Real Estate Dictionary
ABANDONMENT- The voluntary surrender of property rights, with no intention of reclaiming them and without vesting interest in another person. Nonuse is not necessarily abandonment.
ABSTRACT- A history of the ownership of a property, showing transfers in ownership and factors affecting ownership, such as mortgages.
ABUTTER- A person whose property abuts, is contiguous, or joins at a border or boundary; where no other land, road or street intervenes.
ACCELERATION CLAUSE- A clause in a promissory note, agreement of sale, or mortgage which gives the lender the right to call all sums due and payable in advance of the fixed payment date upon the occurrence of a specified event, such as a sale, default, assignment or further.
ACCEPTENCE- The expression of the intention of the person receiving an offer (offeree, usually the seller) to be bound by the terms of the offer. The acceptance must be communicated to the offeror and must be in writing to be enforceable.
ACCESSION- Acquisition of title to additional improvements to real property as a result of annexation of fixtures or of accretion of alluvial deposits.
ACCRETION- An increase in dry land by gradual deposit of waterborne, solid material and riparian land, i.e., accretion by alluvion. The owner of riparian land becomes owner of title to land formed by accretion. Antonym: erosion.
ACCRUED DEPRECIATION- The difference between the present worth of improvements and the reproduction or replacement cost new, both measured on the appraisal date.
ACKNOWLEDGMENT- A formal declaration made before an authorized official by a person executing a document, that he signs the document by a free act and deed. The official is usually a notary public who witnesses the signature and verifies the identity of the person.
ACQUISITION- The act of becoming the owner of certain property; used also of the thing or property acquired.
ACRE- A measure of land equaling 43,560 square feet; or 4,840 square yards; or 160 square rods; or a tract about 208.71 feet square
AD VALOREM TAX- A tax on the value of the object or thing subject to taxation.
ADMINISTRATOR- A person appointed by the court to manage and settle the estate of a deceased person who has left no will.
ADVERSE POSSESSION- Acquisition of title to real property owned by someone else, by open, notorious, and continuous possession for the statutory period of time.
AFFIDAVIT- written declaration, sworn before an officer who has authority to administer oaths.
AGREEMENT OF SALE- A written agreement whereby the purchaser agrees to buy certain real estate and the seller agrees to sell upon terms and conditions set forth in the agreement.
AIR RIGHTS- The rights vested by a grant of an estate in real property to build upon, occupy, or use, in the manner and degree permitted, all or any portion of space above the ground or any other stated elevation within vertical planes.
ALIENATION-The voluntary transfer of real property from one person to another
ALLOCATION- An amount of obligational authority transferred from one agency, bureau or account and set aside in a transfer appropriation account to carry out the purposes of the parent appropriation or fund.
ALLOTMENT- Authorization by the head of an agency to subordinates to incur financial obligations up to a specified amount. An agency makes allotments under the regulations in OMB Circular No. A-34, and not to exceed the amount allowed by OMB.
AMENITIES- Tangible and intangible benefits generated and received through exercise of rights to real property, not necessarily in the form of money.
AMORTIZATION-Liquidation or gradual retirement of a financial obligation by periodic installments.
AMORTIZATION PERIOD- The period of time for economic recovery of the net investment in a project.
ANNEXATION- The act of attaching, adding or joining one thing to another, generally a smaller or subordinate thing with a large or principal thing. Usually with respect to land or fixtures.
APPORTIONMENT- A distribution by OMB of amounts available for obligation in an appropriation or fund account, including budgetary reserves established by law.
APPRAISAL- A written estimate and opinion of value; a conclusion resulting from the analysis of facts.
APPRAISER- One qualified by education, training, and experience who is hired to estimate the value of real and personal property based upon experience, judgment, facts, and the use of the formal appraisal processes.
APPRECIATION-An increased conversion value of property or mediums of exchange due to economic or related causes which may prove to be either temporary or permanent.
APPROPRIATION- Authorization by act of Congress permitting Federal agencies to incur obligations and make payments out of the ‘treasury for specific purposes.
APPROPRIATIONS BILL- A bill that gives legal authority to spend or obligate money from the Treasury. An appropriations bill usually provides the actual monies approved by authorization bills, but not necessarily the full amount permissible.
ASSESSED VALUATION- An assessment of property values, by a unit of Government, for purposes of taxation.
ASSESSMENT- A charge against real estate made by a unit of government to cover a proportionate cost of an improvement, such as street or-sewer.
ASSETS- All valuable things owned by a person, corporation, or other entity, encumbered or not.
