Real Estate Glossary

Find out about some terms that you might hear when discussing a home purchase or sale and mortgage loans.

Acknowledgement – A formal declaration made before an authorized official (usually a notary public), by the person who has executed (signed) a document, that such execution is his/her own act and deed. In most instances a document must be acknowledged (notarized before it can be accepted for recording).

Acceleration – A clause in a Note or Deed of Trust, which “accelerates” or hastens the time when the balance owed becomes due immediately upon the sale of a property or when the payment is overdue.

Action to Quiet Title – A court action to establish ownership to real property. Although technically not an action to remove a cloud on title, the two actions are usually referred to as “Quite Title” actions. (See also: Cloud on Title).

Adjustable Rate Mortgage (ARM) – A mortgage with an interest rate that changes over time (either up or down) at specified periods during the life of the loan. The change in the interest rate is usually tied to a financial index over which the lender has no control. ARM’s are also referred to as AML’s (adjustable mortgage loans) or VRM’s (variable rate mortgages).

Adjustment Period – The length of time between interest rate changes on an ARM. For exam¬ple, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest rate can change once a year.

Affidavit – A sworn statement in writing, made before an authorized official.

Agent – One who is authorized to act for or represent another (principal); usually in business matters. Authority may be expressed or implied.

A.L.T.A. – Abbreviation for the American Land Title Association. A title insurance policy.

Amortization – Payment of a debt in regular, periodic installments of principal and interest, as opposed to interest-only payments. The reduction of a loan by making equal installment payments over a given period: Usually amortized for 15 or 30 years. (Also see: Negative Amortization)

Amortized Loan – A loan that is completely paid off, interest and principal, by a series of regular payments that are equal or nearly equal. Also called a Level Payments Loan.

Annual Percentage Rate (APR) – The total 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 the fee, which may be charged by the Lender to cover the costs or processing your loan application. It is usually charged at the beginning of the application process.

Appraisal – An opinion of value. 1) The act or process of the professional examination of property for the purpose of estimating its current market value. 2) The written appraisal report.

Appraisal Fee – The fee you pay to an Appraiser to have a property appraised and for obtaining the Appraisal Report.

Appraiser – One who is trained and educated in the methods of determining the value of property through analysis of numerous factors, which determine its value.

Appraised Value – An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

Appraisal Report – A written report by an Appraiser containing his/her opinion as to value of a property and the reasoning to his/her opinion. The factual data supporting the opinion, such as comparable sales, appraisal formulas and qualifications of the Appraiser, will also be set forth.

Appreciation – The increase in value over time, such as the increase in value of real property.

APR – (See: Annual Percentage Rate)

ARM – (See: Adjustable Rate Mortgage)

“As-Is” Condition – Premises accepted by Buyer of the condition(s) existing at the time of the sale, including all “visible” physical defects. This does not include any hidden material facts known by the seller and not disclosed to buyer which could affect the buyer’s decision as to whether to purchase the premises or not.

Asking Price – The Price at which the seller is offering the property for sale. Also known as List Price.

Assessed Value – Value placed on real property by the County Tax Assessor for tax purposes only.

Assessments – Specific and special taxes (in addition to normal taxes) imposed on real property to pay for public improvements within a specific geographic area.

Assumption Fee – The fee you pay the lender to assume (take over) someone else’s mortgage loan.

Assumption of Mortgage (or Deed of Trust) – A buyer's agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer to assume the loan and to release the original borrower (usually the setter) from liability. Not all loans or loan terms are “Assumable”.

Attorney-In-Fact – An agent authorized to act for another under a power of attorney.

Balloon Loan – A fixed rate loan that is amortized over a 30-year period, but becomes due and payable at the end of a shorter term (i.e. 5, 6, 7 or 10 years). Some of these loans have the option to be extended with a new interest rate or rolled into anther type of loan. Usually the interest rates on these loans are lower than a standard 30-year fixed rate loan.

Balloon Payment – A lump sum principal payment due at the end of some mortgages or other long-term loans.

Beneficiary – As used in a deed of trust (or trust deed), the Lender is designated as the Beneficiary, i.e. obtains the benefit of the security.

Beneficiary’s Demand – Written instructions by a beneficiary under a Deed of Trust stating and demanding the amount necessary for issuance of a reconveyance, whether a full or partial amount.

Binder – Sometimes known as an offer to purchase or an earnest money request. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate. A binder is also a term used in the insurance business and is a written evidence of insurance, which is for a limited time and will to be replaced later with a permanent policy.

Boot – (Used in Section 1031; Tax-Deferred Exchanges); unlike property included to balance the value of like properties exchanged.

Example: In an exchange of property under Section 1031 of the Internal Revenue Code, Collins exchanges her warehouse worth $100,000 and receives Baker’s land worth $125,000. Collins pays $15,000 cash and a car worth $10,000 to boot to equalize the values of properties being exchanged. The car and cash are considered boot.

Buy-down – A fixed rate loan where the interest rate and payments are reduced for s specific period of time by paying the interest in advance (the buyer or seller can pay the cost of the buy-down).

Broker, Real Estate – One who is licensed by the state to carry on the business of dealing in real estate. A broker may receive a commission for his/her part in bringing together a buyer and seller, landlord and tenant, or parties to an exchange.

Cap – The limit on how much an interest rate or monthly payment can change on an Adjustable Rate Mortgage (ARM), either at each adjustment or over the life of the mortgage.

