A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Abandonment: The voluntary surrender of property, owned or leased, without naming a successor as owner or tenant. The property will generally revert to the one holding a prior interest or, in cases where no owner is apparent, to the state. Abandonment does not relieve the security interest or obligations associated with lease of ownership unless the abandonment is accepted by the entity to which the obligation is owed.
Acceleration Clause: A common provision of a mortgage which allows the holder to demand the entire outstanding mortgage balance due and payable in the event of a breach of the mortgage loan contract.
Accident & Health Premium (A&H): A portion of the amount paid into escrow by the borrower for mortgage insurance that ensures the continuance of mortgage payment in the event of a mortgagor's disability or illness.
Accrued Interest: Interest earned for the period of time elapsed since interest was last paid.
Acknowledgement: A formal declaration attached to or made a part of an instrument, made before a duly authorized person (usually a notary public) by the person who has executed that instrument or document, the execution being a free act and deed.
Acre: A two (2) dimensional measure of land equaling 160 square rods, 10 square chains, 4,840 square years, or 43,560 square feet.
Action to Quiet Title: A court action to remove any interest or claim for interest to title involving real property; to remove a cloud on title.
Act of God: An event which causes damage by nature such as a flood, earthquake, hail or winds; an occurrence which was not caused by man.
Add-on Interest: The full amount of interest calculated on the principal balance for the term of the loan. This interest is then added to the original principal, thereby becoming a part of the face amount of the promissory note.
Adjacent: Close proximity to but not necessarily adjoining.
Adjoining: Contiguous; attaching; sharing a common border.
Adjustable Rate Mortgage (ARM): A mortgage loan or deed of trust which allows the lender to adjust the interest rate in accordance with a specified index periodically and as agreed to at the inception of the loan by the borrower(s). This type of loan is sometimes call a VRM (Variable Rate Mortgage).
Adjustment Date: The date of periodic interest rate adjustment for an ARM or VRM loan.
Adjustments (In Appraisal): A dollar value or percentage amount that, when added to or subtracted from the sales price of a comparable, provide an indication of the value for the subject property. Adjustments are necessary to compensate for variation in the features of the comparable relative to the subject.
Administrator's Deed: A deed conveying the property of one who died without a Will (intestate).
AD Valorem Taxes: Real estate taxes on the assessed value of property, as provided by the taxing authority.
Adverse Possession: A means of acquiring title to real estate where an occupant has been in actual, open, notorious, exclusive and continuous occupancy of the property for a period required by state law.
Affidavit: A written statement, sworn to or affirmed before an officer who is authorized to administer an oath or affirmation.
Agreement of Sale (Purchase Agreement): A written agreement between seller and purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms of the agreement. Also, called offer and acceptance, contract of sale, earnest money contract.
Alternative Mortgage Instrument: A mortgage or deed of trust that differs from the typical mortgage/deed of trust instrument either in the amount of principal, the interest rate, the periodic or monthly payments, or terms for repayment.
Amenity: A feature of the real property that enhances its attractiveness and increases the borrower(s) or user's satisfaction, although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Manmade amenities include swimming pools, spas, tennis courts, community buildings, and other recreational facilities.
American Land Title Association (ALTA): A national association of title insurance companies, abstractors, and attorneys specializing in real property laws. The association speaks for the title insurance and abstracting industry and establishes standard procedures and title insurance policy forms.
Amortization: The periodic reduction of the principal balance of your loan which occurs as you make your monthly payments. Amortization terms refers to the period of time over which your mortgage will be completely retired by your schedule.
Amortization Schedule: A schedule showing the amounts of principal and interest due at regular intervals and the unpaid mortgage balance after each payment is made.
Annual Cap: A limit on the amount of adjustment in the interest rate on an adjustable rate mortgage over a twelve month (12) period. (See cap).
Annual Mortgage Statement: A report prepared by the lender or servicing agent for the mortgagor(s), stating the amount of taxes, insurance and interest that was paid during the previous year, together with the current outstanding principal balance.
Annual Percentage Rate (APR): The actual effective rate of interest paid, the APR represents the interest percentage of the total finance charge to the amount of the loan. The APR is disclosed to conform to the federal Truth-in-Lending statutes.
Appraisal: An opinion or estimate of the value of a property.
Appraisal Approach: One of three (3) methods to estimate the value of property; cost approach, income approach and market comparison approach.
Appreciation: The increase in the value of property.
Appurtenance: Something that is outside the property itself but is considered a part of the property and adds to its greater enjoyment, such as the right to cross another's land (examples, easement or right-of-way, a lake bordering a lake front lot.)
ARM: Adjustable rate mortgage. A mortgage on which the annual interest rate is subject to periodic change, upward or downward based on an interest rate index. Typically, the loan specified an adjustment period (frequency). The rate established at the end of each adjustment period is equal to the sum of the Index plus the Margin. The Margin is a percentage value stated in the mortgage note. The Margin is a percentage value stated in the mortgage note. The Index is also defined in the note and is usually the then average rate for treasury securities with a constant maturity similar to the adjustment frequency (three years, one year, etc.)
Arm's Length Transaction: A transaction among parties, each of whom acts in his or her own best interest; usually without benefit of insider knowledge.
Arrears: The situation in which mortgage interest and real estate taxes are paid at or after the end of the period for which they are levied. Late payment is also described as being in arrears.
As Is: Without guarantees as to condition; as in a sale.
Assessed Valuation: The value that a taxing authority places upon real property that becomes the base for computing local property taxes.
Assessment: A value factor assigned to real property and used to determine real property taxes. The process of reaching the assessed valuation. Also, an add-on tax to raise money for a special purpose (called special assessment).
Assessment Rolls: The public record of taxable property.
Assessor: A public official who appraises taxable property to reach its assessed valuation or base on which taxes are calculated.
Assignment: The method by which a right or contract is transferred from one person to another.
Assignment of Rents: A written agreement wherein the owner(s) of a property transfers possession of the property, but not its ownership, to another party (usually a mortgagee or creditor). The party then has the right to collect rents, manage the property, and apply the net income toward delinquent mortgage payments. A default will trigger this action.
Assumption Agreement: A written agreement by one party to pay an obligation originally incurred by another.
Assumption Fee: The amount paid to a lender for the paperwork and processing of all records necessary to approve and document a new debtor.
Assumption of Mortgage: A buyer's acceptance of primary liability for payment of an existing note secured by a mortgage/deed of trust. The seller remains secondarily liable, unless specifically released by the lender.
Attachment: Legal seizure of property to force payment of a debt.
Attest: To witness by observation and signature.
Attorney-In-Fact: One who is authorized to act for another under a power of attorney, which may be general or limited in scope.
Balloon Mortgage: A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of a specified term.
Balloon Payment: The unpaid principal amount of a mortgage or other long-term loan due on a specified date in a single lump sum.
Bankrupt: A person, firm or corporation who, through a court proceeding is relieved from the payment of all debts after the surrender of all assets to a court appointed trustee, for the protection of creditors. Bankruptcy may be declared under one of several chapters of the federal bankruptcy code: Chapter 7, which cover liquidation of bankrupt businesses; Chapter 11, which cover reorganization of bankrupt businesses; Chapter 12, which covers certain farm bankruptcies; and Chapter 13, which covers workouts of debts by individuals.
Base and Meridian: Imaginary lines used by surveyors to find and describe the location of land. The base line is east-west; the meridian line is north-south.
Basis Point: One 100th of 1%.
Bedroom Community: A residential community in the suburbs, often near an employment center, but itself providing few employment opportunities.
Beneficiary: A person who benefits from a life insurance policy, will, contract, or deed of trust. In the latter case, the lender is the beneficiary.
Best's Key Rating Guide: A publication issued by the A.M. Best Company, which establishes ratings for insurance carriers by evaluating their assets and liabilities.
Bi-Annual: Occurring twice a year. Same as semiannual.
Bill of Sale: A written instrument given to pass title of personal property from a seller to a buyer. Used when furniture and portable appliances are sold.
Binder: Temporary hazard or title insurance granted prior to the issuance of a permanent policy. In real estate, a preliminary agreement between a buyer and seller which includes the price and terms of a contract.
Bi-Weekly Mortgage: A mortgage with payments due every two weeks, totalling 26 payments a year, allowing the debt to retired in about 18 or 19 years.
Blanket: The coverage of more than one piece of property under one instrument, such as blanket insurance policy, blanket mortgage, blanket assignment, or blanket survey.
Boiler Plate: Standard language found in contracts that has widespread industry acceptance. Preprinted material.
Borrower: One who receives funds in the form of a loan with the obligation of repaying the loan in full with interest.
Bridge (or swing) Loan: Usually in the form of second trust deed that is collateralized by the borrower's present home (which is likely to be for sale) in a manner that allows the proceeds to be used for the closing on a new house before the present home is sold.
Building Permit: Permission granted by a local government to build a specific structure at a particular site.