ASSIGNMENT (OF TEASE)A transfer to another of rights, interest, or claim in or to real or personal property. The party who assigns or transfers his interest is the assignor, and the assignee is the one to whom the assignment is made.
ASSUMPTION AGREEMENT- An undertaking of a debt or obligation primarily resting upon another person.
ASSUMPTION OF MORTGAGE- The taking of title to property by a grantee wherein he assumes liability for payment of an existing note secured by a mortgage or deed of trust against the property.
ATTACHMENT- The legal process of seizing the real or personal property of a defendant in a law suit, by levy or judicial order, and holding it in the custody of the court as security for satisfaction of the judgment.
ATTORNEY IN FACT- A person authorized to perform certain acts for another person, under power of attorney.
AUDIT- An examination of records of real estate transactions to verify accuracy and adequacy.
AUTHORIZATION BILL- Legislation to establish or continue the legal operation of a Federal program or agency, or to sanction a particular type of obligation or expenditure. Normally a prerequisite for an appropriation or other kinds of budget authority.
BALLOON MORTGAGE- A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty year period, but requires that at the end of the tenth year the entire remaining balance must be paid.
BALLOON PAYMENT- The final lump sum payment that is due at the termination of a balloon mortgage.
BANKRUPTCY - By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities. Bankruptcies are of various types, but the most common for an individual seem to be a "Chapter 7 No Asset" bankruptcy which relieves the borrower of most types of debts. A borrower cannot usually qualify for an "A" paper loan for a period of two years after the bankruptcy has been discharged and requires the re-establishment of an ability to repay debt.
BILL OF SALE- A written document that transfers title to personal property. For example, when selling an automobile to acquire funds which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.
BIWEEKLY MORTGAGE- A mortgage in which you make payments every two weeks instead of once a month. The basic result is that instead of making twelve monthly payments during the year, you make thirteen. The extra payment reduces the principal, substantially reducing the time it takes to pay off a thirty year mortgage. Note: there are independent companies that encourage you to set up bi-weekly payment schedules with them on your thirty year mortgage. They charge a set-up fee and a transfer fee for every payment. Your funds are deposited into a trust account from which your monthly payment is then made, and the excess funds then remain in the trust account until enough has accrued to make the additional payment which will then be paid to reduce your principle. You could save money by doing the same thing yourself, plus you have to have faith that once you transfer money to them that they will actually transfer your funds to your lender.
BOND MARKET- Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.
BRIDGE LOAN- Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason for their fall from favor is that there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.
BROKER- Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working form themselves or under another broker. In the mortgage industry, broker usually refers to a company or individual that does not lend the money for the loans themselves, but broker loans to larger lenders or investors. (See the Home Loan Library that discusses the different types of lenders). As a normal definition, a broker is anyone who acts as an agent, bringing two parties together for any type of transaction and earns a fee for doing so.
BUYDOWN- Usually refers to a fixed rate mortgage where the interest rate is "bought down" for a temporary period, usually one to three years. After that time and for the remainder of the term, the borrower's payment is calculated at the note rate. In order to buy down the initial rate for the temporary payment, a lump sum is paid and held in an account used to supplement the borrower's monthly payment. These funds usually come from the seller (or some other source) as a financial incentive to induce someone to buy their property. A "lender funded buydown" is when the lender pays the initial lump sum. They can accomplish this because the note rate on the loan (after the buydown adjustments) will be higher than the current market rate. One reason for doing this is because the borrower may get to "qualify" at the start rate and can qualify for a higher loan amount. Another reason is that a borrower may expect his earnings to go up substantially in the near future, but wants a lower payment right now.
CALL OPTION-Similar to the acceleration clause.
CAP- Adjustable Rate Mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount. Those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps." Some ARMs, although they may have a life cap, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year. There is a limit on how much that payment can change each year, and that limit is also referred to as a cap.
CASH-OUT REFINANCE- When a borrower refinances his mortgage at a higher amount than the current loan balance with the intention of pulling out money for personal use, it is referred to as a "cash out refinance."
CERTIFICATE OF DEPOSIT- A time deposit held in a bank which pays a certain amount of interest to the depositor.
CERTIFICATE OF DEPOSIT INDEX- One of the indexes used for determining interest rate changes on some adjustable rate mortgages. It is an average of what banks are paying on certificates of deposit.
CERTIFICATE OF ELIGIBILITY- A document issued by the Veterans Administration that certifies a veteran's eligibility for a VA loan.
CERTIFICATE OF REASONABLE VALUE(CRV)- Once the appraisal has been performed on a property being bought with a VA loan, the Veterans Administration issues a CRV.
