Glossary
Adjustable-rate loan (ARM)
A type of alternative loan instrument in which the interest rate adjusts periodically according to a predetermined index and margin. This adjustment results in the loan payment either increasing or decreasing. In some situations, the adjustment is made to the outstanding principal.
Ad valorem tax
A tax based on the value of the item being taxed.
American Land Title Association (ALTA)
A type of alternative loan instrument in which the interest rate adjusts periodically according to a predetermined index and margin. This adjustment results in the loan payment either increasing or decreasing. In some situations, the adjustment is made to the outstanding principal.
Amortization
Repayment of a debt in equal installments of principal and interest over an equal period of time.
Annual percentage rate (APR)
A rate that represents the relationship of the total finance charge (interest, loan fees, points) to the amount of the loan.
Appraisal report (URAR)
A written report by an appraiser containing an opinion of the value of a property, including the factual supporting data, such as comparables and the qualifications of the appraiser.
Assessment
The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.
Assignee
The person to whom property or a right is assigned or transferred.
Assignor
A person who transfers or assigns a right or property.
Assumable loan
A loan that allows a new, substitute payee or purchaser to take ownership to real estate encumbered by an existing mortgage and assume responsibility for the unpaid balance of the mortgage.
Balloon payment
The unpaid principal amount of a loan due at a certain date in the future; a lump sum amount due at the end of the term; when any one payment due is greater than twice the normal stated payment.
Bankruptcy
Proceedings under federal law to relieve a debtor from insurmountable debt. The bankrupt's property is distributed by the court to the creditors as full satisfaction of the debts, in accordance with certain priorities and exemptions. Voluntary bankruptcy is petitioned by the debtor, involuntary by the creditors.
Bill of sale
A document in writing that transfers title to personal property.
Binder policy
Written evidence of temporary hazard or title insurance coverage that runs for only a limited time and must be replaced by a permanent policy.
Buy-down
A loan made by a lender with a below-market interest rate in return for an interest rate subsidy in the form of money received from some source (builder, buyer, seller), may be temporary or permanent, often is a lump sum paid at the beginning of the loan, used to increase the yield on the loan for the investor.
Capital gains tax
The taxx on the taxable profit derived from the sale of a capital asset. THe capital gain is the difference between the sale price and the basis of the property, after making appropriate adjustments for closing costs, fixing up expenses, capital improvements, and allowable depreciation.
Carry-back financing
Financing in which the seller of real property accepts a note or contract secured by the same real property as a part of his or her equity.
Certificate of eligibility
A document, used by the DVA to certify a veteran's eligibility for a DVA loan. The veteran also needs a DD-214.
Chain of title
The history of all the documents transferring title to a parcel or real property, starting with the earliest existing document and ending with the most recent.
Close of escrow (COE)
The conclusion or consummation of a transaction. In real estate closing, it includes the delivery of a deed and documents, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.
CC&Rs (Covenants, conditions and restrictions)
A term used in some areas to describe limitations sometimes put on the use and enjoyment of real property, such as limiting the property to a single family or to a one-story dwelling.
Closing costs
Expenses incurred in the closing of a real estate transaction. Purchaser's expenses normally include cost of title examination, premiums for title policies, survey, attorneys' fees, lender's service fees, and recording charges. In addition, the purchaser may have to place in escrow money to cover accrued real estate taxes and insurance.
CLTA (California Land Title Association)
A type of title insurance policy issued by a title insurance company as standard risk for the transfer of title ownership on real property, usually between a seller and a buyer.
Coinsurance
A sharing of insurance risk between insurer and insured, depending on the relation of the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.
Commingling
Mixing deposits or monies belonging to a principal with those of the broker or firm.
Common area
The entire common-in-interest development except the separate interest therein.
Community property
In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired in such manner as to be legally considered the separate property of either spouse.
Condominium
A form of ownership of real property. The owner receives title to a particular unit and a proportionate interest in certain common areas. A condominium generally defines each unit as a separately owned space to the interior surfaces.
Construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.