CC&R’s – Covenants, Conditions and Restrictions. A document that controls the use, requirements and restrictions of a property.

Certificate of Reasonable value (CRV) – A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Chattel – Personal property.

Chattel Mortgage – A lien on personal property. Also called a security interest or financing statement.

Clear Title – (See: Free and Clear)

Closing – The final procedure in a real estate transaction between buyer and seller, when documents are executed and/or recorded, title is transferred from seller to buyer, funds are disbursed, and the sale is complete.

Closing Costs – The costs/expenses paid by the buyer or seller (or both), for the sale or purchase of real estate, such as loan fees, escrow fees, title insurance policies, transfer of ownership charges, etc.

Close of Escrow – The final procedure in which documents are executed and recorded by the County Recorder’s Office.

Closing Statement – A statement prepared by an attorney, broker, escrow company or lender, giving a complete itemization of all costs incurred or funds received in a real estate transaction. A separate statement is prepared for the buyer and seller. Also known as the “Final Closing Statement” or “Final HUD-1”.

Cloud on Title – An invalid encumbrance on real property, which, if valid, would affect the rights of the owner. For example: A sells lot 1, Tract 1, to B. The deed is mistakenly drawn to read lot 2, tract 1. A cloud is created on lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action.

Code of Ethics – (See: Ethics)

Commission – An amount, usually as a percentage, paid to an Agent (Real Estate Broker) as compensation for his/her services. The amount of commission to a Real Estate Broker is generally a percentage of the sales price of the property.

Condominium – A form of real estate ownership in a structure of 2 or more units, where the owner receives title to a particu¬lar unit and has a proportionate joint ownership of communal area of the structure and the land interest. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as its boundaries.

Contingency – A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conventional Mortgage – A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed.

Conversion Clause – A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages. This convention feature may cost extra.

Conveyance – 1) Transfer of title. 2) The document, such as a deed, by which title is officially transferred.

Cooperative Apartment – (Also known as “Co-Op”): A form of multiple ownership in a structure of 2 or more units in which a corporation or business trust entity, made up (typically) of the occupants which holds title to a property and grants occupancy rights to share-holders (occupants) by means of property leases or similar arrangements enabling the occupant to occupy a certain unit in the apartment.

Counter Offer – A rejection of (or a response to) an offer by a seller along with an agreement to sell the prop-erty to the potential buyer on terms differing from the original offer.

CRB – Certified Residential Broker. To be certified, a broker must be a member of the National Association of Realtors®, have five years experience as a licensed broker and have completed five required Residential Division courses.

Deed – A written instrument which, when properly executed and delivered, conveys title to a property form one person or entity to anther. Commonly recorded at close of escrow.

Deed of Trust (or Trust Deed) – A written instrument used in many states in place of a mortgage. Whereby, property is conveyed to a Trustee (usually a title company), as a security for a debt or other obligation, by the borrower (Trustor) in favor of the lender (Beneficiary) and reconveyed to the borrower (Trustor) upon repayment of the debt in full. Also known as a Trust Deed.

Deposit Receipt – Used when accepting "Earnest Money" to bind an offer for property by a prospective purchaser; also includes terms of a contract.

Default – Failure to fulfill a duty or promise or discharge of an obligation such as the nonpayment of an installment loan.

Discount Points – Additional charges made by a lender at the time a loan is made. Points are measured as a percent of the loan, with each point equal to one percent. These additional interest charges are paid at the time a loan is closed.

Due-On-Sale Clause – An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Documentary Transfer Tax – A county and city tax that is imposed on the transfer of real property. The tax may attach whenever the consideration given in a transaction exceeds $100.00, exclusive of remaining liens and encumbrances.

Earnest Money – This is a good faith deposit given to the real estate agent, the seller or escrow agent by the potential buyer along with a written offer to purchase a property to show that he/she is serious about purchasing the property. This money is applied toward the down payment, but in certain circumstances may be forfeited if the transaction does not go through.

Easement – Created by grant or agreement for a specific purpose, an easement is the right, privilege or interest in a property in which one party has in the land of another, such as to place pole lines, pipe lines or use of a driveway, etc. (Ex. right of way)

Effective Age – the age of a structure as estimated by its condition rather than actual age. Considers rehabilitation and maintenance.

Equal Credit Opportunity Act – A federal law, enacted in 1974 to discourage discrimination by lenders based on sex or marital status. Amended in 1976 to prohibit discrimination based on age, race, color, religion, national origin, or receipt of public assistance.

Equitable Ownership – Ownership by one who does not have legal title, such as a vendee under a land contract or, technically, a trustor under a deed of trust (legal title being in the trustee). Also called Equitable Title.

Equitable Title – (See: Equitable Ownership)

Equity – The interest or value, which an owner has in property over and above any existing liens against property.

Equity Line of Credit – Also known as a HELOC or Home Equity Line Of Credit; is a combination of a line of credit and equity loan. A maximum loan amount is established based on credit and equity. A mortgage (Deed of Trust) is recorded against the potential borrower’s property for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the amount of the mortgage.

Equity Loan – A loan based upon the equity in a property. The credit of the borrower is not a major factor. (See also: Personal Property Loan).

Escrow – A procedure in which a neutral third-party acts as a stakeholder for both the buyer and the seller, carrying out both parties' instructions and assuming responsibility for handling all the paperwork and distribution of funds and to close the transaction. The term “in escrow” is used in some areas to refer to the time from the completion of the sales contract to the actual transfer of title. Escrow fees are usually considered part of your closing costs.

