ADJUSTABLE MORTGAGE LOANS (AML’S) – Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan. Also called: Adjustable Rate Loans, Adjustable Rate Mortgages (ARM’s), Flexible Rate Loans, and Variable Rate Loans. (See also: Indexing, Rate Index).
AGENCY – Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the latter. Agency involving real property should be in writing, such as listings, trusts, powers of attorney, etc.
AMENDMENT – A change, either to correct an error or to alter a part of an agreement without changing the principal idea or essence.
AMORTIZED LOAN – A loan repaid in periodic (most commonly monthly) payments of principal and interest. See also: Amortize, Interest Extra Note, Interest Included Note.
APPRAISAL – An opinion of value based upon a factual analysis. Legally, an estimation of value by two disinterested persons of suitable qualifications.
APPRECIATION – An increase in value to real property due to positive changes or the elimination of negative elements in the surrounding area. Although not within the original meaning, the word has been incorrectly used so often that it is now acceptable to describe an increase in value for any reason, including inflation.
ASSESSED VALUE – Value placed upon property for property tax purposes by the tax assessor.
BALLOON PAYMENT – The final payment (balance due) of a balloon note.
CC&R’S (COVENANTS, CONDITIONS, AND RESTRICTIONS) – A term used in some areas to describe the restrictive limitations which may be placed on property. In other areas, simply called restrictions.
CHAIN OF TITLE – The chronological order of conveyancing of a parcel of land, from the original owner (usually the government) to the present owner.
CLOSING – (1) In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed. (2) A selling term meaning the point at which the client or customer is asked to agree to the sale or purchase and sign the contract. (3) The final call in a metes and bounds legal description which “closes” the boundaries of the property.
CLOSING COSTS – Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fees, etc.
CLOSING STATEMENT – The statement which lists the financial settlement between buyer and seller, and also the costs each must pay. A separate statement for buyer and seller is sometimes prepared.
CONDOMINIUM – A structure of two or more units, the interior space of which are individually owned; the balance of the property (both land and building) is owned in common by the owners of the individual units. The size of each unit is measured from the interior surfaces (exclusive of paint or other finishes) of the exterior walls, floors, and ceiling. The balance of the property is called the common area.
COUNTER OFFER – An offer (instead of acceptance) in response to an offer. For example: A offers to buy B’s house for X dollars. B, in response, offers to sell to A at a higher price. B’s offer to A is a counter offer.
DEED – Actually, any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale.
DEED OF TRUST – An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.
DEPRECIATION – (1) Decrease in value to real property improvements caused by deterioration or obsolescence. (2) A loss in value as an accounting procedure to use as a deduction for income tax purposes. (See specific types of depreciation).
DEPOSIT – (1) Money given by the buyer with an offer to purchase shows good faith, also called earnest money.
DISCOUNT POINTS – The amount paid to increase the yield. Example: A borrower receives a loan with an interest rate of seven percent but pays the lender three points in advance. The points raise the annual percentage rate of the loan. The lender may then sell the loan at less than face value and still make a profit. Each point equals one percent of the face value of the loan.
EASEMENT – A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another. It is either for the benefit of land (appurtenant), such as right to cross A to get to B, or “in gross”, such as a public utility easement.
ENCUMBRANCE, INCUMBRANCE – A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.
EQUITY – (1) A legal doctrine based on fairness, rather than strict interpretation of the letter of the law. (2) The market value of real property, less the amount of existing liens. (3) Any ownership investment (stocks, real estate, etc.) as opposed to investing as a lender (bonds, mortgages, etc.).
ESCROW – Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event. Modernly, in some states, all instruments necessary to the sale (including funds) are delivered to a third (neutral) party, with instructions as to their use.
ESCROW OFFICER – An escrow agent. In some states, one who has, through experience and education, gained a certain degree of expertise in escrow matters.
FAIR MARKET VALUE – Price that probably would be negotiated between a willing seller and willing buyer in a reasonable time. Usually arrived at by comparable sales in the area.
HAZARD INSURANCE – Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
F.H.A. (FEDERAL HOUSING ADMINISTRATION) – A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.
IMPOUND ACCOUNT – Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.
LEGAL DESCRIPTION – A method of geographically identifying a parcel of land, which is acceptable in a court of law.
LIEN – An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.
LOAN ORIGINATION FEE – A one-time set up fee charged by the lender.
MORTGAGE – (1) To hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property. (2) The instrument by which real estate is hypothecated as security for the repayment of a loan.
ORIGINATION FEE – A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as one percent.
OWNER’S POLICY – Title insurance for the owner of property, rather than a lien holder.
PERSONAL PROPERTY – Any property which is not designated by law as real property.
PITI (PRINCIPAL, INTEREST, TAXES AND INSURANCE) – Used to indicate what is included in a monthly payment on real property. Principal, interest, taxes and insurance are the four major portions of a usual monthly payment.
POINT – (1) One percent of the amount of the loan. (2) A commission paid for arranging a loan.
POWER OF ATTORNEY – An authority by which one person (principal) enables another (attorney in fact) to act for him. (1) General power – Authorizes sale, mortgaging, etc. of all property of the principal. Invalid in some jurisdictions. (2) Special power – Specifies property, buyers, price and terms. How specific it must be varies in each state.
PROMISSORY NOTE – A promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or on order, or to bearer.
QUITCLAIM DEED – A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.
RECORDATION – Filing instruments for public record (and notice) with a recorder (usually a county official.
SEPTIC SYSTEM – A sewage system, whereby waste is drained through pipes and a tile field into a septic tank. Found in areas where city or county sewers have not yet been installed.
SPECIAL ASSESSMENT – Lien assessed against real property by a public authority to pay costs of public improvements (sidewalks, sewers, street lights, etc.), which directly benefits the assessed property.
SUBDIVISION – Commonly, a division of a single parcel of land into smaller parcels (lots) by filing a map describing the division, and obtaining approval by a governmental commission (city or county). The exception is a condominium, which is sometimes called a “one lot subdivision”.
SURVEY – The measurement of the boundaries of a parcel of land, its area, and sometimes its topography.
TERMITES – Insects, similar to ants, which feed on wood, causing destruction to wooden structures.
TERMITE INSPECTION – An inspection required in certain types of sales of property, to determine if termites are present within a building.
TITLE – The evidence one has of right to possession of land.
TITLE INSURANCE – Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances.
WARRANTY DEED – A deed used in many states to convey fee title to real property. Until the widespread use of title insurance, the warranties by the grantor were very important to the grantee. When title insurance is purchased, the warranties become less important as a practical means of recovery by the grantee for defective title.