Contingency
The dependence upon a stated event that must occur before a contract is binding, in a purchase of a house, for example, contingent upon the buyer obtaining financing.
Conventional loan
A real estate loan neither insured by FHA nor guaranteed by DVA or Cal Vet.
Convertible loan
An adjustable-rate loan whereby the borrower can convert the loan to a fixed-rate loan during a predeteermined time period.
Conveyance
An instrument in writing used to transfer (convey)title property from one person to another, such as a deed or a trust deed.
Cosigner
A person who signs a legal instrument and therefore becomes individually and jointly liable for repayment or performance of an obligation.
Cost approach
An appraisal technique used to establish value by estimating the cost to reproduce the improvement, allowing for de
Covenant
A legally enforceable promise or restriction in a contract, such as maintaining insurance. The breach of a covenant usually creates a default and can be the basis for foreclosure.
Credit rating score
A credit rating score developed by the Fair, Isaac company of San Rafael, California, to determine the risk of the borrower when making a loan.
CRV (Certificate of reasonable value)
Appraisal report approved by the DVA.
Debtor
A person who is in debt, the one owning money to another.
Deed
A written legal document that transfers ownership of land from one party to another.
Deed in lieu of foreclosure
A deed given by a borrower to a lender to satisfy a debt and avoid foreclosure.
Deed of reconveyance
The transfer of legal title from the trustee to the trustor (borrower) after the trust deed debt is paid in full.
Deed of trust
A type of security instrument conveying title in trust to a third party (trustee) for a particular piece of property, used to secure the payment of a trust note, a conveyance of the title to a trustee as collateral security for the payment of a debt with the condition that the trustee will reconvey the title upon the payment of the debt, and with power of the trustee to sell the land and pay the debt in the event of a default on the part of the debtor.
Default
Breach or nonperformance of a clause in either a note or mortgage that, if not cured, could lead to foreclosure.
Deferred interest
When interest earned is not fully paid with the current payment and is postponed until some future date.
Discount
In loan obligations, an amount withheld from loan proceeds by a lender. In secondary market sales, the amount by which the sale price of a note is less than the face value. The purpose is to adjust the yield upward, whether in lieu of interest or in addition to interest. The discount depends on money market conditions, the credit of the borrower, and the rate and terms of the note.
Down payment
Of the purchase, the cash portion paid by a buyer from her or his own funds, as opposed tothe amount financed.
Due-on-sale clause
A type of acceleration clause calling for a debt under a loan to be due in its entirety upon transfer of ownership of the secured property.
Earnest money
A sum of money given to bind a sale or loan on real property or to ensure payment, or an advance of funds in the processing of a loan.
Easement
Right or interest in the land of another entitling the holder to a specific limited use, privilege, or benefit, such as utility company access.
Eminent domain
The right of a government to take private property for public use upon payment of its fair value.
Encumbrance
Anything that affects or limits the fee simple title to property, such as real estate loans, leases, easements, or restrictions.
Equal Credit Opportunity Act (ECOA)
The federal law that requires lenders and creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, receipt of income from public assistance programs, or reliance on any consumer protection law.
Equity
In real estate, equity is the difference between fair market value and current indebtedness, usually referring to the owner's interest.
Escrow
A transaction in which a third party, acting as the agent for the parties, carries out instructions for each party and assumes the responsibilities of handling the paperwork, accounting, and disbursement of funds.
Escrow instructions
Instructions signed by each principal that enable an escrow agent to carry out the procedures necessary to enact business.
Escrow payment
The portion of a loan payment held by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.
Estate
The ownership interest of an individual in property.
Fair Credit Report Act
A federal law giving a person the right to see his or her credit report.
Fair market value
The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent facts and neither of whom is under any undue influence to buy or sell.
Federal Home Loan Mortgage Corporation (FHLMC)
Formed as a secondary money market source for real estate lenders to sell loans for liquidity. Popularly known as Freddie Mac.
Federal Housing Administration (FHA)
A division of HUD that insures residential loans made by private lenders and sets standards for construction and underwriting.