Buydown Account: An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.
Buydown Mortgage: A mortgage with a below-market (start) interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points paid by the builder, seller or buyer at closing.
Buyer's Market: A situation where buyers have a wide choice of properties due to a surplus of housing units on the market and may negotiate lower prices. Often caused by overbuilding, local population decreases, or economic slump.
Bylaws: A set of regulations by which an organization conducts its activities.
Call Option: A provision in the mortgage/deed of trust that gives the lender the right to call the mortgage "due and payable" at the end of a specified period for whatever reason.
Call Provision: Same as "Call Option".
Caps: Limit stated in the mortgage note for periodic changes to the interest rate of an ARM. Usually apply to both upward and downward adjustments. A "per adjustment cap" relates to the maximum adjustment for each periodic change. A "lifetime cap" relates to the maximum total adjustments for the life of the loan and is usually added to the initial interest rate for determination of the lifetime cap. For instance, a loan with an initial interest rate of 6%, annual adjustments and 2/6 caps, would, on the first adjustment date, be subject to a maximum rate of 8% and a minimum rate of 4%. The maximum rate to which the loan could ever be adjusted is 12%.
Caps (interest): Consumer safeguards on an adjustable-rate mortgage/deed of trust which limit the amount the interest may change per year and/or over the life of the loan.
Caps (payment): Consumer safeguards on an adjustable-rate mortgage/deed of trust which limit the amount the monthly payments may change.
Casualty or Theft Loss: Losses on real property arising from fire, storm, theft or similar sudden and unexpected occurrences.
Certificate of Claim: A contingent promise to reimburse an insured mortgagee for certain costs incurred during foreclosure of an insured mortgage/deed of trust, provided the proceeds from the sale of the property are sufficient to cover the lender's claim.
Certificate of Eligibility: Issued by the Veterans Administration to those who qualify for a VA loan.
Certificate of Insurance: A document issued by an insurance company to verify the coverage. Usually associated with Condo or PUD projects.
Certificate of Occupancy: A document issued by a local government to a developer permitting the structure to be occupied by members of the public.
Certificate of Reasonable Value (CRV): A document issued by the Veteran's Administration, based on an approved appraisal. Establishes a ceiling on the maximum VA mortgage.
Certificate of Title: A confirmation written by a title attorney or company stating that the title to a parcel of real property is legally vested in the present owner.
Chain of Title: A chronology of documents which have transferred title to a parcel or real property from the original owner to the present owner. Sometimes referred to as an "Abstract of Title".
Chattel Mortgage: A pledge of personal property as security for a debt.
Clear Title: Unencumbered title to real property, free of liens or defects. Also, called "free and clear."
Clearing Account: A bank account used by a mortgage servicer for temporary, short-term deposit of mortgage payments collected for transmittal to investors or for deposit in escrow accounts.
Closing: In mortgage banking, the delivery of a deed, financial adjustments, the signing of loan documents, and the disbursement of funds necessary to consummate a sale or loan transaction.
Closing Statement: An accounting of funds from a real estate sale, made to both the seller and buyer separately. Most states require the broker to furnish accurate closing statements to parties in the transaction. This may be accomplished by title company, attorneys or escrow companies.
Cloud on Title: Any outstanding claim or encumbrance which, if valid, would affect or impair title. It can be removed by a quit-claim deed, release or court action.
Coinsurance: A type of insurance where the insured agrees to carry a specified proportion of the policy amount to the actual value of the property insured at the time of loss. Thus, a portion of the property value is self insured. In federal Multi-Family Housing Programs, it refers to a sharing of the risk of mortgage/deed of trust default between the mortgage firm and the federal government.
Collateral: Real or personal property pledged as security for a debt.
Collection: The servicing procedure followed to bring a delinquent mortgage current and to file the required notices to begin foreclosure when necessary.
Collection Report: The form used by the mortgage loan servicer in reporting collection from mortgagors, including payments in full, repayment of advances, tax and insurance funds for foreclosed mortgages/deeds of trust, and any other items not remitted as regular installment payments.
Common Area Assessments: Levies against individual unit owners in a Condominium or PUD project for additional capital to defray the Homeowner's Association costs and expenses and to repair, replace, maintain, improve or operate the common areas of the project.
Common Elements (area): Those portions of a building, land and amenities owned (or managed) by a PUD or Condominium project's Homeowner's Association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of the buildings, parking areas, means of ingress and egress, etc.
Community Property: In some states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.
Co-Mortgagor: A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the mortgagor's for underwriting and ratio analysis purposes. The co-mortgagor's name must appear on the FHA Certificate of Commitment and the mortgage/deed of trust. For full guarantee under the VA's program, the co-mortgagor must be either a spouse or another eligible veteran.
Condemnation: The taking of private property for public use under the right of eminent domain with just compensation paid the owner.
Condominium: A real estate project in which each unit owner has title to a single unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
Condominium Conversion: Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.
Consideration: Anything of value given to induce one to enter into a sales contract; it may be money, personal services, love and affection, etc.
Constant Payment: A periodic payment of a fixed amount that includes principal and interest. As the loan amount reduces, the portion of the payment applied to the principal increases. Standard fixed rate home mortgage are constant payment loans.
Consumer Reporting Agency (or bureau): An organization that is engaged in the preparation of reports that are used by credit grantors to determine the credit and public records history of an individual. The agency obtains data for these reports from repositories of accumulated credit records as well as from other sources.
Contiguous: Actually touching, contiguous properties have a common boundary.
Contract For Deed: Same as Land Contract.
Contract Of Sale: Same as Agreement of Sale.
Conventional Financing: In real estate, mortgage financing which is not insured or guaranteed by a government agency such as HUD/FHA, VA or the Farmers Home Administration.
Convertible Mortgage: A type of adjustable-rate mortgage that may be converted to a fixed-rate mortgage at specified intervals during a predetermined time period. In income property lending, a mortgage in which lender-provided funds to convert to equity ownership after a predetermined period of time.
Convey: The act of transferring title to real property from one party to another.
Conveyance: The documents, such as a deed, lease, or mortgage/deed of trust, used to effect a transfer.
Co-Op: A type of housing in which each tenant is a shareholder in a corporation that owns the building. Also termed cooperative. Can refer to an arrangement between two (2) real estate agents that generally results in splitting the commission between them.
Cooperative: A type of corporate ownership of real property whereby stockholders of the corporation are entitled to use a certain dwelling unit or other units of space. Special income tax laws allow the tenant stockholders to deduct interest and property taxes paid by the corporation. See co-op.
Co-Signer: One who agrees to assume a debt obligation if the principal borrower has a payment default. A co-signer assumes only personal liability and has no ownership interest in the property; his/her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower(s).
Cost of Funds Index: An index that is used to determine interest rate changes for certain ARM plans. It represents the weighted-average costs of savings, borrowings and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.
Covenant: A legally enforceable promise or restriction in a deed or other security agreement. For example, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default as defined by the mortgage/deed of trust, and can be the basis for foreclosure. Customary in Condo and PUD's to maintain type and condition of property.
Credit Life: Declining term life insurance taken out by a borrower as an added source of funds for the repayment of a loan in the event of the borrower's death.
Credit Rating: A rating given to a person or company that establishes creditworthiness based upon present financial condition, experience, and past credit history.
Cul-De-Sac: A street with an intersection on one end and a closed turning area on the other. Often valued in the design of a residential subdivisions for the privacy provided to home on the street.
Debt: Borrowed money, the repayment of which may be either secured or unsecured, with various possible repayment schedules or plans.
Debt-to-Income Ratios: Calculations that are used in determining whether a borrower can qualify for a mortgage loan. They consist of two separate calculations: a monthly housing expense-to-income ratio and a total obligations-to-income ratio.
Debt Service: A borrower's periodic mortgage payments comprised of principal plus interest on the unpaid mortgage balance.
Decree of Foreclosure & Sale: In a judicial foreclosure, the court decree of judgement that establishes the amount of the mortgage/deed of trust debt and orders the property sold to satisfy all or a portion of the debt.
Deed: A written document, properly signed and delivered, that conveys title to real property. See general warranty deed, quitclaim deed and special warranty deed.
Deed-in-Lieu: A deed given by the mortgagor(s) to a mortgagee to satisfy a debt and avoid foreclosure.
Deed of Reconveyance: The transfer of a legal title from the trustee to the trustor (the borrower(s)) after the trust deed is paid in full.
Deed of Trust: A type of security instrument in which the borrower conveys a trust to hold property to a third party (trustee) as security for the lender, with the condition that the trustee shall reconvey the title upon the payment of the debt, and conversely, will sell the land and pay the debt in the event of a default by the borrower(s).
Deed Restriction: A condition or covenant placed in a deed limiting or restricting the use of the real property.
Default: A breach or nonperformance of the terms of a note or the covenants of mortgage/deed of trust.