Escrow Account – (See: Impound Account)

Escrow Company – A company established to perform escrow services - a neutral third party.

Ethics – With regard to professions, a code of professional standards, containing aspects of fairness and duty to the profession and the general public.

Evidence of Title – A document establishing ownership to property; most commonly, a deed.

Exclusive Agent – The one and only real estate agent contracted to sell a property within a given period of time.

Exclusive Listing – The exclusive right in favor of one real estate agent to sell a property within a specified period to time. If the seller sells the property himself within that period, he must still pay the agent the agreed upon commission.

Factor – (See: Margin)

Federal National Mortgage Association (FNMA) – Popularly known as Fannie Mae. A pri¬vately owned corporation created by 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.

Fee Simple – An estate in which the owner has absolute ownership and unrestricted power to dispose of the proper¬ty as he/she wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

FHA Loan – A loan, which has been insured by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration guaranteeing its payment incase of default by the owner/borrower. FHA loans are available as a fixed rate, ARM, GPM or buy-down. There is a maximum FHA loan limit, which varies from region to region.

Finance Charge – The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

Fixed Rate Loan – A loan, which has an interest rate that remains constant throughout the life of the loan.

Foreclosure – A proceeding in or out of court, to extinguish all rights, title and interest of the owner(s) of real property who is behind on his/her mortgage payments and/or Federal, State and property taxes, in order to sell the property to satisfy a lien against it.

Foreclosure Sale – A sale of real property used as a security for a debt, to satisfy said debt.

Free and Clear – Real property against which there are no liens, especially voluntary liens (mortgages).

Federal Home Loan Mortgage Corporation (FHLMC) – Popularly known as Freddie Mac, was created in 1970 to expand the secondary market for mortgages in the US. Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market.

Geological Inspection – The Geological Inspection is an inspection as to the soil conditions of the property. This inspection is performed by a Geo-technical Engineer and involves not only physically inspecting the property, but also researching past geological activity in the area. The primary purpose of a Geological Inspection is to determine the stability of the ground under and around the home. This is typically done on a home situated on a hillside. Typically, the Buyer pays for this, but as with any other inspections, this is negotiable according to the contract.

Graduated Payment Mortgage (GPM) – A fixed rate loan which has monthly payments starting lower than the payments on a standard fixed rate loan, then increasing by a predetermined amount each year over a specific period of time (usually 5 years). At the last increase, the payments will then remain the same for the life of the loan.

GPM – (See: Graduated Payment Mortgage)

Grant – A transfer of real property.

Grant Deed – One of the many types of deeds used to transfer real property. Contains warranties against prior conveyances or encumbrances. When title insurance is purchased, warranties in a deed are of little practical significance.

Grantee – The person to whom a grant is made.

Grantor – The person who makes a grant.

GRI – Graduate Realtors Institute. A professional designation granted to a member of the National Association of Realtors® who have successfully completed three courses covering Law, Finance and Principles of Real Estate.

Hazard Insurance – Insurance protection for the borrower and the lender against property loss due to fire, wind or natural hazards. Many lenders require the borrower to pay the first year’s premium at closing of the transaction (a closing cost).

Holograph or Holographic Will – A will written and executed entirely in the handwriting of the testator.

Home Financing – A banking term for loans to construct or purchase real property of no more than 4 units.

Home Inspection Service – A service performed by a contractor or experienced individual or company; the purpose is to detect and diagnose defects in a property and generally evaluate its condition.

Home Inspection Report – A qualified inspector's report on a property's overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

HOA – (See: Home Owner’s Association)

Home Owner’s Association (HOA) – (1) An association of people, who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area. (2) An association formed by the builder of condominiums or planned developments, and required by statute in some states. The builder’s participation as well as the duties of the association is controlled by statue.

Home Owner’s Insurance – Included the coverage of Hazard Insurance plus added coverage, such as personal liability, theft away from home (items stolen from the insured’s automobile), and other such coverage.

Homestead – The dwelling (house and contiguous land) of the head of family. Some states grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of creditors. Property tax exemptions

(For all or part of the tax) are also available in some states. Statutory requirements to establish a homestead may include a formal Declaration of Homestead to be recorded.

Homestead Exemption – (See: Homestead)

Home Warranty Plan – Protection against failure of mechanical systems within the property. Usually includes, plumbing, electrical, heating systems and installed appliances.

Impound Account – An account held by a lender on behalf of the buyer/borrower for payment of taxes, insurance, including, if necessary, PMI, or other periodic debts against a property. The buyer/borrower pays an apportioned amount with each monthly loan payment, and the lender pays the bills with the accumulated funds, as they become due. Some Lenders require an Impound Account for certain types of financing.

Index – A published interest rate composite used by lenders. Its movements determine the interest rate adjustments on Adjustable Rate Mortgages (ARM’s) over the term of the loan.

Joint Tenancy – An undivided interest in real property, taken by two or more joint tenants. The interests must be equal and occurring the same conveyance, and beginning at the same time. Upon the death of a joint tenant, his/her interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Joint Tenants – Those holding title under joint tenancy. (See: Joint Tenancy).

Judicial Foreclosure – Foreclosure through court action rather than by a power of sale. Judicial foreclosure is sometimes necessary to remove certain tax liens.