Federal National Mortgage Association (FNMA)
A private corporation that buys and sells real estate loans and markets its own securities on the secondary money market. Popularly known as Fannie Mae.
Fee simple
An estate under which the owner is entitled to unrestricted powers to dispose of the property and that can be left by will or inherited, the greatest interest a person can have in real estate.
FICO
A credit score method developed by the Fair, Isaac. Used industrywide in determining the creditworthiness of a borrower.
First-time homebuyers
A nongovernmental, conventional loan program that requires a very low down payment for qualified borrowers.
Fixed-rate loan
The interest rate does not change during the entire term of the loan.
Fixture
Personal property that becomes real property.
Flood insurance
Insurance indemnifying against loss by flood damage. Required by lenders in areas federally designated as potential flood areas.
Foreclosure
An authorized procedure taken by a lender under the terms of a loan for the purpose of having the property sold and the proceeds applied to the payment of a defaulted debt and authorized costs to sale.
Front-end ratio
House payment divided by the borrower's monthly gross income.
Fund into the month
When a loan does not close by the end of the month, the lender is allowed to fund into the next month, up to 5 days of the new months.
Gift letter
Required when part of the down payment is from other than the borrower. It must state that the gift does not have to be repaid.
Government National Mortgage Association (GNMA)
Handles government-backed real estate loan securities pooled on the secondary money market. Popularly known as Ginnie Mae.
Graduated payment mortgage
A real estate loan that has monthly payments that start at a low level and increase at a predetermined rate.
Grant deed
A document used to transfer ownership title in real property that warrants against prior conveyances or encumbrances.
Grantee
The person to whom an interest in real property is conveyed.
Grantor
The person conveying an interest in real property.
Gross income
Total income from property before any expenses are deducted.
Gross margin
With regard to an adjustable-rate mortgage, an amount expressed as percentage points, slated in the note, that is added to the current index value on the rate adjustment date to establish the new note rate.
Hazard insurance
A contract whereby an insurer, for a premium, undertakes to compensate that insured for loss on a specific property due to certain hazards.
Home equity conversion mortgage
The FHA 255 loan program by the Housing and Community Develpment Act that insures reverse mortgages for borrowers who are 62 or older. This allows older homeowners to convert their home equity into spendable dollars.
Home Mortgage Disclosure Act (HMDA)
A federal law that requires lenders to disclose the number of loan applications, designed to eliminate redlining on federally related loans.
Homeowners association
(1) An association of people who own units in a given area, formed for the purpose of improving or maintaining the quality of the area, usually managed by a board of directors, often under recorded articles of incorporation, frequently with delegated duties contracted to a professional property management company.
Home Ownership Counseling
A work-shop conducted by FHA for first-time homebuyers to ensure that home ownership is right for them.
Homestead estate
The property occupied by an owner that is protected by law, up to a certain amount, from attachment and sale for the claims of creditors.
Housing expense
Those expenses that directly relate to the house payment PITI, association dues, flood insurance, earthquake insurance, leased land payment.
Housing Financial Discrimination Act
The lender must provide a fair lending notice to the applicant. The notice explains that it is illegal to discriminate on the basis of race, color, religion, sex, marital status, national origin, or ancestry.
HUD
The Department of Housing and Urban Development, which is responsible for the implementation and administration of rentals, loans, and home purchase programs. The broad range of programs includes community planning and development, housing production and mortgage credit (FHA), equal opportunity in housing, and research and technology.
Impound account
Account held by a lender for payment of items such as property taxes, hazard insurance, and mortgage insurance. The debtor pays a portion of the anticipated yearly expense with each monthly payment. The lender pays the actual bill from the accumulated funds.
Interest-only loan
A straight unamortized loan, in which only interest is paid. Interest can be paid periodically when the principal is paid in a lump sum.
Joint tenancy
An equal undivided ownership of property by two or more persons whose survivors take the interest upon the death of any one of them.
Jumbo loan
Amount of loan exceeding the maximum FNMA and FHLMC loan limits.
Junior lien
A lien subsequent (second, third, etc.) to the claims of the holder of a prior (senior) loan.