Default Ratio: The occupancy level at which the effective gross income from an income-producing property is insufficient to pay operating expenses and debt service, thus creating the risk of default. The ratio is calculated by dividing the effective gross income into operating expenses plus debt service.
Defeasance Clause: A mortgage provision which allows the mortgagor(s) to reclaim property that has been foreclosed, if certain conditions are met.
Defect of Record: An encumbrance on a title that is made a part of the public record. Some recorded defects are judgements, mortgages, other liens or easements.
Deferred Maintenance: In an appraisal, a type of physical depreciation owning to lack of normal upkeep.
Deficiency: The difference between the balance outstanding on a loan and proceeds from the sale of the loan collateral.
Deficiency Judgement: A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the balance of loan after foreclosure.
Delinquency: Failure of a borrower(s) to make timely payments under a loan agreement.
Delinquency Advance: The deposit of a lender's corporate funds into its custodial account to assure that the full monthly remittance due investors will be available on the remittance due date, even though the lender has not collected the actual funds for delinquent mortgages from the mortgagor(s). A lender may reimburse itself for delinquency advances from subsequent collections.
Delinquency Ratio: Ratio of number of past due loans to total number of loans serviced.
Demand Loan: A loan that may be called by the lender at any time.
Demographic: Pertaining to characteristics of the population, such as race, sex, age, household size, and to population growth and density.
Density Zoning: Laws that restrict land use intensity.
Descent: The acquisition of property by an heir where the deceased leaves no will.
Detached Housing: Residential buildings in which each dwelling unit has it's own walls forming the perimeter of the house and is generally situated on a separate lot. Contrast with duplex, row house, town house which is attached.
Disbursements: Actual payment of monies. Sometimes used to described construction loan draws.
Discharge In Bankruptcy: The release of a bankrupt party from the obligation to repay debts that were, or might have been, provided in a bankruptcy proceeding.
Discount: The amount by which the sales price of the note is less than its face amount. The purpose of a discount is to adjust the yield upward in lieu of the original principal.
Discount Points: Amounts paid to the lender at the time of origination of a loan, to account for the difference between the market interest rate and the lower face rate of the note.
Dispossess: To obtain physical possession of property by due process of the law.
Document Custodian: A financial institution that contracts with a lender to maintain custody of certain mortgage documents in the lender's or investor's behalf.
Documentary Stamp: A mark "stamped" onto a deed certifying the amount of transfer tax paid.
Domicile: The state in which one makes his or her principal residence.
Due-on-Sale: A clause in a mortgage/deed of trust stating that if the mortgagor(s) sells, transfers, or in any way encumbers the property, then the mortgagee has the right to implement an acceleration clause making the balance of the obligation due.
Duplex: Two (2) dwelling units under one roof.
Dwelling: A place of residence.
Earnest Money Deposit: Money paid by the purchaser of real estate when the buyer and seller reach an oral agreement for the sale of the property to show that the buyer's offer is being made in "good faith."
Easement: A right to the limited use or enjoyment of land held by another. Also, an interest in land to enable sewer or other utility lines to be laid, or to allow access to a property.
Eminent Domain: The right of government bodies, public utilities, and public service corporations to take private property for public use (e.g. schools & roads) upon payment of its fair market value.
Encroachment: An improvement that illegally violates another's property or right to use that property.
Encumbrance: Anything that affects or limits the fee simple title to property, such as mortgages/deeds of trust, leases, easements or restrictions.
Endorsement: A signature on a negotiable instrument by which title to property mentioned therein is assigned and transferred. Also, 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.
Environmental Hazard Assessment: A environmental hazard evaluation of the of a project or development site based on information gathered from various sources. A Phase I assessment involves a screening process that focuses on reviewing available documentation, interviewing people knowledgeable about the project, and inspecting the site, the building and adjoining properties. A Phase II assessment provides a more detailed review of the site (with specific physical sampling for each hazard that was not acceptable under the Phase I assessment) and a review of historical records to determine the presence or absence of specific environmental liabilities or to quantify the extent of an observed or suspected environmental liability.
Equity: Net ownership, the difference between fair market value and current indebtedness, sometimes called owner's interest.
Escrow: A situation in which a third party, acting as the agent for the buyer and the seller, carries out instructions of both and assumes the responsibility of handling all paperwork and disbursement of funds. Also, impounds or reserves for the payment of taxes, insurance or other bills when they become due.
Escrow Account: A 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 and borrower) to see that the terms of the purchase/sale/refinance (or loan) are carried out. Also called escrow company or escrow depository.
Escrow Analysis: The periodic examination of escrow accounts to determine if current monthly deposits will provided sufficient funds to pay taxes, insurance and other bills when due.
Escrow Company: An organization established to act as an escrow agent.
Escrow Contract: A three-party agreement between the buyer, seller, and the escrow agent, specifying the rights and duties of each party.
Escrow Overage or Shortage: The difference, determined by escrow analysis, between escrow funds on deposit and escrow funds required to make a payment when it becomes due for assessments, taxes and insurance.
Escrow Payment: That portion of a mortgagor(s) monthly payment held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Also called impounds or reserves in some states.
Eviction: The lawful expulsion of an occupant from real property.
Evidence of Title: Proof of ownership of property.
Examination of Title: The review of the chain of title as revealed by an abstract of title or public record.
Exchange: Under Section 1031 of the Internal Revenue Code, like-kind property used in a trade or business or held as an investment can be exchanged tax-free.
Exculpatory Clause: A provision in a mortgage allowing the borrower to surrender the property to the lender without personal liability for the loan.
Execute: To sign a contract; sometimes, to perform a contract fully.
Executor: A person named in a will to carry out its provisions for the disposition of the estate.
Executrix: A woman who performs the duties of an executor.
Extended Coverage: Insurance that covers specific incidences normally excluded from stand insurance policies.
Extension: An agreement between two (2) parties to extend the time period specified in a contract.
Face Interest Rate: The percentage interest that is shown on the loan document. Compare with annual percentage rate, effective rate.
Fair Market Value: A term, generally used in appraisals, property tax determinations and condemnation legislation, meaning to authenticate the market value of a property.
Fannie Mae: Another name for the Federal National Mortgage Association (FNMA), the nation's largest mortgage investor. A quasi-governmental secondary market organization that offers various mortgage purchase and securitization programs. FNMA was created to finance and promote homeownership in the U.S. FNMA imposes certain restrictions and criteria on mortgages it will purchase.
FNMA Underwriting: Used to demote, for a particular loan plan, that the loan will be underwritten according to FNMA underwriting criteria.
Farmers Home Administration (FmHA): A government agency within the Department of Agriculture that operates under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. This agency provides financing to farms and other qualified borrowers who are unable to obtain loans elsewhere.
Federal Deposit Insurance Corporation (FDIC): A federal sponsored corporation that administers the federal deposit insurance system.
Federal Financial Institutions Examination Council: A government agency that, among other things, monitors the requirements that states established for the certification and licensing of individuals who are qualified to perform appraisals in connection with federally related transactions and maintains a national registry of state-certified and licensed appraisers.
Federal Housing Administration (FHA): A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA does not lend money, nor does it plan or construct house. In the event of default on an FHA loan, FHA pays off the lender (less some charges) and takes the property. They then sell the property, FHA charges the borrower a fee, at closing, plus an annual renewal fee (sometimes called "MIP"). FHA also promulgates certain conditions for approved and servicing of FHA loans.
Fee Simple Estate: An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estates is in a condominium project, the unit owner is the exclusive owner only of the air space within his/her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
FHA: See Federal Housing Administration.
FHA Loan: A loan made through an approved lender and insured by the Federal Housing Administration. While there are limits to the size of an FHA loan, they are intended to finance moderately priced homes.
FHLMC: See Freddie Mac.
FHLMC Underwriting: Same as FNMA underwriting, except FHLMC underwriting is used.
Fiduciary: One who acts, in a financial role, in the best interests of others.
FIRREA: The Financial Institutions Reform, Recovery and Enforcement Act of 1989, which modified federal laws governing thrift and bank regulation. Title XI of the Act includes real estate appraisal reform amendments.
First Mortgage: A real estate loan that creates a primary lien against real property.
Fixed Rate Mortgage (FRM): A mortgage in which the interest rate and payments remain the same for the life of the loan.
Float: (1) The interval of time after a deposit or withdrawal is made and before the transaction is credited or deducted. (2) The difference between a variable interest rate and the index to which it is pegged.
Flood Insurance: An insurance policy that covers property damage due to natural flooding. Flood insurance is offered by private insurers but is subsidized by the federal government.
Floodplain: A level land area subject to periodic flooding from a contiguous body of water. Floodplain are delineated by the expected frequency of flooding. For example, an annual floodplain is expected to flood once each year and a 100 year floodplain will flood at least one time in a one hundred year period.
FNMA: See Fannie Mae
Forbearance: The act of refraining from taking legal action despite the fact that the mortgage is in arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to pay the amount owned at a future date.
