GLOSSARY OF TERMS
This glossary will assist you in understanding many of the terms used
in real estate transactions. Though general in nature, these
definitions, dependent on the context, may have additional meanings
that are different from those published on this site. Of course, all
the meaning of specific words in specific situations should be referred
to an appropriate professional, such as an attorney, lender or escrow
An addition to the contract that must be
both parties to be binding.
The payment of a financial obligation
on an installment basis. An AMORTIZED LOAN
is a loan that is
completely paid off,
interest and principal rather than interest-only, by a series of
payments that are equal or nearly equal.
ANNUAL PERCENTAGE RATE (A.P.R.)-
The total amount of
the finance charge - including interest, points and all loan fees (i.e.
escrow, processing, etc.) - calculated as a percentage of the borrowed
amount and expressed
as a yearly rate.
APPLICATION FEE -
This is a fee that may be charged
by the lender to cover the costs of processing your loan application.
The professional examination of property
for the purpose of estimating its current market value.
The increase in value of a property
due to any
That which "runs with the land";
anything incident to or attached to the land which is part of the
ASSESSED VALUE -
The value placed upon a property
for property tax purposes.
The transfer over to another the whole
of any property, real or personal, in possession or in action, or any
right or estate therein. ASSIGNEE
is the person receiving the
right or property. ASSIGNOR
is the owner of the right or
property, which is being transferred to another.
is the owner of the right or property,
which is being transferred to another.
ASSUMPTION OF A MORTGAGE -
A buyer's agreement to
liability under an existing note that is secured by a mortgage or deed
of trust. The mortgage or deed of trust. The lender must approve the
in order to release the original borrower (typically the seller) from
Not all loans or loan terms are "assumable".
ATTORNEY IN FACT -
A person holding power of
attorney from another.
ATTORNEY REVIEW -
For the state of New Jersey, there
is a 3 day attorney review. For the state of New York, there is a 5-day
attorney review. During this timeframe either party may cancel the
contract for any reason without penalty.
BALLOON PAYMENT -
Any payment on a note that is
greater than the smallest installment payment. A lump sum principal
payment due at the end of some mortgages or other long-term loans.
The inheritor of a trust. The lender
on a note
and trust deed transaction.
BENEFICIARY STATEMENT -
Statement of a lender,
giving the remaining principal balance and other information regarding
the loan. Usually obtained when an owner wishes to sell or refinance.
Written evidence of insurance which covers
time; to be replaced later with a permanent policy.
A person who for compensation or
expectation of compensation acts for another in a real estate or
related transaction. Requires a California Broker's License.
BUNDLE OF RIGHTS -
The law designates the rights
that accompany ownership to real property as the bundle of rights. The
right to own,
possess, use, enjoy, encumber, dispose of, and exclude those who do not
share ownership of real property.
A permanent buydown is prepaid interest
the note rate down to a lower permanent rate. A temporary buydown is
prepaid interest that lowers the note rate temporarily on the loan,
allowing the buyer to more readily qualify and increase payments as
BUYER AGENT -
Agent acts solely on the buyer's
behalf. The Agent has full fiduciary responsibilities, which include
reasonable care, individual loyalty, confidentiality and full
disclosure. This means the agent places the buyer's interest above all
CALLED LOAN -
A loan that is due and payable at the
The limit on how much an interest rate or
monthly payment can change, either at each adjustment or over the life
of the mortgage.
CAPITAL GAIN -
The gain received on the sale of real
or personal property, other than property sold as stock-in-trade.
In appraising, determining value of
by considering net income and a percentage of reasonable return on the
investment. The conversion of income into value.
CAPITALIZATION RATE -
Any rate used to capitalize
CHAIN OF TITLE -
A history of all of the documents
transferring title to a parcel of real estate, beginning when it
originally came from the government to a private owner, through the
latest document transferring title.
An item of personal property.
CHATTLE REAL -
A personal property right in real
estate, such as a lease.
as Close of Escrow or COE. The final procedure in a real estate
transaction. This is
the day the new owner can take possession of the house and actually
CLOSING SERVICE NETWORK -
A network of experienced
Real Estate Attorneys who provide efficient, reliable and responsive
for homebuyers and sellers.
