who makes out a last will and testament. The feminine form is Testatrix.

TITLE

The legal, written evidence that identifies the owner of a home or piece of property, and outlines that person’s rights as owner. At the time of a home sale, the title passes from the seller to the buyer and the lender who is providing the buyer’s home loan. The buyer gets the title when their home loan is paid back in full.

TITLE INSURANCE

A policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller. Policies are also available to protect the lender’s interests. Title insurance covers mistakes made during a TITLE SEARCH as well as matters which could not be found or discovered in the public records such as missing heirs, mistakes, fraud and forgery. Compare, CERTIFICATE OF TITLE.

TITLE SEARCH

An examination of the public records, including court decisions, to disclose facts concerning the ownership of real estate. The title examiner prepares an ABSTRACT and the title agent prepares a BINDER, but decisions regarding the legal sufficiency of title or questions requiring legal interpretation must be resolved by a licensed attorney at law.

TOTAL OF PAYMENTS

The total of all payments made toward principal, interest, and mortgage insurance (if applicable) over the life of the loan.

TRUST

A right to or in property held for the benefit of another. A trust may be written or implied. An implied trust is called a Constructive Trust.

TRUST DEED

The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee as security for the borrower’s fulfillment of an obligation.

TRUSTEE

One who holds property in Trust for another. Appointee of the Bankruptcy Court to act as a court officer in charge of a debtor’s assets until such time as the court determines how those assets will be liquidated.

TRUTH-IN-LENDING

A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

UNDERWRITING

The decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

UP-FRONT COSTS

The total amount of cash you need to pay when you buy a home, minus the amount of your loan. Up front costs include your down payment, any closing fees you must pay like broker’s commissions or insurance charges and the discount points you can use to lower your overall interest rate.

USURY

Charging more than the maximum legally permitted rate of interest.

VALUATION

Estimation of value or price through appraisal.

VARIABLE RATE MORTGAGE (VRM)

See Adjustable Rate Mortgage

VERIFICATION OF DEPOSIT (VOD)

A document signed by the borrower’s financial institution verifying the status and balance of his/her financial accounts.

VERIFICATION OF EMPLOYMENT (VOE)

A document signed by the borrower’s employer verifying his/her position and salary.

VESTED INTEREST

A fixed right to the enjoyment of real estate by a specified person, subject to termination of a previous estate.

WAIVER

Relinquishment of a right.

WARRANTY DEED

A deed conveying the title to a property with a warranty of clean, clear marketable title

ZONING

Regulation of private land use and development by local government

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