Force Majeure: An unavoidable cause of delay or a failure to perform a contract obligation on time.
Foreclosure: A legal procedure in which a mortgaged property is sold to pay the remaining outstanding debt in the case of default.
Forfeiture: Loss of money or anything else of value because of failure to perform under contract.
Freddie Mac: Another name for the Federal Home Loan Mortgage Corporation (FHLMC), a quasi-governmental secondary market organization that offers various mortgage purchase and securitization programs. Its major program is the Freddie Mac Participation Certificate (PC). Competes with FNMA.
FSBO: "For Sale By Owner". A term referring to properties on the market that are not listed with a real estate broker. Pronounced "fizzbo".
Full Disclosure: A requirement to reveal all information pertinent to a transaction. Failure to make a required full disclosure, may void the transaction.
Full Payment Amount: The monthly payment required, at each interest change date, to amortize the then outstanding principal balance of an ARM (or GPARM) at the new interest rate over the remaining mortgage term.
Full Amortized ARM: An adjustable-rate mortgage that has a monthly payment sufficient to amortize the unpaid principal balance - at the interest accrual rate - over the mortgage term.
Functional Depreciation (Obsolescence): A loss in value that is caused by defects in the design of a structure or by changes in market preferences that result in some aspect of a property being considered obsolete by current standards.
General Partner: In a partnership, a partner whose liability is not limited. All partners in an ordinary partnership are general partners. A limited partnership must have at least one general partner, with the limited partner being only an investor without any liability.
General Warranty Deed: A deed in which the grantor agrees to protect the grantee against any other claim to title of the property and provides other promises. See warranty deed.
Ginnie Mae: Another name for the Government National Mortgage Association (GNMA), a federal agency within the Department of Housing and Urban Development (HUD) that guarantees the timely payment of principal and interest for mortgage-backed securities backed by FHA/FmHA/VA, guaranteed and insured mortgages.
GNMA I: A mortgage-back securities program in which individual mortgage banking firms issue securities and pass principal and interest payments directly to the security holders. GNMA mortgage-backed securities are backed by the "full faith and credit" of the U.S. government.
GNMA II: A mortgage-backed securities program in which several firms combine loans and issue securities. A central paying agent passes principal and interest payments directly to the security holders. GNMA II pools are larger than those formed by individual lenders under GNMA I. GNMA mortgage-backed securities are back by the "full faith and credit" of the U.S. government.
Government National Mortgage Association (GNMA): See Ginnie Mae.
Grace Period: A period of time (usually measured in days) after an obligation is due during which a borrower(s) can perform without incurring a penalty and without being considered in default.
Gradient: The slope, or rate of increase or decrease in the elevation of a surface; usually expressed as a percentage.
Graduated Payment Mortgage (GPM): A type of flexible payment mortgage where the payments increase for a specified period of time then level off. Usually results in negative amortization (negative AM) during the first three to five year period.
Grandfather Clause: When a law is changed or a new law is passes, those whose specific activity was legal under the previous law are often allowed to continue, by virtue of this provision.
Ground Lease: One that rents the land only.
Growing Equity Mortgage (GEM): A graduated payment mortgage in which increases in a borrower's mortgage payments are used to accelerate reduction of principal on the mortgage. Due to increased payments, the borrower(s) acquires equity more rapidly and retires the debt earlier.
Guaranteed Loan: A loan guaranteed by a government agency or any other interested party.
Hazard Insurance: Insurance coverage which provides compensation to the insured in case of property loss or damage.
Highest And Best Use: An appraisal term meaning the "legally and physically possible use" that, at the time of appraisal, is most likely to produce the greatest net return to the land and/or buildings over a given period.
Holdback: Money not paid until certain events have occurred, such as a minimum amount of a loan commitment or retainage on a construction contract or held until repairs are completed.
Hold Harmless Clause: In a contract, a clause whereby one party agrees to protect another party from claims.
Holdover Tenant: A tenant who remains in possession of leased property after the expiration of the lease term.
Home Equity Loan: Mortgage financing that consists of a revolving line of credit secured by a portion of the appraised market value of the home.
Homeowner's Policy: A multiple peril insurance policy available to owners of private dwellings; which covers the dwelling and its contents, as well as personal liability.
Homestead Estate: In some states, a statutory exemption which prohibits the attachment or sale of owner-occupied properties to pay the claims of creditors.
HUD: The Department of Housing and Urban Development. The largest "non-military" governmental entity responsible for the implementation and administration of housing and urban development programs. HUD was established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency.
Hypothecate: To pledge a thing as security without having to give up possession of it.
Impound: That 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. Also called reserves or escrows.
Improved Land: Land that has some improvements such as streets or sewers. Land that has been partially or fully developed for use.
Imputed Interest: Interest included in the principal amount of contracted debt, if stated interest is less than the amount required by tax law.
Income Property: Real estate that generates rental income. Examples: The following are types of income property; apartment buildings, shopping centers, office buildings, industrial properties and warehouses, resort and recreational properties, hotels, motels and restaurants. The following are generally not considered income property; personal residences, undeveloped land (rental income is minimal), schools, churches and parks.
Indenture: A written agreement made between 2 or more persons having different interests. Usually the written agreement, enforced by an independent trustee, as an operations agreement for a long term bond.
Index: A published interest rate, such as the prime rate, LIBOR, T-Bill rate, or the 11th District COFI. Lenders use indexes to establish interest rates charged on mortgages or to compare investment returns. On ARM's a predetermined margin is added to the index to compute an interest rate adjustment.
Index Lease: A rental agreement that requires changes in rent based on a published record of cost changes.
Injunction: An order issued under the seal of a court to restrain one or more parties to a legal proceeding, from performing an act deemed inequitable to another party or parties in the proceeding.
Installment Sale: When a seller accepts a mortgage for part of the sale, the tax on the gain is paid as the mortgage principal is collected.
Insured Loan: A loan insured by FmHA, FHA, or a private mortgage insurance company.
Interest: Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share or title in property may be deemed interest.
Interest-Only Loan: A loan in which interest is payable at regular intervals until loan maturity, when the full loan balance is due. Does not require amortization. Contrast self-amortizing mortgage.
Interest Rate Buydown Plan: An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specified period, the mortgagor's effective interest rate is "bought down" below the actual mortgage interest rate.
Interest Rate Shortfall: The interest rate shortage that occurs when a return on a mortgage (the net note rate) is less than the required yield.
Interim Financing: A loan, including a construction loan, used when the property owner is unable or unwilling to arrange permanent financing. Generally arranged for less than 3 years, used to gain time for financial or market conditions to improve.
Interstate Land Sales Act: A Federal Law, administered by the Department of Housing and Urban Development (HUD), which requires certain disclosures and advertising procedures when selling land to purchasers in other states.
Investor: Any person or institution that invests in mortgages or mortgage-backed securities.
Involuntary Conversion: Condemnation or sudden destruction by nature.
Involuntary Lien: A lien imposed against property without the consent of the owner. Examples include property tax liens, special assessments, federal income tax liens, judgment liens, mechanic's liens and liens for materials.
Joint and Several Liability: A creditor can demand full repayment from any and all those who have borrowed. Each borrower is liable for the full debt, not just the prorated share.
Joint Tenancy: Form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.
Judgement: Final determination by a court of the rights and claims of the parties to an action.
Judgement Lien: Lien upon the property of a debtor resulting from a decree of the court.
Judicial Foreclosure: Type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. This procedure is utilized where a deficiency Judgement Lien is necessary to recover losses.
Junior Lien: Any lien that is subsequent to the claims of the holder of a prior (senior) lien.
Junior Mortgage: A mortgage that is subordinate to the claims of a prior lien or mortgage.
Land Contract: A real estate installment selling arrangement whereby the buyer may use, occupy, and enjoy land, but no deed is given by the seller (so no title passes) until all or a specified part of the sales price has been paid. Same as contract for deed and installment land contract.
Landlocked: The condition of a lot that has no access to a public thoroughfare except through an adjacent lot. No right of ingress or egress.
Late Charge: Additional charge that a borrower(s) is required to pay as a penalty for failure to pay a regular installment when due.
Lease: A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.
Leasehold Estate: A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease.
Lease with Option to Purchase: A lease that gives the lessee (tenant) the right to purchase the property at an agreed-upon price under certain conditions.
Legal Description: A property description, recognized by law, that is sufficient to locate and identify the property without oral testimony.
Letter of Credit: An arrangement, with specified conditions, whereby a bank agrees to substitute its credit for a customer's.
Letter of Intent: The expression of a desire to enter into a contract without actually doing so. Preliminary to an actual contract.
Level Payment Mortgage: Requires the same payment each month (or other period) for full amortization.
Leverage: Use of borrowed funds to increase purchasing power and, ideally, to increase the profitability of an investment.
Levy: To legally impose or collect that which is due.
Liability Insurance: Insurance covering the risks related to the property and personal liability claims of other parties against the insured party.