Judicial Sale – A sale made under court order, by one court appointed, rather than a voluntary sale by the owner, or one appointed by the owner.

Judgment – The decision of a court or law. Money judgments, when recorded, become a lien on real property of the defendant.

Junior Mortgage – A lien, which is subordinate to a prior lien. (I.e. second mortgage)

Key Lot – A strategically located lot, adding to its value. A lot adjoining a corner lot at its rear property line with frontage on the secondary street. Also called a Butt Lot.

Knoll – A small rounded hill.

Land Contract – A contract ordinarily used in connection with the sale of land or property in cases where the seller does not wish to convey title until all or the buyer pays a certain portion of the purchase price. The seller (vendor) has legal title until paid if full. The buyer (vendee) has equitable title during the contract term.

Landlord – An owner of a leased real property.

Lease – An agreement by which an owner of real property (Lessor) gives the right of possession to another (lessee), for a specified period of time (term) and for a specified consideration (rent).

Leaseback – (See: Sale-Leaseback)

Leasehold – An estate in realty held under a lease; an estate for a fixed term. Considered in many states to be personal property.

Lease-Purchase Agreement – (See: Lease with Option to Purchase)

Lease with Option to Purchase – A lease under which the lessee has the right to purchase a property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period.

Legal Description – A method of geographically identifying a parcel of land, which is acceptable in a court of law.

Legal Owner – The term has come to be used as a technical difference from the equitable owner, and not as opposed to an illegal owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than a lien.

Legal Title – Usually title without ownership rights, such as the title placed in a trustee under a deed of trust, or the title in a vendor under a land contract.

Lender – Any person or entity advancing funds, which are to be repaid. A general term encompassing all mortgagees and beneficiaries under deeds of trust.

Lender’s Loss Payable Clause – (See: Loss Payable Clause)

Lender’s Policy – (See: Loan Policy)

Lien – An encumbrance against a property for money; either voluntary or involuntary, in which the property is pledged as a security for the repayment of a debt, such as mortgages (voluntary), taxes and judgments (involuntary), etc. All liens are encumbrances but not all encumbrances are liens.

Liquidated Damages – A definite amount of damages, set forth in a contract, to be paid by the party breaching the contract.

Listing – An agreement between an owner of real property and a real estate agent, whereby the agent agrees to secure a buyer for a specific property at a certain price and terms, and in return is paid a fee or commission.

1) A property listed for sale. 2) A contract between a seller and a real estate broker.

Listing Agent – A real estate agent obtaining a listing as opposed to the selling agent.

Lis Pendens – (See: Notice of Action)

Loan Commitment – A written promise to make a loan for a specified amount on specified terms.

Loan Policy – A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalid title in the borrower, or loss of priority of the mortgage or deed of trust.

Loan-To-Value Ratio (LTV) – The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value. An 80% loan, for example, is determined by subtracting a 20% down payment from the property’s appraised value.

Loss Payable Clause – Also known as Loss Payee clause; is a clause in a fire/homeowner’s insurance policy, listing the priority of claims in the event of destruction of the property insured. Generally, a mortgagee or beneficiary under a deed of trust is the party appearing in the clause, being paid to the amount owing under the mortgage or deed of trust before the owner is paid.

Lot – Generally any portion or parcel of real property. Usually refers to a portion of a subdivision.

Margin – The margin is the difference between the ARM (Adjustable Rate Mortgage) index and the rate the lender charges. Example: an index of 8% plus a margin of 2.5% could result in a home loan rate of 10.5%. In some areas, the margin is referred to as the Factor. The fixed margin over the index covers the lender’s operating expenses and profit margin.

Marketability – (Salability). The probability of selling a property at a specific time, price and terms.

Marketable Title – Title, which can be readily marketed (sold) to a reasonable prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

Market Price – The price a property brings in a given market. Commonly used interchangeably with market value, although not truly the same. (See also: Market Value).

Market Value – The highest price a willing buyer would pay, and a willing seller will accept, both being fully informed, and the property exposed for a reasonable period of time. The market value may be different from the price a property can actually be sold for at a give time (market price).

Maturity – Termination period of a note. For example: A 30-year mortgage has a maturity of 30 years. In sales law, the date a note becomes due.

Mechanic’s Lien – A lien created by a statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements, which attaches to the land as well as the improvements.

Meeting of the Minds – A legal term meaning the mutual agreement necessary to for a contract. It is not based on what may actually be in the minds of the parties, but rather on whether the acts of the parties and circumstances of the contract indicate that the parties agree.

Mortgage – An instrument recognized by law, by which property is hypothecated to secure the payment of debt or obligation; procedure for foreclosure in event of default is established by statute. A mortgage is evidence of the security for a loan. It is the document signed by the borrower, which gives the Lender the right to the property if the borrower fails to live up to the loan agreement.

Mortgage Banker – A company or individual engaged in the business of originating mortgage loans with its own funds, selling those loans to long-term investors, and services the loans for the investor until they are paid in full. Although the mortgage banker uses its own funds, these funds are generally borrowed, and the financing is either short term or, if long term, the mortgages are sold to investors (many times to insurance companies) within a brief time.

Mortgage Broker – One who, for a fee, brings together a borrower and lender, and handles the necessary applications for the borrower to obtain a loan against a property by giving a mortgage or deed of trust as security. Also called a Loan Broker. Being that the Mortgage Broker is approved to originate mortgage loans with various lenders, the Mortgage Broker is able to offer a wide variety of loans to fit the needs of various borrowers.