CHAIN OF TITLE-An analysis of the transfers of title to a piece of property over the years.
CLEAR TITLE-A title that is free of liens or legal questions as to ownership of the property.
CLOSING- This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.
CLOSING COSTS- Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.
CLOSING STATEMENT- See Settlement Statement.
CLOUD ON TITLE- Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.
CO-BORROWER-An additional individual who is both obligated on the loan and is on title to the property.
COLLATERAL-In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.
COLLECTION-When a borrower falls behind, the lender contacts them in an effort to bring the loan current. The loan goes to "collection." As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property.
COMMON AREA FEES- In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.
COMMON LAW- An unwritten body of law based on general custom in England and used to an extent in some states.
COMMUNITY PROPERTY- In some states, especially the southwest, property acquired by a married couple during their marriage is considered to be owned jointly, except under special circumstances. This is an outgrowth of the Spanish and Mexican heritage of the area.
COMPARABLE SALES- Recent sales of similar properties in nearby areas and used to help determine the market value of a property. Also referred to as "comps."
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- A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.
CONVENTIONAL MORTGAGE- Refers to home loans other than government loans (VA and FHA).
An adjustable-rate mortgage that allows the borrower to change the ARM to a fixed-rate mortgage within a specific time.
COSTS OF FUNDS INDEX (COFI)- One of the indexes that is used to determine interest rate changes for certain adjustable-rate mortgages. It represents the weighted-average cost of savings, borrowings, and advances of the financial institutions such as banks and savings & loans, in the 11th District of the Federal Home Loan Bank.
CREDIT HISTORY- A record of an individual's repayment of debt. Credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk.
CREDITOR- A person to whom money is owed.
CREDIT REPORT- A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.
CREDIT REPOSITORY- An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.
DEBT- An amount owed to another.
DEED-The legal document conveying title to a property.
DEED-IN-LIEU- Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
DEFAULT- Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
DELINQUENCY-Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
DEPRECIATION-A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
DISCOUNT POINTS- In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any "points" paid in addition to the one percent loan origination fee. A "point" is one percent of the loan amount.
DOWN PAYMENT- The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.
DUE-ON-SALE PROVISION- A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.
EARNEST MONEY DEPOSIT- A deposit made by the potential home buyer to show that he or she is serious about buying the house
EASEMENT- A right of way giving persons other than the owner access to or over a property.
EFFECTIVE AGE- An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.
EMINENT DOMAIN- The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.
ENCROACHMENT- An improvement that intrudes illegally on another's property.
ENCUMBRANCE- Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.
EQUAL CREDIT OPPORTUNITY ACT (ECOA)- A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.
EQUITY- A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.
ESCROW- An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
ESCROW ACCOUNT- Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner's insurance when they come due. The lender pays them with your money instead of you paying them yourself.
ESCROW ANALYSIS- Once each year your lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.
ESCROW DISBURSEMENTS- The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.
ESTATE-The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
EVICTION-The lawful expulsion of an occupant from real property.
EXAMINATION OF TITLE-The report on the title of a property from the public records or an abstract of the title.
EXCLUSIVE LISTING- A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.
EXECUTOR- A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. "Executrix" is the feminine form.
FAIR CREDIT REPORTING ACT- A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.
FAIR MARKET VALUE- The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
FANNIE MAE (FNMA)- The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation's largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.
Fannie Mae's Community Home Buyer's Program- An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.
FEDERAL HOUSING ADMINISTRATION (FHA)- An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
FEE SIMPLE- The greatest possible interest a person can have in real estate.
FEE SIMPLE ESTATE- An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
FHA MORTGAGE-A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.
FIRM COMMITMENT- A lender's agreement to make a loan to a specific borrower on a specific property.The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.
A mortgage in which the interest rate does not change during the entire term of the loan.
Personal property that becomes real property when attached in a permanent manner to real estate.
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
GOVERNMENT LOAN (MORTGAGE)- A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (Ginnie Mae)- A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)
GRANTEE- The person to whom an interest in real property is conveyed.
GRANTOR- The person conveying an interest in real property
HAZARD- Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.
HOME EQUITY CONVERSITION MORTGAGE (HECM)- Usually referred to as a reverse annuity mortgage, what makes this type of mortgage unique is that instead of making payments to a lender, the lender makes payments to you. It enables older home owners to convert the equity they have in their homes into cash, usually in the form of monthly payments. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property.
HOME EQUITY LINE OF CREDIT- A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.
HOME INSPECTION- A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.
HOMEOWNERS INSURANCE- An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.
HOMEOWNERS WARRANTY- A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.