CLOSING STATEMENT - (HUD-1 STATEMENT)
disclosure statement prepared by the escrow holder (attorney, broker,
escrow company, or lender) that accounts for all of the funds received
and expected at
closing, including deposits for taxes, hazard insurance and mortgage
CLOUD ON TITLE -
Any condition which affects the
clear title of real property.
An amount paid by the seller to the
selling agent for handling the real estate transaction.
COMMUNITY PROPERTY -
Property acquired by husband
and wife during marriage, when not acquired as separate property.
COMPARATIVE ANALYSIS -
A method of appraisal in
prices of similar properties are used as the basis for arriving at the
value estimate (a.k.a. the Market Data Approach).
COMPOUND INTEREST -
Interest paid on original
principal and on the accrued and unpaid interest, which has accumulated.
CONCIERGE SERVICE -
The Aqualand Realty Concierge
Service is a resource to help buyers and sellers find the service
providers need before, during and after the sale or purchase of a home.
A stipulation or qualification in the
if violated or not performed, defeats the deed and places the title
in the hands of the original grantor.
A form of real estate ownership in
which the owner receives exclusive title to a particular unit and
shares ownership in certain common areas with other unit owners. The
unit itself is generally a separately owned space whose interior
surface (walls, floors and ceiling) serve as
Anything of value given to induce
another to enter into a contract including money, service or a promise.
This is essential to a valid contract.
A condition that must be satisfied
before a contract is binding. For example, a sales agreement or offer
may be contingent upon the buyer obtaining financing.
CONTINGENCY REMOVAL -
Must be signed by the buyer to
remove any contingency and create a binding contract.
A deliberate agreement, based upon legal
consideration, between two or more parties who have legal capacity, to
perform a legal
act. A binding promise.
CONVENTIONAL LOAN -
A loan that is not underwritten
by a government agency.
1) The transfer of a title. 2) The
document, such as a deed, by which the title is officially transferred.
(Co-operative housing) A form of multiple
ownership in which a corporation or business trust entity (made up of
holds title to a property and grants occupancy rights to shareholders
means of proprietary leases or similar arrangements. As such, no real
property is owned by the individuals, only shares in the corporation
allocated to particular apartments.
A clause in a contract; an agreement
contained in a deed for the performance or non-performance of certain
CURABLE DEPRECIATION -
Items of physical
deterioration and functional obsolescence which can be repaired or
replaced by a prudent property owner.
DEBT RATIO -
The comparison of a buyer's housing
costs to gross or net effective income.
A document which, when properly executed,
conveys title of real property.
DEFERRED PAYMENT -
A payment under which the total
principal and an amount for finance charge is put off until the future.
This balance is paid by means of installments over a long period.
As used in appraisal, loss in value
due to any
cause. As used in taxation, a capital cost recovery out of income.
or public. By law, a seller of real property must disclose facts which
affect the value or desirability of the property. Unless exempt, the
completes and signs specific disclosure forms, including the Real
Estate Transfer Disclosure Statement, to disclose those material facts.
DISCLOSED DUAL AGENT -
When an agent shows
properties that are listed with Aqualand Realty, or if Aqualand Realty
is representing more than
one buyer on a particular property, the Aqualand Realty agent then
a disclosed dual. The agent will not be able to disclose confidential
to either party, such as price, terms or motivation to sell or buy. The
dual agent must treat all parties fairly, act in good faith and
all appropriate property facts.
DISCOUNT POINTS -
A negotiable fee paid to the
lender to secure financing to the buyer. Discount points are interest
charges paid up-front to reduce the interest rate on the loan over the
life or a portion of the term.
DOCUMENTARY TRANSFER TAX -
A method of taxing real
property transfers. State law requires that a tax be paid prior to
recording a deed.
EARNEST MONEY -
The portion of the downpayment
delivered to the seller or escrow agent by the purchaser with a written
offer as evidence of good faith.