Mortgagee – The party lending the money and receiving the mortgage. Some states treat the mortgagee as the “legal” owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, the mortgagor being the owner. The latter is the more modern and accepted view.

Mortgagee Clause – (See: Loss Payable Clause)

Mortgage Company – A company authorized to service real estate loans, charging a fee for this service.

Mortgage Life Insurance – A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.

Mortgagor – The owner of real estate financed with a Mortgage; one who pledges property as Security for a loan; the party who borrows the money and gives the mortgage.

Motivated Seller – One who urgently needs to dispose of property. Examples: Seller desperate for cash, Seller who has been transferred to another location and must sell in order to purchase another house, Seller who can’t meet the mortgage payments, Seller who needs to pay other expenses, Seller who has become unemployed.

Multiple Listing Service (MLS) – An association in which member brokers/agents agree to share listings and sale commissions of properties listed for sale in relation thereto with other MLS members, so that each member may have an opportunity to sell the properties.

Negative Amortization – Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn't covered is added to the unpaid balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren't high enough to cover the interest.

Non-Judicial Foreclosure – The sale by a trustee under a deed of trust, or mortgagee under a power of sale of a mortgage. There are no court (judicial) proceedings.

Non-Recurring Expense – An expense, which does not usually repeat itself; such as escrow fees, title fees and loan fees.

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 unilateral agreement containing an express and absolute promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or deed of trust.

Notice of Action – A recorded notice that property may be subject to a lien, or even that the title is defective, due to pending litigation. Notice of a pending suit. Also called “Lis Pendens”.

Notice of Completion – A notice, recorded to show that a construction job is finished. The length of time in which mechanic’s liens may be filed depends upon when and if a notice of completion is recorded.

Notice of Default – A notice filed to show that the borrower under a mortgage or deed of trust is in default (behind on the payments).

Notice of Non-Responsibility – A notice filed by an owner of a property to show that said owner has not contracted for work being done. If properly done, mechanic’s liens will not attach to the property. Often done when a tenant contracts for work on a property.

Notice of Rescission – A recorded notice to rescind a notice of default of a mortgage or deed of trust.

Occupancy – With reference to land, the word becomes synonymous with possession.

Offer – A written promise to purchase a property at a specified price and terms. Usually submitted be means of a “Purchase Agreement and Joint Escrow Instructions and Receipt for Deposit” form. Upon the seller’s acceptance of the offer in writing, a contract is made, providing all essential terms and conditions are covered.

Offeree – One who receives an offer. Generally, a buyer offers a purchase contract to an owner, which makes the owner the offeree. When the seller offers a contract to a buyer, the buyer is the offeree; one to whom an offer is made.

Offeror – One who extends an offer to another; one making an offer.

Open-End Mortgage – A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions.

Open House – A house, which is open without appointments to prospective buyers (or tenants) for inspection, during certain hours and days of the week.

Open Housing – Housing made available to persons without regard to race, religion, sex, color, or national origin.

Open Listing – A written authorization to a real estate agent by a property owner, stating that a commission will be paid to the agent upon presentation of an offer, which meets a specified price and terms. However, the agent has no exclusive right to sell and must bring in his/her offer before any other offer is presented or accepted.

Open Mortgage – A mortgage that can be repaid without penalty. (See: “Or More Clause”).

Option – Also known as a “Option Agreement, is a right, which acts as a continuing offer, given for consideration, to purchase or lease a property at an agreed upon price and terms, within a specified time period. The owner/seller/landlord is considered the “Optionor” and the buyer/tenant is considered the “Optionee”

Optionee – One who, for consideration, receives an option.

Optionor – One who, for consideration, gives an option.

Origination Fee – A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan charged to the borrower by the lending institution. The fee is limited to one percent for FHA and VA loans. Most Lenders’ charges are based upon the amount of the loan (one point equals to one percent of the loan amount). The borrower at closing normally pays for the fee. In some cases, however, this fee may be paid by the seller or shared by both parties. With regards to a Refinance, the Lender may allow the fee/charges to be included in the loan amount. (See also: Point)

Origination Process – The process, by which a loan is funded, including the due diligence process, financial structure and lender committee approvals.

Or More Clause – A clause in a note, mortgage, or deed of trust, allowing for additional payments to be made without penalty.

The words “or more” come after the specified payment.

Over Improvement – An improvement, excessive in cost or size in relation to land value or value of surrounding improvements.

Owner – One who has the rights of ownership. (See: Ownership).

Owner-Occupied – Property physically occupied by the owner.

Owner of Record – The owner of a property according to the records of the county recorder.

Ownership – Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

Owner’s Policy – Title insurance for the owner of property, rather than a lien holder.

Owner Will Carry Mortgage – A term used to indicate that the owner/seller is willing to take back a purchase money mortgage. Also called a “Seller Carry Back” (See: Purchase Money Mortgage).

Payment Cap – A maximum amount for a payment under an Adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.

Payoff – The payment in full of an existing loan or other lien.

Payoff Escrow – An escrow, specifically for the purpose of paying off an existing lien. Usually part of an existing escrow, and called a sub-escrow.

Personal Property – Any property, which is not real property, (e.g., money, savings accounts, appliances, cars, boats, etc).