Lead-based paint
A warning statement is required to be given to every purchaser or tenant of residential property built prior to 1978 that may present exposure of lead from paint.
Lease
A written document under which the possession, use, and quiet enjoyment of property is given by the owner to another for a stated period for a stated consideration under specific conditions.
Leasehold
An interest in real property held by virtue of a lease.
Lease purchase agreement
Buyer makes a deposit for the future purchase of a property with the right to lease the property during the interim.
Legal description
A property description recognized by law that is sufficient to locate and identify the property without oral testimony.
Lessee (tenant)
The person(s) holding right of possession and use of property under the terms of a lease.
Lessor (landlord)
The one leasing property to a lessee.
Liquid assets
Cash or other assets immediately convertible to cash.
Loan-to-value (LTV)
The ratio of the loan principal to the property's appraisal value (selling pricing).
Mechanic's lien
A lien, created by statute, that exists against real property in favor of persons who have performed work or furnished materials for the improvement of the real property.
Mello-Roos
A method of financing government entities (city, counties, school districts, and other special districts) by the use of bond money.
Mobile home
A structure transportable in one or more sections, designed and equipped to contain not more than two dwelling units to be used with or without a foundation system.
Modification
The act of changing any of the terms of a real estate note.
Mortgage credit certificate (MCC)
A loan program that offers a first-time homebuyer a federal income tax credit, which reduces the amount of federal taxes the holder of the certificate pays.
Mortgagee
A person or firm to whom property is conveyed as security for a real estate mortgage loan.
Mortgage insurance
Whether government or private, insures a mortgage lender against loss caused by a mortgagor's default. This insurance may cover a percentage or virtually all of the mortgage loan, depending on the type of mortgage insurance.
Mortgage insurance premium (MIP)
The consideration paid by a borrower for mortgage insurance either to FHA or a private mortgage insurance (PMI) company, required on FHA loans to insure the ender against loss. Annual premium is % of the loan balance each year, divided by 12 and collected monthly with the loan payment.
Mortgage note
A written promise to pay a sum of money at a stated interest rate during a specified term. It is secured by a mortgage.
Mortgagor
One who borrows money, giving a mortgage on real property as security (a debtor).
Multifamily housing
Buildings with five or more residential units.
Negative amortization
A loan payment schedule that produces additions to principal, not a reduction, because the interest collected is insufficient to cover interest earned. The unpaid interest is added to the unpaid principal balance.
Nonconforming loan
A loan for which either the borrower or the lending guidelines do not conform to industry standards, such as a jumbo loan.
Notice of default (NOD)
A notice recorded after the occurrence of a default under a real estate loan, or a notice required by an interested third party insuring or guaranteeing a loan.
Notice of sale (NOS)
A public notice given when a property that has gone into foreclosure is going to the final sale.
Occupancy affidavit
A document signed by the borrower(s) stating that they will occupy a property as owners for a certain period of time from the date of closing the loan.
PITI (principal, interest, taxes, and insurance)
The principal and interest payment on most loans is fixed for the term of the loan, the tax and insurance portion may be adjusted to reflect changes in taxes or insurance costs.
Planned-unit development (PUD)
A real estate project in which each unit owner has title to a residential lot and building and nonexclusive easement on the common areas of the project.
Preliminary title report
A report issued by the title company as a worksheet for escrow, listing all liens of record, judgments, CC&Rs, and delinquent property taxes.
Prepayment penalty
A fee charged a borrower who prepays a loan before it is due.
Property profile
A packet furnished by the title company on a subject property that lists ownership, liens recorded, demographics of the area, and recent property sales information.
Purchase money
A loan given by a lender to a purchaser of real property to finance the purchase of real estate.
Quit claim deed
A deed that transfers (with no warranty) only such interest, title, or right a grantor may have at the time the conveyance is executed.
Real estate investment trust (REIT)
A financial intermediary that can own and hold loans on real estate and pass on earnings from these assets free of income tax to the corporation but taxale to shareholders.
Real estate owned (REO)
A term frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of foreclosure.