LIBOR: London Interbank Offered Rate. The rate at which banks in the foreign market lend dollars to one another. A common interest rate index; one of the most valid barometers of the international cost of money.
Lien: A legal hold or claim of a creditor on the property of another as security for a debt. Liens are always against property, usually real property.
Lien Theory: A principle in which the holder of a mortgage (a Lender) has only a lien or security interest against mortgage property, rather than a true title interest.
Lien Waiver: A waiver of mechanic's lien rights; a document signed by a supplier or sub-contractor stating that the firm has been compensated for its work, thereby giving up its right to file a claim against the property.
Life of Loan Cap: An agreed upon contractual limitation on the maximum interest rate that can be applied to an adjustable rate mortgage during the term of the loan.
Lis Pendens: Latin: "suit pending." Recorded notice of the filing of a suit, the outcome of which may affect title to a parcel of land.
Loan Administration: A mortgage banking function which includes the receipt of payments, customer service, escrow administration, investor accounting, collections and foreclosures. Usually called Servicing.
Loan Application: Document required by a lender prior to issuing a loan commitment. The application usually contains amount of loan with the terms, collateral description and vital personal information, age, employment, etc.
Loan Application Fee: A charge required by a loan originator to be paid by the borrower to cover the credit report, property appraisal and other incidental expenses associated with underwriting the loan. The fee is generally not refundable.
Loan Commitment: A binding agreement to lend money, generally of a specified amount, at specified terms at some time in the future.
Loan-to-Value Percentage (LTV): The relationship between the unpaid principal balance of the mortgage and the property's appraised value (or sales price if it is lower).
"Look-Back" Period: The date on which the index value that will be used to establish the next interest rate change for an ARM is determined. It is a specified number of days (usually 30, 45, 60 or 75) before the interest rate change date.
Lot and Block: A method of locating a parcel of land.
Lot Line: A line bounding a lot as described in a property survey.
MAI: (Member, Appraisal Institute) a member of the American Institute of Real Estate Appraisers, which is affiliated with the National Association of Realtors. Denotes a higher level of experience and appraisal education.
Majority: (1) The age at which one is no longer a minor and is fully able to conduct one's own affairs; majority (full legal age) is 18 to 21 years, depending on the state (2) More than half.
Management Agreement: A contract between the owner of property and someone who agrees to manage it. Fees are generally 4-10% of the rental income.
Manufactured (and factory built) Housing Unit: A single-family residential unit that is constructed in a factory in sections, with the sections then transported to the site (usually by truck) and joined together on a pre-built foundation.
Margin: The amount that is added to an index value to create the mortgage interest rate for an ARM/GPARM.
Marketable Title: A title that may not be completely clear, but has only minor objections that a well-informed and prudent buyer of real estate would accept.
Market Analysis: A study of the supply and demand conditions in a specific area for a specific type of property or service. A market analysis report is generally prepared by someone with experience in real estate, economics, or marketing. It serves to help decide what type of project to develop and is also helpful in arranging permanent and construction financing for a proposed development.
Market Price: The actual price paid in a market transaction. Contrast with market value.
Masonry: Construction made from brick, cement block, or stone.
Master Deed: Used by a condominium developer or converter for recording a condominium development. It divides a single property into individually owned units, includes restrictions on their use and provides for ownership of common areas.
Master Lease: A controlling lease. Contrast with sublease. Note that one cannot grant a greater interest in real estate than one has; so if a master lease is for a 5-year term, a sublease cannot legally exceed 5 years.
Maturity: The date on which an agreement expires; termination of a mortgage note. The "Maturity Date" of the mortgage/deed of trust.
Maximum Financing: Any mortgage amount that is within 5% of the highest loan-to-value ratio allowed for a specific product or program. Thus, maximum financing on a fixed-rate mortgage would be 90% or higher since 95% is the maximum allowable loan-to-value ratio for that product.
Mechanic's Lien: A legal and recorded claim to secure priority of payment for work performed and materials provided by a vendor. Land may be attached as well as buildings, equipment or other property.
Metes and Bounds: A land description method than details all the boundary lines of land, together with their terminal points and angles.
MI: See mortgage insurance.
MIC: See Mortgage Insurance Certificate.
Millage Rate: A tax rate applied to property. Each mill represents $1 of tax assessment per $1,000 of assessed property value.
Mineral Rights: The privilege of gaining income from the sale of oil, gas, and other valuable resources found within land.
MIP: See mortgage insurance premium (FHA/HUD).
Monument: A fixed object and point established by surveyors to determine land locations. A marker placed by the U.S. Geodetic Survey to establish a demarcation point.
Mortgage: A formal document executed by an owner of property, pledging that property as security for payment of a debt or performance of some other obligation. Also, the security instrument itself.
Mortgage-Backed Security (MBS): An investment instrument backed by mortgage loans as security. Ownership is evidenced by an undivided interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay off the securities, and provide a return on investment.
Mortgage Banker: A firm that conducts mortgage lending activities from its own funds. Newly formed mortgage are sold to investors in the secondary market, providing funds for subsequent lending. The Mortgage Banker generally continues to service the loans.
Mortgage Broker: An individual or organization that conducts mortgage lending activities and sells or assigns their interest to a Mortgage Banker. The mortgage broker does not lend from its own funds, it depends on an outside source.
Mortgage Commitment: An agreement between a lender and a borrower to lend money at a future date, subject to the conditions described in the agreement. Typical condition - The loan may be funded when the construction is completed according to the plans and specifications.
Mortgage Insurance (MI): Insurance which protects mortgage lenders against loss in the event of default by the borrower. This allows lenders to make loans with lower down payments. The federal government offers MI through HUD/FHA; private entities offer MI for conventional loans.
Mortgage Life Insurance: Term life insurance paid by the borrower in which the amount of coverage decreases as the mortgage loan balance declines. In the event the borrower dies while the policy is in force, the debt is automatically satisfied by the insurance proceeds.
Mortgage Insurance Certificate (MIC): Certificate issued by HUD/FHA as evidence that a mortgage has been insured, and that a contract of mortgage insurance exists between FHA/HUD and the lender incorporating the HUD/FHA regulations identified in the certificate.
Mortgage Insurance Premium (MIP): The amount paid by the mortgagor(s) for mortgage insurance either to FHA/HUD or a private mortgage insurance company.
Mortgage Note: A written promise to pay a sum of money at stated interest rate during a specified term. A mortgage note is secured by a mortgage/deed of trust. Often referred to as a Promissory Note.
Mortgage Portfolio: The aggregate of mortgage loans held by an investor or serviced by a mortgage banker.
Mortgage Relief: Acquired freedom from mortgage debt, generally through assumption of mortgage by another party or debt retirement. In a tax-free exchange, mortgage relief is considered boot received.
Mortgagee: The lender in a mortgage transaction.
Mortgagee Clause: A clause that may be attached to a hazard insurance policy stipulating that the lender will receive a portion of insurance proceeds sufficient to satisfy the unpaid principal amount of the loan in the event of a loss.
Mortgagor: The borrower in a mortgage transaction who pledges property as a security for a debt.
Multifamily Mortgage: A residential mortgage on a dwelling that is designed to house more than four families, such as a highrise apartment complex.
Mutual Mortgage Insurance Fund (MMIF): The actuarially sound FHA insurance fund for the 203(b) unsubsidized single family mortgage program. It is "mutual" because mortgagors whose mortgages are insured by the fund receive rebates of premiums in excess of the amounts needed to pay costs and losses. This fund is currently in effect for all Condominium loans and single family mortgage loans.
Negative Amortization: The portion of unpaid interest which is added to the mortgage principal in a loan where the principal balance increases rather than decreases because the mortgage payments do not cover the full amount of interest due.
Net Operating Income (NOI): Income from property or business after operating expenses have been deducted, but before deducting income taxes and financing expenses (interest and principal payments).
No-Bid: An option open to the Veterans Administration in which it leaves the lender with title to a foreclosed property and pays the lender only the amount of the guarantee. The VA must exercise this option when it is in the government's best financial interest. The no-bid derives its name from the fact that the VA does not specify the amount bid at the foreclosure sale. No-bid properties become real estate owned until disposed of or resolved by the lender.
Nonassumption Clause: A mortgage clause that prohibits the assumption of a mortgage by a third party without the prior approval of the lender or investor.
Nonconforming Loan: A loan on which the loan amount exceeds the maximum loan amount which FNMA or FHLMC will purchase. This amount is subject to annual adjustment.
Nonconforming Use: Property being used in a manner that violates zoning regulations or codes but is allowed to continue because it began before the zoning restriction was enacted.
Nondisturbance Clause: (1) an agreement in mortgage contracts on income-producing property that provides for the continuation of leases in the event of loan foreclosure. (2) an agreement in a sales contract, when the seller retains mineral rights, that provides that exploration of minerals will not interfere with surface development.