Personal Property Loan – A loan, which is secured by both real and personal property. Law sets the minimum ratio of personal to real property. The credit of the borrower is a major consideration in making the loan. (See also: Equity Loan).

Per Diem – A term meaning daily.

Permanent Mortgage – A mortgage on completed construction for a long period of time, usually over ten years (See also: Take Out Loan).

Perfect Escrow – A complete escrow. When the escrow agent has all instruments and instructions necessary to carry out the transaction (purpose of the escrow).

Physical Inspection – This is usually a visual inspection of the entire property and is usually done through a General Home Inspection Company or individual. While home inspectors are not currently required to have a license, most are, or have been, General Contractors. The inspection and the resulting detailed report provides an overall assessment of the present condition of the property and will also make reference to items which may be considered a hazard or inoperable, etc.

Physical Inspection Report – (See Physical Inspection)

Piggyback Loan – A loan made jointly by two or more lenders on the same property under one mortgage or deed of trust. A 90% loan, for example, may have one lender loaning 80% and another (subordinate) lender loaning the top 10% (high risk portion).

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.

Planned Unit Development (PUD) – A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, communal areas. Uses may be residential, commercial or industrial.

PMI – (See: Private Mortgage Insurance)

Point – An amount equal to one percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments. (See: Origination Fee)

Possession – Being in physical control of land or personal property, whether the owner or not. Possession may be lawful or wrongful.

Prefabricated House – A house constructed of manufactured components, assembled partly at the site, rather than totally on the site. Also called a modular house.

Prelim – (See: Preliminary Title Report)

Preliminary Title Report (PRELIM) – A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued.

Prepaid Interest – Interest paid before coming due.

Prepaid Items – Expenses associated with the purchase of real property, which are paid in advance and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment – (See: Or More Clause)

Prepayment Penalty – A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid prior to maturity. Not allowed on FHA or VA loans.

Prepayment Privilege – The right to prepay a loan without penalty, either in full or in part (See: Or More Clause).

Private Mortgage Insurance (PMI) – Insurance, written by a private insurance company designed to protect and reimburse a lender a portion of the outstanding balance of a loan against a property in the event that a homeowner defaults on the loan. PMI may be required on certain types of loans; if so, the initial premium is usually paid at closing (also one of the closing costs), while subsequent premiums are included in the borrower’s monthly payments. PMI usually applies to loans with less than 80% loan-to-value (LTV), meaning less than 20% down payment (Also see: Loan-to-value-ratio).

Promissory Note – Following a loan commitment from the lender, the borrower signs a note promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its repayment.

Pro-rate – (See: Proration)

Proration – To divide (prorate) property taxes, insurance premiums, rental income, etc., between buyer and seller proportionally to time of use, or the date of closing or other agreed upon time.

Purchase Agreement – An agreement between a buyer and a seller of real property, setting forth the price and terms of the sale. Also called a Sales Con¬tract, Earnest Money Contract, or Agreement for Sale.

Purchase And Leaseback – (See: Sale-Leaseback)

Purchase Money Mortgage – (1) A mortgage given from buyer to seller to secure all or a portion of the purchase price. (2) Any mortgage from which the funds are used to purchase the property.

Purchase Money Trust Deed – (See: Purchase Money Mortgage)

Quiet Title – (See: Action to Quiet Title)

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.

Raw Land – Acreage with no added Improvements, such as landscaping, drainage, streets, utilities, and structures.

Ready, Willing, and Able – Capable of present performance. A broker supplying an offer from a ready, willing and able buyer, which meets the price and terms of the listing, is entitled to a commission, even though the seller is not bound to accept the offer. A standard listing agreement would state this.

Real Estate – (1) In law, land and everything more or less attached to it. Ownership below to the center of the earth, and above to the heavens. Distinguished from Personal Property (Same as Realty), (2) In business, the activities concerned with ownership and use transfers of the physical property.

Real Property – Land and whatever by nature or artificial annexation is a part of it.

Realtor® - A professional in real estate who subscribes to a strict Code of Ethics as a member of the local and state boards of the National Association of Realtors (N.A.R.).

Realtor-Associate – A licensed salesperson (not Broker) that is a member of the National Association of Realtors (N.A.R.).

Real Estate Agent – a person licensed by the state, who represents a broker in real estate transactions.

Real Estate Broker – (See: Broker, Real Estate)

Realty – (See: Real Estate)

Reassessment – Re-estimating the value of all property in a given area for tax assessment purposes.

Reconveyance – An instrument used to transfer title from a Trustee to the equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a Trust Deed. Also called a Deed of Reconveyance or Release.

Recordation – Filing of an instrument for public record in the office of the county recorder.

Recording – Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors, or other interested parties. Recording is controlled by statutes and usually required the witnessing and notarizing of an instrument to be recorded.

Recording Fee – The fee or amount paid to the recorder’s office in order to make a document a matter of public record.

Record Owner – (See: Owner of Record)

Recorder’s Office – The county office where instruments are recorded, giving public notice.

Recourse – The right of the holder of a note secured by a mortgage or deed of trust, to look personally to the borrower or endorser for payment, not just to the property.

Redemption – The process of canceling a defeasible title to land, such as is created by a mortgage foreclosure or tax sale.

Redemption Period – A time period during which a mortgage, land contract, deed of trust, etc., can be redeemed. Usually set by statute, and after judicial foreclosure.