A right to use all or part of the land
owned by another. EFFECTIVE AGE -
Age of a structure as
estimated by its condition rather than actual age. Takes into account
rehabilitation and maintenance.
As applied to an easement, a way out or
Anything that affects or limits the
of real property, such as mortgages, liens, easements, or restrictions
of any kind.
The difference between what is owed and the
amount for which the property could be sold.
The temporary holding by a third neutral
party of deposited money pending completion of agreed terms in the
sales contract. This third party acts as stakeholder for both parties'
instructions and assuming responsibility for the handling of all
paperwork and distribution of funds.
ESCROW FEES -
The fee that the title company (the
third party) charges for doing the paper work involved.
The ownership interest of a person in real
also used to refer to the property left by a deceased person.
EXCLUSIVE AGENCY LISTING -
A written instrument
giving one agent the "authorization to sell" property for a specified
time, but reserving the right to collect a commission if the property
is sold by anyone during the term of the listing.
A contract that has been fully performed.
EXTENDED COVERAGE -
A form of title insurance that
is available to homeowners.
FHA LOAN -
(Federal Home Loan Mortgage Corp.-FHLMC)
Often referred to as "Freddie Mac", a part of the secondary market and
used to purchase loans from savings and loan lenders within the Federal
Home Loan Bank Board.
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) -
Popularly known as "Fannie Mae", a privately owned corporation formed
by the congress to support the secondary mortgage market. It purchases
and sells residential mortgages insured by FHA or guaranteed by the VA,
as well as conventional home mortgages.
FREE SIMPLE -
An estate in which the owner has
unrestricted power to dispose of the property as he or she wishes,
including leaving by will or inheritance.
A person holding a position of trust;
agents, trustees, attorneys, etc.
FINANCE CHARGE -
The total cost that a borrower must
pay (directly or indirectly) to obtain credit according to Regulation
Z, the set of rules governing consumer lending issued by the Federal
FINANCIAL STATEMENT -
A statement in writing often
required of a borrower of money from a bank, stating fully all of the
borrower's assets, liabilities and net worth.
FIXED EXPENSES -
The regular recurring costs or
charges required in the holding of a property, such as taxes and fire
FIXED RATE MORTGAGE -
A conventional loan with the
same interest rate for the life of the loan.
Personal property that is attached to real
property and is legally treated as real property when its attached-such
fixtures and window treatments.
FULLY INDEXED RATE -
The maximum interest rate on an
can be reached at the first adjustment.
FUNCTIONAL OBSOLESCENCE -
A loss of value due to
old-fashioned or poorly designed equipment; a type of depreciation.
GIFT LETTER -
A letter from a relative stating that
will be gifted to the buyer, and that said amount is not to be repaid.
GOVERNMENT NATIONAL MORTGAGE (GNMA) -
"Ginnie Mae", a governmental part of the secondary market that deals
primarily with recycling VA and FHA mortgages, particularly those that
are highly leveraged.
GRANT DEED -
Customary document used in California
to transfer title to real property; contains two implied warranties.
Receiver of the title being granted.
Owner of title being granted; the person
who makes the grant.
GUARANTEE OF TITLE -
A guarantee by an abstract
company or title company that the title is vested as shown on the
guarantee; backed only
by the assets or reserves of the guarantor.
HAZARD INSURANCE -
Insurance protection for the
borrower and lender against property loss due to fire, wind or natural
HOME INSPECTION SERVICE -
A qualified inspector's
report on the overall condition of a property. The report typically
includes an evaluation of both the structure and mechanical systems.
HOME WARRANTY PLAN -
Protection against failure of
systems within the property, and usually includes plumping, electrical,
heating and cooling systems, and installed appliances.
HOMEOWNER'S ASSOCIATION (HOA) -
An organized group
of homeowners whose members help to regulate and enforce the rules and
standards of their respective communities.
IMPOUND ACCOUNT -
An account held by the lender for
payment of taxes, insurance and other periodic debts against a
property. The borrower pays an apportioned amount with each monthly
loan payment and the lender pays the bills with the accumulated funds.
To secure against hurt, loss or damage;
to make compensation to for hurt, loss or damage.