Nonqualifying Properties: A property which does not qualify for one of PSB's standard mortgage plans. Typically refers to a condominium, a property not served by a publicly maintained road, a property not served by a least two public utilities or a property where the land value exceeds 40% of the total property value.
Non-Owner Occupied: Refers to a mortgage property which the borrower does not intend to occupy as his/her permanent, year round residence.
Nonrecourse: No personal liability. Lenders may take the property pledged as collateral to satisfy a debt, but have no recourse to other assets of the borrower.
Notarize: To attest, in one's capacity as a notary public, to the genuineness of a signature.
Notary Public: An officer who is authorized to take acknowledgments to certain types of documents, such as deeds, contracts, and mortgages, and before whom affidavits may be sworn.
Note: A general descriptive term for any kind of paper or document signed by a borrower that is an acknowledgement of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee.
Notice of Default: Notice recorded after a default under a deed of trust or mortgage. Also, the notice sent to defaulting borrowers, required by insurers or guarantors such as FHA, VA or MI.
Novation: A 3-party agreement whereby one party is released from a contract and another party is substituted.
Off-Site Improvements: The portions of a subdivision or development that are not directly on the lots to be sold.
Open-End Mortgage: A mortgage under which the mortgagor (borrower) may secure additional funds from the mortgagee (lender), usually stipulating a ceiling amount that can be borrowed.
Open Space: Land, within a developed area, that is left undeveloped and serves as an amenity to surrounding occupants.
Opinion Of Title: A certificate, generally from an attorney, as to the validity of title to property being sold.
Origination: The process of creating both commercial and residential mortgages.
Origination Fees: The fee(s) charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property. The fee(s) are usually computed as a percentage of the face amount of the mortgage.
Overimprovement: Appraiser's descriptive comment for land use considered too intense for the land.
Owner of Record: The entity that appears in the public records as the owner of a mortgage; usually the mortgage originator, unless the mortgage is subsequently assigned to someone else and that assignment is recorded.
Owner's Association: A non-profit corporation or association that manages the common areas of a PUD or CONDO project. In a condominium project, it has no ownership interest in the common areas. In a PUD project, it holds title to the common areas. Sometimes called Homeowner's Association.
Par: The face value of a note (unpaid principal balance) equals its selling price (100% - there are no discounts or premiums).
Parcel: A piece of property under one ownership; a lot within a subdivision.
Partial Payment: In loan collection, receipt of less than the full payment of interest and principal, provided principal is due.
Partial Release: A provision in a mortgage that allows some of the property pledged to be freed from serving as collateral.
Participation Mortgage: One that allows the lender to share in part of the income or resale proceeds.
Partition: The division of real property between those who own it with undivided interest.
Partnership: An agreement between 2 or more entities to go into business or invest. Either partner may bind the other, within the scope of the Partnership Agreement. Each partner is liable for all the partnership's debts unless designated as a Limited Partner. A partnership normally pays no taxes, but merely income tax on their share of income.
Passive Investor: One who invests money but does no manage the business or property.
Pass-Through Certificates: Interests in a pool of mortgages sold by mortgage bankers to investors. Money collected as monthly mortgage payments is distributed proportionally to those who own certificates.
Payment Cap: A contractual limit on the percentage amount of adjustment allowed in the monthly payment for an adjustable rate mortgage at any one adjustment period. A payment cap is applicable if the allowable payment does not cover interest due on the principal at the adjusted rate of interest.
Payment Shock: A scenario in which monthly mortgage payments on an adjustable rate mortgage (ARM) rise so high that the borrower may not be able to afford the payment. Consumer protection guidelines regarding extremely low initial "teaser" rates, lifetime ceilings and annual caps are designed to prevent payment shock.
Penalty: Money one will pay for breaking a law or violating part of all of the terms of a contract.
Percolation Test: A procedure to measure the water absorption characteristics of soil. Required in the proper design of septic tank drainfields.
Perfecting Title: The elimination of claims against title.
Physical Depreciation (deterioration): A loss in property value that is caused by deterioration in the physical condition of a property's improvements.
Piggyback Loan: (1) a combination of a construction loan with a permanent "take-out" loan commitment. (2) one mortgage held by more than one lender, with one of the lenders holding the rights of the others in subordination.
PITI: Acronym for the items included in a monthly payment: principal, interest, taxes and insurance.
Planned Unit Development (PUD): A real estate project in which each unit owner has title to a residential lot and building and a nonexclusive easement on the common areas of the project. The owner may have an exclusive easement over some parts of the common areas (for example, a parking space).
Plat: A map representing a piece of land subdivided into lots with streets, boundaries, easements and dimensions shown thereon.
Plat Book: A book showing the lots and legal descriptions of the subdivisions of an area, usually recorded and kept in the city or county government office.
PMI: Private Mortgage Insurance. Required on conventional loans with loan to value ratios over 80%. In the event the loan goes into default, the PMI company pays the lender a specified percentage of the debt. There is an initial premium, and annual renewal premiums, both paid by the borrower.
Points: Fees paid to induce lenders to make a mortgage loan. Each point equals 1% of the loan principal. Points have the effect of reducing the amount of money advanced by the lender. Same as discount points.
Pool: All of the mortgages delivered pursuant to one or more pool purchase contracts that back an individual issue of mortgage-backed securities.
Portfolio: The assortment of loans held for servicing or investment.
Power of Attorney: An instrument authorizing a person to act as the agent of the person granting it. See attorney-in-fact.
Power of Sale: A clause sometimes inserted in mortgages or deeds of trust; grants the lender (or trustee) the right to sell the property upon certain default. The property to be sold at auction without court authority.
Premises: Land and tenements; an estate; the real property of a conveyance.
Premium: In insurance, a payment for coverage.
Premium Pricing: An aggressive pricing option for cash deliveries that results in a lender receiving a price above par for a mortgage that has a pass-through rate higher than the required yield.
Prepaid Interest: Mortgage interest that is paid in advance of when it is due to obtain tax advantages.
Prepayment: The payment of all or part of a mortgage debt before it is due.
Prepayment penalty: A charge the mortgagor(s) pays the mortgagee for the privilege to repay a loan prior to scheduled maturity.
Prime Rate: The interest rate commercial banks charge their most creditworthy customers for short-term loans. The prime is a yardstick for trends in interest rates, and it is often a base for higher-risk loans.
Principal: The original balance of money lent, excluding interest. Also, the remaining balance of the loan, excluding interest.
Principal Meridian: One of the prime meridians used in the government rectangular survey method of land description to locate range lines. The major demarcation lines established by the U.S. Geodetic Survey from which boundaries are established.
Principal Residence: The place one lives in most of the time. May be a single-family house, condominium, trailer, or houseboat. To defer capital gain taxes on the profit from a home, the home must be used as the taxpayer's principal residence.
Priority: The order of precedence of liens against property or assets. Priority is usually established by filing or recordation of liens, but may be established by statute or agreement.
Private Mortgage Insurance (PMI): Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage. MGIC being the first firm to provide the coverage.
Processing: The preparation of a mortgage loan application and supporting documents necessary to make an underwriting decision.
Promissory Note: A written promise to pay a specific amount at a specified time.
Property Tax: A government assessment based on the market value of privately owned property. Sometimes referred to as ad valorem tax or real estate tax.
Prorate: To allocate between seller and buyer their proportionate share of an obligation paid or due; for example, to prorate real property taxes or insurance.
Public Housing: Government-owned housing units made available to low-income individuals and families at no cost or for nominal rental rates. Contrast to low-income housing this is privately owned.
Public Record: Usually refers to land transaction records kept at the county courthouse.
Public Sale: An auction sale of property with advertised notice to the general public.
Punch List: An enumeration of items that need to be corrected prior to a sale. Usually a new construction home purchase.
Purchase Money Transaction: The acquisition of property through the payment of money or its equivalent.
Quality Control: Policies and procedures designed to maintain optimal levels of accuracy and efficiency in the production, selling and servicing of mortgage loans.
Quiet Title Action: Legal action taken to eliminate any interest or claim to property by others; the procedure used to perfect title when a quitclaim deed is unobtainable.
Quitclaim Deed: A deed relinquishing all interest, title, or claim an owner has in a property. A quitclaim deed implies no warranty.
Real Estate: See real property
Real Estate Investment Trust (REIT): A real estate mutual fund, vehicle the IRS allowed to avoid corporate income tax. It sells shares of ownership and must invest in real estate or mortgages. It must meet certain other requirements, including minimum number of shareholders, widely dispersed ownership, asset and income tests. If it distributes 95% of its income to shareholders, it is not taxed on that income, but shareholders must include their proportion of the REIT's income in their personal tax returns.
Real Estate Owner (REO): Property a lender acquires as a result of foreclosure.
Real Property: Land and objects permanently attached to it, such as buildings, fences and in some instances water.
Reassessment: A government process of revising or updating the value estimate of property for ad valorem tax purposes.
Recasting: A Lenders process of adjusting a long term repayment arrangement, especially under the threat of default. See workout.