“Red Lining” – The outlining of a map of certain “high risk” areas for real estate loan purposes. This means lenders will not extend credit in these areas for real property loans, regardless of the qualifications of the applicant. Some states have passed laws against this practice. The use of a red pen or pencil for the outlining gave rise to the term.

Refinance – (1) The renewing of an existing loan with the same borrower or lender. (2) A loan on the same property by either the same lender or borrower. (3) The selling of loans by the original lender. In other words: The securing of a new loan either to pay off an existing lien or Mortgage on a property, or to access equity in a property.

Regulation Z – The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act, which requires that a credit purchaser be advised in writing of all costs connected with the credit portion of the purchase.

Reinstatement – (1) Payment of a note, mortgage, deed of trust, etc., to bring it from default to good standing. (2) Restoring the previously used entitlement of a veteran to enable the veteran to purchase property under a VA loan program (also called Restoration of Eligibility).

Request for Reconveyance – A request by a beneficiary under a Deed of Trust to the Trustee, requesting the Trustee to re-convey the property (release the lien) to the Trustor (borrower), usually upon payment in full.

Rerecording – The recording of a deed for a second time, to correct an error contained in the deed when originally recorded. Also called a correction deed, confirmation deed, or reformation deed.

Rescind – To void or cancel in such a way as to treat the contract or other object of the recision as if it never existed.

Reverse Annuity Mortgage (RAM) – A type of mortgage, designed for the 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. (See: Negative Amortization)

Reverse Mortgage – (See: Reverse Annuity Mortgage)

Right of Survivorship – The right of a survivor of a deceased person to the property of said deceased; a distinguishing characteristic of a joint tenancy relationship.

Sale-Leaseback – A sale and subsequent lease from the buyer back to the seller. Although the lease actually follows the sale, both are agreed to as part of the same transaction.

Salesperson – One who is licensed to work in real estate under a licensed broker.

Second Deed of Trust – When the loan secured by the first deed of trust and the down payment do not add up to the purchase price, a second loan secured by a second deed of trust may be necessary to complete the transaction. The second loan usually carries a higher interest rate and is due in a shorter period of time (usually due in 15 years), as opposed to 30 years.

Secondary Financing – A loan, secured by a mortgage or trust deed, which lien is junior (secondary) to another mortgage or trust deed.

Second Mortgage – A mortgage, which ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called first, second, third, etch. Lien.

Section 1031 – The section of the Internal Revenue Code that deals with Tax-Deferred Exchanges of certain property. General rules for a tax-deferred exchange of real estate are: The properties must be:

1) Exchanged or qualify as a Delayed Exchange

2) Like-Kind Property (real estate for real estate)

3) Held for use in a trade or business or held as an investment (See also: Boot)

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

Security Agreement – A “catch all” term used to describe many different types of debtor-creditor relationships, such as a chattel mortgage, trust receipt, inventory liens, etc.

Selling Agent – The real estate agent obtaining the buyer rather than listing the property. The listing and selling agent may be the same person or company.

Separate Property – Property owned by a husband or wife in which the other has no legal ownership interest.

Set Back Line – Established building line regulating the distance from the property line at which buildings, structures or improvements may be built.

Settlement – (See Closing)

Settlement Statement – (See Closing Statement)

Soft Market – A market in which demand has shrunk or supply has grown faster than demand and in which sales at reasonable prices have become more difficult; a BUYER’S MARKET. Example: In a soft market, a buyer or lessee is able to negotiate a better deal.

Special Assessment – Legal charge against real estate by a public authority to pay cost of public improvements such as: streetlights, sidewalks, street improvements, etc.

Statement of Identity – (See: Statement of Information)

Statement of Information – A confidential form filled out by buyer and seller to assist the title company determine if any liens are recorded against either; very helpful when people with common names are involved. Also called a statement of identity.

Straight Note – An interest only note. A promise to repay a loan, signed by the debtor and containing the date executed, amount owing and to whom, date due (or on demand), rate of interest and how it is payable. A straight note in not amortized.

Straight-Term Mortgage – A mortgage calling for principal to be paid in a lump sum at maturity.

Structural Pest Control Inspection – Often referred to as a "Termite Report". A licensed inspector conducts the Structural Pest Control Inspection. In addition to actual termite damage, the Pest Report will indicate any type of wood destroying organisms that may be present, including fungi (sometimes called "dry rot"), which generally results from excessive moisture.

Sub-Division – A parcel of land that has been divided into smaller parts.

Survey – This may be required by the title company to ensure that a house is properly situated on the property. A survey is ordered and intended to reveal if the house, fence, pool or patio are built on or too near an adjoining property or utility easement. The borrower pay’s the fee (if any).

Take Out Loan – The “permanent” (long-term) financing of real estate after completion of construction.

Tax Foreclosure – The process of enforcing a lien against a property for nonpayment of delinquent property taxes. Taxing authorities hold a superior lien against all taxable property to enforce the payment of their taxes. (See: Foreclosure)

Tax-Deferred Exchange – Same as Tax-Free Exchange. (See: Section 1031)

Tenancy in Common – A type of ownership by two or more persons who hold undivided inter-est; without right of survivorship; interests need not be equal.

Termite Report – (See: Structural Pest Control Inspection)

Title – Evidence of a person's right or the extent of his/her interest in a property. A person or entity’s right of ownership in real property: proof of ownership.

Title Company – A company, which issues title insurance. In some areas, title companies also perform escrow functions.