Real property
Land appurtenances, including anything of a permanent nature, such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.
Reconveyance
The transfer of the title of land from one person to the immediately preceding owner. It is used when the performance of debt is satisfied under the terms of a deed of trust.
Record date
The date that determines who is the holder of record entitled to receive payment of principal, interest, and any prepayment from the servicer or custodian.
Release clause
Stipulation that upon the payment of a specific sum of money to the holder of a trust deed or mortgage, the lien of the instrument as to a specific described lot or area shall be removed from the blanket lien on the whole area involved.
Rent with option
A contract that gives one the right to lease property at a certain sum with the option to purchase at a future date.
Rescission
The cancellation or annulment of a transaction or contract by the operation of law or by mutual consent.
Residual income
Under Department of Veteran Affairs loans, residual income is that income left over for family support, after all debts have been accounted for, PITI, and long-term debts.
RESPA (Real Estate Settlement Procedures Act)
Requiring federal disclosure procedures and forms.
Restriction
A limitation on the use of real property. Property restrictions fall into two general classifications public and private. Zoning ordinances are examples of the former type. Restrictions may be created by private owners, typically by appropriate clauses in deeds or in agreements or in general plans of entire subdivisions. Usually they assume the form of a covenant, or promise, to do or not to do a certain thing.
Reverse annuity mortgage
A type of loan for an owner-occupied property with a borrower at least 62 years of age, based on the equity in the property.
Secondary financing
Financing real estate with a loan or loans subordinate to a first mortgage or first trust deed.
Second mortgage
An additional loan imposed on property with a first mortgage.
Security instrument
The mortgage or trust deed evidencing the pledge or real estate security as distinguished from a note or other credit instrument.
Seller carryback loans
The money to be financed as part of the purchase price in which the seller is the beneficiary, and the buyer is the trustor.
Seller concessions
Anything of value added to the transaction by the seller if the buyer pays no additional amount and the seller is not normally required to pay or provide.
Servicer
An entity who has the responsibility for collecting payments, reporting credit information, relating loan delinquency to the investor, and maintaining impound account records.
Special assessment
A tax levied against property to pay for all or part of an improvement taht will benefit the property being assessed.
Statement of information (SI)
Also known as a statement of identity. A document that covers the last 10 years of residence and employment, used by the title company to eliminate any derogatory items that may show up in the public records. Very helpful when people with common names are involved.
Subordination
The act of a party acknowledging, by written recorded instrument, that a debt due is inferior to the interest of another in the same property.
Subprime lenders
Make loans that are priced to compensate for the risk of lending to borrowers with credit problems or on nonconforming properties.
Swing loan
Used to assist in the purchase of a replacement house before the sale of the original house is com
Tenant
One who is not the owner but occupies real property under consent of the owner and in subordination to the owner's title. the tenant is entitled to exclusive possession, use and enjoyment of the property, usually for a rent specified in the lease.
Uniform Commercial Code (UCC)
A comprehensive law regulating commercial transactions. It has been adopted, with modification, by all states.
Up-front mortgage insurance premium (UPMIP)
A mortgage insurance premium paid at closing that amounts to 2.25% of the loan amount.
Vesting
Name(s) in which title to property is held.
Verification of deposit (VOD)
Document mailed out to the borrower's banks and savings and loans to verify all monies on deposit.
Verification of employment (VOE)
Document mailed out to current and previous employers to verify employment.
Verification of mortgage (VOM)
Document mailed out to current lenders to verify the borrower's payment record on mortgage.
Verification of rent (VOR)
Document mailed out to the borrower's landlord to verify the payment record on rent.
Waive
Relinquish or abandon, forgo a right to enforce or require anything.
Warehousing
The holding of a real estate loan on a short-term basis, pending either a sale to an investor or other long-term financing. These loans may be used as collateral security with a bank to borrow additional funds.
Warranty deed
A deed in which the grantor or seller warrants or guarantees that good title is being conveyed.
Zoning
The act of city or county authorities specifying the type of use to which property may be put in specific areas.