Receiver: An impartial person appointed or firm by a court to administer properties involved in foreclosure or other litigation. They receive its rents and profits, and apply or dispose of them at the direction of the court.
Reconveyance: An instrument used to transfer title from a trustee to the equitable owner of real estate, used when the performance of debt is satisfied under the terms of a deed of trust.
Recording: The act of entering in a book of public records instruments affecting the title to real property. Recording in this manner gives notice to the world of facts recorded.
Recourse: The ability of a lender to claim money and property from a borrower in default. This is in addition to the property pledged as collateral.
Redemption Period: The time allowed by law in some states during which mortgagors may buy back their foreclosed properties by paying the balance owed on their delinquent mortgage and interest and fees.
Redlining: The illegal practice of circumventing or refusing to originate mortgage loans in certain neighborhoods on the basis of race or ethnic composition.
Reinstatement: The curing of all loan defaults by a borrower to return it to current status. (Defaults may be monetary or issue driven)
Rent Loss Insurance: Insurance that protects the landlord against loss of rent or rental value due to fire or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.
REO: See real estate owned
Replacement Reserve Fund: A fund set aside for replacement of common property in a Condo, PUD or cooperative project - particularly that which has a short life expectancy, such as carpeting, furniture, etc.
Rescind: To withdraw an offer or contract. Regulation Z allows a 3-day period in which to rescind certain transactions.
Rescission: The act of cancelling or terminating a contract. Rescission is allowed when the contract was induced by fraud, duress, misrepresentation, or mistake. Regulation Z allows one to rescind certain credit transactions within 3 business days (is applicable to first mortgages if a owner occupied refinance); purchasers of certain land that must be registered by Department of Housing and Urban Development (HUD) may rescind within 3 business days.
Reset Option: A provision in the mortgage not which allows the lender to make a one time adjustment to the interest rate of the loan at a specified date.
Restriction: A limitation placed upon the use of property, contained in the deed or other written instrument in the chain of title or in local ordinances pertaining to land use.
Retainage: (1) In a construction contract, money earned by a contract but not paid to the contractor until the completion of construction or some other agreed-upon date (2) A portion of a loan sale kept in portfolio by the seller of loan(s) for leverage purposes.
Reverse Annuity Mortgage (RAM): A type of mortgage, designed for elderly homeowners with substantial equity, by which a lender periodically (monthly, for example) pays an amount to the borrower. The loan balance increases with interest and periodic payments, causing negative amortization.
Revolving Debt: An arrangement for credit in which the customer obtains purchases or services on an on-going basis prior to payment. Repayment is usually at regular intervals but not for a specified amount or term. Example: charge cards.
Rider: An amendment or attachment to a contract.
Right of First Refusal: A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.
Right of Ingress or Egress: The right to enter upon or leave from designated premises regardless of ownership.
Right of Redemption: In some states, a right permitting the mortgagor to reclaim foreclosed property my making full payment of the foreclosure sales price. The right of redemption exists for a specified period of time, called the redemption period.
Riparian Rights: Rights pertaining to the use of water on, under, or adjacent to one's land. May be restrictive to avoid nuisance and pollution. Riparian rights are recognized in most eastern states but rarely in western states, where they recognize usufrutory rights.
Rollover Loan: A type of mortgage loan, commonly used in Canada, in which the amortization of principal is based on a long term but the interest rate is established for a much shorter term. The loan may be extended, or rolled over, at the end of the shorter term at the current market interest rate. The predominate two types are the 30 year amortization with five or seven year call provisions.
Rule of 78s: A method used to calculate an interest rebate when an installment loan that had add-on interest is paid off (or refinanced) prior to its maturity date.
Run With The Land: An expression indicating a right or restriction that affects all current and future owners of a property. Contrasted to an agreement, between a current owner and other parties, that is not passed on to future owners in a deed.
Rural: Pertaining to the area outside the larger and moderate-sized cities and surrounding population concentrations. Generally characterized by farms, ranches, small towns and unpopulated regions.
R Value: A measure of the heat conductivity of material. The higher the R Value, the better the material serves as insulation from heat transfer. R Value generally applies to insulating materials, roofs, exterior walls and windows and doors.
Satisfaction of Mortgage: The recorded instrument the lender provides to evidence payment in full of the mortgage debt.
Scenic Easement: An encumbrance on the title to a property to preserve it in a more-or-less natural or undeveloped state.
Seasoned Mortgage: A mortgage that has been closed for more than one year.
Second Home: A residence that is not one's principal residence. Under the Tax Reform Act of 1986, a taxpayer may deduct interest on two (2) personal residences. A property which is owned for recreational or retirement purposes and which is not the borrower's year round, permanent residence (homestead). Properties which are in rental pools, or which are available for rental for more than two weeks per year, do not qualify for PSB's definition of second homes; however, they will likely qualify for PSB's non-owner occupied loan programs.
Second Mortgage: A mortgage that has rights subordinate to a first mortgage. (Similar to Junior Lien)
Secondary Mortgage Marketing: A liquidity generating process whereby lenders and investors buy and sell existing mortgages or mortgage-backed securities, thereby providing greater availability of funds for additional mortgage lending by banks, mortgage bankers, and savings institutions.
Security Interest: An interest in a real estate in which the real estate serves as collateral.
Seller-Servicer: A term used by Fannie Mae and Freddie Mac for a mortgage banker or other entity that has met the requirements necessary to sell and service mortgage for Fannie Mae or Freddie Mac.
Semiannual: Twice a year; same as biannual.
Separate Property: Property acquired by either spouse prior to marriage by gift, purchase, or barter; separate assets may change form such as dollars uses to acquire land or devise after marriage, is distinct from community property.
Servicing: Sometimes called Loan Servicing or Loan Administration. Refers to the monthly collection of principal, interest, taxes and insurance. If a loan has been sold, it also includes remittance of funds to the noteholder.
Servicing Advance: "Out of pocket" costs and expenses a servicer incurs in the performance of its servicing obligations. The servicer may reimburse itself for these advances by billing the mortgagor(s), by reducing subsequent mortgage payments if the mortgagor(s) fails to repay the servicer for its advance, or by recovering it from liquidation or insurance proceeds.
Servicing Agreement: A written agreement between an investor and mortgage servicer stipulating the rights and obligations of each party in the process of performing servicing.
Servicing Income: A previously agreed upon fee the investor pays the mortgage servicer for performing loan administration duties.
Setback: The distance from the curb or other established line within which no structures may be placed.
Shared Appreciation Mortgage: A residential loan with a fixed interest rate set below market rates, with the lender entitled to a specified share of appreciation in property value over a specified time interval. Loan payments are set to amortize the loan over a long-term maturity, but repayment is generally required after a much shorter term. The amount of appreciation is established by sale of the home or by appraisal if no sale is made.
Shared Equity Mortgage: A home loan in which the lender is granted a share of the equity, thereby allowing the lender or a third party to participate in the proceeds from resale. After satisfying the unpaid balance of the loan, the borrower splits the residue of the proceeds with the lender. Shared equity plans often require the lender to buy a portion of the equity by providing a portion of the down payment.
Shipping: In the sale or securitization of mortgage loans, the preparation and delivery of documents for loans sold to investors.
Simple Interest: A method of calculating the future value of a sum assuming that interest paid is not compounded, i.e., that interest is paid only on the principal.
Single-Family Housing: A type of residential structure designed to include one dwelling. Adjacent units may share walls and other structural components but generally have separate access to the outside and do not share plumbing and heating equipment.
Situs: The economic attributes of location, including the relationship between the property and surrounding properties, as well as distant points of interest and the linkages to those points. Situsis considered to be the aspect of location that contributes to the market value of a real property. (Beach front property has this relationship)
Society of Real Estate Appraisers (SREA): An organization in Chicago, Illinois dedicated to professionalism in real estate appraisal. They award designations, SRA, SRPA, SREA.
Special Assessment: An assessment made against a property to pay for public improvement by which the assessed property is supposed to be especially benefitted.
Special Warranty Deed: A deed in which the grantor limits the title warranty given to the grantee by anyone claiming by, from through, or under him, the grantor. The grantor does not warrant against title defects arising from conditions that existed before he owned the property. Square Footage: The area, measured in square feet, of a piece of real estate. Generally measured from outside the exterior walls in the case of structures. (A 60 foot by 60 foot structure has 3,600 square feet).
Squatter's Rights: The legal allowance to use the property of another in absence of an attempt by the owner to force eviction; this right may eventually be converted to title to the property over time by adverse possession, if recognized by state law.
Standby Fee: The sum required by a lender to provide a standby loan commitment for a specified time or until a condition is met. The fee is forfeited should the loan not be closed within a specified time.
Standby Loans: A commitment by the lender to make available a sum of money at specified terms for a specified period. A standby fee is charged for this commitment. The borrower retains the option of closing the loan or allowing the commitment to lapse.