A measure of interest rate changes used to
changes in an ARM's interest rate over the term of the loan.
INTEREST RATE -
The percentage of a sum of money
charged for its use.
INVOLUNTARY LIEN -
A lien imposed against property
by operation of law without the consent of the owner, such as a tax
lien or mechanic's lien.
JOINT TENANCY -
An equal, undivided ownership of
property by two or more persons. Upon the death of any owner, the
survivors take the descendant's interest in the property.
JUMBO LOAN -
Mortgage loan that exceeds the loan
amount acceptable for sale in the secondary market. Jumbos are packaged
and sold differently to investors, and have separate underwriting
A legal hold or claim on a property as
security for a debt or charge. It can be voluntary such as a mortgage
or involuntary such as for back taxes.
LIST-TO-SALE RATIO -
The ratio between the price at
which a property is listed and the amount for what it is actually sold.
LOAN COMMITMENT -
A written promise to make a loan
for a specified amount on specific terms.
LOAN ORIGINATION FEE -
A fee charged by the lender
for Evaluating, preparing, and submitting a proposed mortgage loan.
LOAN-TO-VALUE (LTV) RATIO -
The amount of the loan
as a percentage of the property's appraised value. An 80% loan, for
example, is determined by subtracting a 20% down payment from the
property's appraised value.
The fixing of an interest rate or points
at a certain level during the loan application process. It is typically
fixed for a
specified amount of time, such as 20-30 days or some other period of
determined by the lender.
The number of percentage points the lender
adds to the index to calculate the ARM interest rate at each
adjustment. For example, an index rate of 8% plus a margin of 2.5%
could result in a home loan rate of 10.5%. The fixed margin over the
index covers the lender's operating
expenses and profit margin.
MARKET VALUE -
The current value of real estate that
a buyer is willing to pay and a seller is willing to accept.
MARKETABLE TITLE -
Title to property that is free of
objectionable encumbrances and liens.
MECHANIC'S LIEN -
A statutory lien on a specific
labor or materials contributed to a work of improvement.
A temporary suspension, as in the
payment of a debt.
MORTGAGE (DEED OF TRUST) -
A legal document between
the lender and borrower providing security for and stipulating the
terms of repayment of a loan for a specific property.
MORTGAGE INSURANCE PREMIUM (MIP) -
insurance required on FHA loans for the life of said loan.
MULTIPLE LISTING SERVICE (MLS) -
The pooling in a
central bureau of all properties listed for sale. Listings are held
individually by members of a group of real estate brokers, with the
agreement that any member may sell the property and the commission will
be divided between the listing and selling broker.
NEGATIVE AMORTIZATION -
Monthy payments fail to
cover the cost of the interest on a loan, which is then added to the
principal balance. As a result, a borrower could owe more than at the
beginning of the loan even after making several payments.
OFFSET STATEMENT -
Statement of owner setting forth
the present status of title and all liens against the property.
A right given to a person to buy, sell or
lease property within a stated period and under certain specified
terms. A contract to keep an offer open.
receives an option.
owns the title who gives an option.
PAYMENT CAP -
This cap places an annual limit on the
amount that a monthly payment can increase. This feature is offered by
some ARM lenders instead of an annual interest rate cap.
The term for a mortgage payment that includes
principal (P), interest (I), taxes (T), and insurance (I).
PLANNED UNIT DEVELOPMENT (PUD) -
designation for property developed at the same or slightly higher
density than conventional development, often with improvements
clustered between open or common areas.
An amount equal to one percent of the
principal loan amount. For example, two points equal 2% of the amount.
POWER OF SALE CLAUSE -
A clause in a trust deed that
gives the trustee the right to sell borrower's property publicly,
without court procedure, if the borrower defaults on the loan.
PREPAID INTEREST -
Interest paid before accrued.
PREPAYMENT PENALTY -
A fee charged to a borrower who
pays a loan in full before the stated due date.
PRIVATE MORTGAGE INSURANCE (PMI) -
by private companies to protect a lender against loss if the borrower
a mortgage. PMI is often required on mortgage loans with less than 20%
PROMISSORY NOTE -
A written contract containing a
promise to pay a definite amount of money at a definite future time.