Title Insurance – Evidence of title guaranteed by the insurer in the form of a title insurance policy. It protects buyers and lenders against loss sustained by reason of possible defects in the title of the property or due to unforeseen occurrences as covered in the policy, after change of ownership.

Townhouse – Originally a house in a city as opposed to a country estate. More recently the term is applied to certain types of row houses, whether planned unit developments or condominiums.

Transaction Costs – The costs associated with buying and selling real estate. Example: The following are transaction costs: Appraisal fees, Brokerage commission, legal fees, Mortgage Origination Fees, Mortgage Discount Points, Recording Fees, Survey Fees, Title Fees.

Transfer Fee – A fee charged by a public agency to transfer a property from one owner to another. A Transfer Tax is charged on some states on real estate transactions. (See also: Transfer Tax)

Transfer Tax – A tax (fee) paid upon the passing of Title to property or a valuable interest, from one person to another.

Trust Account – An account separate and apart - physically segregated from broker's own - in which broker is required by law to deposit all funds collected for clients.

Trust Deed – (See: Deed of Trust)

Trustee – (1) One who is appointed, or required by law, to execute a trust. 2) One who holds title to real property under the terms of a deed of trust.

Trustor – The borrower under a deed of trust. One who deeds his/her property to a trustee as a security for the repayment of a loan.

Underwriting – Standards set by the lender which the borrower must meet in order to qualify for a loan.

Undivided Interest – An ownership right to use and possession of a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Unencumbered Property – Real Estate with free and clear title. Example: Bill owns an unencumbered property. Bill’s interest is Fee Simple; there are no Mortgages, Vendor, Mechanic’s, or Tax Liens on the property, no restrictive covenants exist, and no easements have been granted.

Uniform Residential Appraisal Report (URAR) – A standard form for reporting the appraisal of a dwelling. This form is required for use by the major secondary mortgage purchasers. It provides numerous checklists and appropriate definitions and certifications that are printed on the form.

Uniform Settlement Statement – The form prescribed by the Real Estate Settlement Procedures Act for Federally Related Mortgages, which must be prepared by whoever handles the closing, must contain certain relevant closing information, and must be given to the buyer and seller.

Unimproved Property – Land, that has received no development, construction, or Site preparation. (See: Raw Land)

Unrecorded Deed – An Instrument that transfers Title from one party (Grantor) to another party (Grantee) without providing public Notice of change in ownership. Recording is essential to protect one’s Interest in Real Estate.

Utility Easement – The use of another’s property for the purpose of laying gas, electric, water, and sewer lines. Example: A property owner grants a utility easement to the electric power company to extend power lines to the owner’s home. (See: Easement)

VA – (See Veterans Administration)

VA Loan – A loan that is partially guaranteed by the Veterans Administration and made by a private lender.

Vacant Land – Land not currently being used. May have utilities and off-site improvements. Contrast with raw land.

Example: Vacant land was cleared and graded for future use as a shopping center.

Valuable Consideration – A legal term meaning any consideration sufficient to support a contract. The word “valuable” doe not mean of great value, but merely having value.

Valuation – The estimating of value. An appraisal.

Valuator – (See: Appraiser)

Value – (1) The usefulness of an object. (2) The monetary worth of an object. (3) A shortening of the term valuable consideration, as in a purchaser “for value”.

Variable Rate Mortgage – (See: Adjustable Rate Mortgage)

Variance – A change of a portion of zoning requirements, without changing the zoning.

Vest – (1) To give an immediate interest, as opposed to contingent or future interest. (2) To create an entitlement to a privilege or right.

Vested – Present ownership rights, absolute and fixed. Modernly known as, ownership rights, even though on a land contract, or subject to a mortgage, or deed of trust.

Vesting – Conveying ownership.

Veterans Administration (VA) – An independent agency of the federal government created by the servicemen's readjustment act of 1944 to administer a variety of benefit programs designated to facilitate the adjustment of returning veterans to civilian life. Among the benefit programs is the home loan guaranty program designated to encourage mortgage lenders to offer long-term low-down payment financing to eligible veterans by guaranteeing the lender against loss on these higher-risk loans.

Void – Having no legal force or binding effect.

Voidable – May be voided, but not void in itself.

Voluntary Lien – A lien placed against real property by the voluntary act of the owner; most commonly, a Mortgage or Deed of Trust.

Waive – To knowingly abandon, relinquish, or surrender a right, benefit, or claim.

“Wear and Tear” – The deterioration or loss in value caused by the normal and reasonable used of the property. In leases, the tenant is not usually responsible for “normal wear and tear”.

Will – A written expression of the desire of a person as to the disposition of that person’s property after death. Must follow certain procedures to be valid.

Without Recourse – A finance term. A Mortgage or Deed of Trust securing a Note without recourse allows the Lender to look only at the security (property) for repayment in the event of default, and not personally to the borrower.

Witness – (1) To sign a Deed, Note, or other document, to attest to its authenticity, or to prove its execution. (2) The person attesting.

Zoning – The division of a city or county by legislative regulations into areas (zones), specifying the uses allowed for the real property in these areas.

Zoning Map – A map of a community showing the zones of permitted use under zoning ordinances.

Zoning Ordinance – A law (generally at the city or county level) controlling the use of land and construction of improvements in a given area (zone).

Zoning Variance – (See: Variance)

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Real Estate Glossary