"Start" Rate: An arbitrarily created lower than market initial interest rate for an adjustable mortgage, which does not follow the standard practice of determining the interest rate by adding the applicable index value and the specified mortgage margin.
Straw Man: One who purchases property that is, in turn, conveyed to another for the purpose of concealing the identify of the eventual purchaser.
Streamline Refinancing Documentation: An alternative documentation procedure that is specifically designed for "no cash-out" refinance transactions that allows lenders to use substitute documentation to verify the borrower's employment and income. It also relies on the lender's warranty of the property value instead of requiring a new appraisal report under certain circumstances.
Sub-chapter S Corporation: A corporation with a limited number of stockholders (35 or fewer) that elects not to be taxed as a regular corporation, and meets certain other requirements. Shareholders include, in their personal tax return, their pro-rata share of capital gains, ordinary income, tax preference items, and so on.
Subdivider: One who partitions a tract of land for the purpose of selling the individual plots. If the land is improved in any way, the subdivider becomes a developer.
Subdivision: A housing development that is created by dividing a tract of land into individual lots for sale or lease.
Subject to Mortgage: Circumstance in which a buyer taxes title to mortgaged real property but is not personally liable for the payment of the amount due. The buyer must make payments in order to keep the property; however, with default, only the buyer's equity in the property is lost. Contrast assumption of mortgage.
Subordination: The act of a party acknowledging, by written record, that a debt is inferior to the interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights and any other types of debt instruments.
Subordination Clause: A clause or written agreement that permits a mortgage recorded at a later date to take priority over an existing mortgage.
Subrogation: The substitution of one person for another in reference to a debt, claim or right.
Supervised Lender: Any institution that is insured and supervised by an agency of the federal government or a state government.
Survey: (1) the process by which a parcel of land is measured and its area ascertained. (2) the plan showing the measurements, boundaries, area, and contours. Performed by a registered surveyor. This document depicts the boundary lines of the property and reflects that there are no encroachments, protrusions or easements which affect the livability or marketability of the property.
Sweat Equity: Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.
Syndication: A method of selling property whereby a sponsor (or syndicator) sells interests to investors. May take the form of a partnership, limited partnership, tenancy in common, corporation, or Sub-chapter S Corporation.
Takeout Financing: A commitment to provide permanent financing following construction of a planned project. The takeout commitment is generally predicated upon specific conditions, such as a certain percentage of unit sales or leases, for the permanent loan to "takeout" the construction loan. Most construction lenders require takeout financing.
Tax: A charge levied upon persons or things by a government. Examples: Ad valorem tax, county tax, excise tax, income ta, property tax, sales tax, school tax and use tax.
Tax Abatement: The exemption or reduction of local taxes on a project for a specific period of time.
Tax Basis: A taxpayer's cost of property for tax purposes, including cash paid and the principal amount of mortgage debt encumbering the property at the time of acquisition. The property's tax basis is increased from time to time by additional cash investment in the property, and is decreased from time to time by tax deductions (such as depreciation) relating to the property and by cash withdrawals.
Tax Deed: A deed on property purchased at public sale for nonpayment of taxes.
Tax Lien: A claim against property for unpaid taxes.
Tax Sale: The sale of property by a taxing authority or an officer of the court acting on a Judgment to satisfy the payment of delinquent taxes.
Teaser Rate: A contract interest rate charged on an adjustable rate mortgage for the initial adjustment interval that is significantly lower than the fully indexed rate at the time. It is an incentive to encourage borrowers to accept adjustable rate mortgage loans. In general, the interest rate reverts to the fully indexed rate at the first adjustment date.
Tenancy in Common: A form of undivided ownership interest by two or more persons that provides for no right of survivorship. The interest need not be of equal percentage.
Tenements: (1) possessions that are permanent and fixed; structures attached to land. (2) older apartment units.
Term: The period of time between the commencement date and termination date of a note, mortgage, legal document, or other contract.
Termite Inspection: An examination of a structure by qualified personnel to determine the existence of infestation by termites. Often required by the terms of a sales contract.
Time Is Of The Essence: A phrase that, when inserted in a contract, requires that all references to specific dates and times of day noted in the contract be interpreted exactly. In its absence extreme delays might be acceptable.
Time-Sharing: A form of common property ownership under which property is held by a number of people, each with the right of possession for a specified time interval. Time-Sharing is most commonly applied to resort and vacation properties.
Title: Written evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift, or through foreclosure of a mortgage.
Title Binder: Written evidence of temporary title insurance coverage that runs for a limited time and must be replaced by a permanent policy.
Title Defect: Any legal right held by others to claim a property interest or to make demands upon an owner.
Title Exception: A clear exception appearing in a title insurance policy against which the insurance company does not insure.
Title Insurance Policy: A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee or otherwise. An insurance policy, purchased at closing of the loan, which assures the integrity and enforceability of the owner's title to the property, as well as the priority of PSB's mortgage (lst lien).
Title Search: An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property.
Torrens System: A title registration system used in some states; the condition of the title can easily be discovered without resorting to a title search. Title is passed by court order.
Township: A 6-mile square tract delineated by government rectangular survey.
Tract: A parcel of land, generally held for subdividing; a subdivision.
Transaction Costs: The costs associated with buying and selling real estate.
Treasury Index: An index that is used to determine interest rate changes for certain ARM plans. It is based on the composite results of auctions that the U.S. Treasury holds for its treasury bills and securities.
Trust Deed: The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee to ensure the borrower's fulfillment of an obligation. (A mortgage, same as deed of trust)
Trustee: One who holds legal title to property for the benefit of another, or to secure performance of an obligation.
Two-Step Mortgage: An adjustable-rate mortgage that has one interest rate for the first five or seven years of its mortgage term and a different interest rate for the remainder of the mortgage term.
Underlying Mortgage: Refers to the first mortgage when there is a wraparound mortgage.
Underwriting: In mortgage banking, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.
Uniform Commercial Code (UCC): A comprehensive codification and modernization of commercial law (but excluding law dealing with real property).
Usury: Charging a rate of interest greater than the rate permitted by state law. In most states, usury limits vary according to the type of lender and type of loan. Federal laws were passed to preempt certain usury limits under certain conditions.
VA: See Veterans Administration. The Department of Veterans Affairs. Similar to FHA. Allows qualified veterans to borrower at a very high loan to value percentage. VA charges the veteran a fee for this privilege.
Vendor's Lien: An unpaid seller's right to a lien on property until the purchase price is recovered.
Vest: To create an entitlement to a privilege or right.
Veterans Administration (VA): The Department of Veteran's Affairs, a cabinet-level agency of the federal government. The Servicemen's Readjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the VA Home Loan Guaranty program, which encourages mortgage lenders to offer long-term, low down payment financing to eligible veterans by guaranteeing the lender against loss.
Voluntary Conveyance: An elective transfer of property title from a defaulting borrower to the lender, as an alternative to foreclosure. This arrangement saves the lender the expense of foreclosure, and the borrower receives credit for payment in full. (Same as Deed In Lieu).
Waiver of Lien: The written evidence from a contractor or supplier, surrendering the right of lien to enforce collection of debt against a property.
Warehousing: The short-term borrowing of funds by a mortgage banker using permanent mortgage loans as collateral. This form of interim financing is used until the mortgages are sold to a permanent investor.
Warranty Deed: One that contains a covenant that the grantor will protect the grantee against any and all claims. Usually contains covenants assuring good title, freedom from encumbrances and quiet enjoyment.
Without Recourse: Words used in endorsing a note or bill to denote that the holder is not to look to the debtor personally in the event of nonpayment: the creditor has recourse only to the property. A form of exculpation. Same as nonrecourse.
Workout: A mutual effort by a property owner and lender to avoid foreclosure or bankruptcy following a default; generally involves substantial reduction in the debt service burden during an economic depression.
Workout Agreement: A plan to bring current a delinquent or defaulted mortgage.
Wraparound Mortgage: A refinancing technique involving the creation of a second mortgage which includes the balance due on any existing mortgages, plus the amount of the new secondary or junior lien.
Yield: A specific rate of return on an investment.
Yield Differential Adjustment: An amount paid to the servicer of a whole first mortgage when the initial interest rate of a mortgage exceeds the required yield for the commitment under which the mortgage was purchased. For adjustable-rate mortgages, a yield differential adjustment occurs if there is excess "margin" rather than yield.
Zero Lot Line: A form of cluster housing development in which individual dwelling units are placed on separately platted lots but are attached to one another. (such as PUD's, row houses & townhouses)
Zoning: A legal mechanism for local governments to regulate the use of privately owned real property by specific application of police power to prevent conflicting land uses and promote orderly development. All privately owned land within the jurisdiction is placed within designated zones that limit the type of intensity of development permitted.
Zoning Map: A map of the local jurisdiction that indicates current zoning designations.
Zoning Ordinance: Act of City or county or other authorities specifying the type of use to which property may be put in specific areas.