The evidence of
To divide proportionally to time or use.
PURCHASE AGREEMENT -
A written document in which the
purchaser agrees to buy a certain real estate and the seller agrees to
sell under stated
terms and conditions. May also be called a sales contract, earnest
contract, or agreement for sales.
QUITCLAIM DEED -
A deed used to transfer any
interest in real
property which the grantor may have. It contains no warranties of any
RATE CAP -
The rate cap defines rate limits, either
from one adjustment period to the next or over the life of the loan.
RATE GAP -
The difference between the current rate
and the rate to which it could adjust on an ARM.
The agreement of both the buyer and seller
to the terms offered in the real estate contract.
REAL ESTATE AGENT (REALTOR) -
A person licensed by
who represents a broker in real estate transactions.
REAL PROPERTY -
Land, that which is affixed to the
land, incidental or appurtenant to land and that which is immovable by
REAL ESTATE TRANSFER DISCLOSURE STATEMENT -
must be provided by the seller, listing any known defect or problem
with the house. Both agents must reveal anything they know that might
be a problem with the
property. See also DISCLOSURE
RECORDING FEES -
Charged by the County Clerk to
record documents in public records. May be included in the borrower's
RECURRING COSTS -
Expenses that the buyer can expect
again, year after year, such as property taxes, fire insurance,
earthquake insurance, interest.
The securing of a new loan either to pay
off an existing lien or mortgage on the property, or to access your
To cancel a contract from the beginning,
restoring the parties to their original positions. Referred to as an
SALES ASSOCIATE (Agent) -
A person who for
compensation or expectation of compensation acts for another in a real
estate or related transaction. A real estate license is required, and
individual for a real estate broker.
A transaction in which at the time
of sale the seller retains occupancy by concurrently agreeing to lease
from the purchaser. The seller receives cash while the buyer is assured
a tenant and a fixed return on the buyer's investment.
SECONDARY MORTGAGE MARKET -
Market place for the
sale and purchase of existing trust deeds and mortgages.
SELLERS' AGENT -
Agent acts solely on the sellers'
behalf. Agent has full fiduciary responsibilities that include
reasonable care, undivided loyalty, confidentiality and full
disclosure. This means the agent places the sellers' interest above all
SUBORDINATION CLAUSE -
A clause in a junior lien
permitting retention of priority for prior liens OR it may be used in a
first deed of trust
permitting it to be subordinated to subsequent liens as, for example,
liens of construction loans.
This may be required by the title company
to insure that the house is properly situated on the property.
All rights in land that pass with a
conveyance of the land.
TENENCY IN COMMON -
A type of joint ownership of
property by two or more persons with no right of survivorship.
The rights of ownership recognized and
protected by law. A combination of all elements that constitute the
highest legal right to own, possess, use, control, enjoy, transfer, and
dispose of real estate. A title spells out who has the right of
ownership of a property.
TITLE COMPANY -
The company who issues Title
Insurance and employs the escrow officer.
TITLE INSURANCE POLICY -
A clear title has no liens
against it. This policy protects the purchaser, mortgagee, or other
against defects or losses associated with the title.
Architectural term for a two or more
story unit with no units above or below, but with one or more shared
walls. Ownership may be in the form of condominium, planned unit
development or stock cooperative.
The third person who holds legal title to
property for a special purpose without being the actual owner. A
trustee is one of
the parties to every trust deed.
These are standards set by the lender
which the borrower must meet in order to qualify for the loan.
Charging interest in excess of the maximum
rate as set by law.
VA LOAN -
A loan made by a private lender that is
partially guaranteed by the Veterans Administration.
The intentional or voluntary relinquishment
of a known right, essentially a unilateral act.
WOOD DESTROYING PEST AND ORGANISS INSPECTION -
inspection identifying existing or potential pest, dry rot, fungus, and
other structure-threatening infestation or conditions. Sometimes
referred to as "termite inspection."
Laws passed by local governments regulating
the size, type, structure, nature, and use of land or buildings.
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