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Some Useful Real Estate Terms
- Abstract of Title
- A summary of the public records relating to the title to a particular
piece of land. Generally, an attorney or title insurance company reviews an
abstract of title to determine whether there are any title defects,
liens or other problems
which must be cleared before a buyer can purchase clear, marketable,
and insurable title.
- Acceleration Clause
- Condition in which a mortgage company may require the entire
remaining balance of the
loan to become due and payable immediately. Generally this will
occur when regular mortgage payments are
not made or there is a breach of other conditions of the mortgage.
- Agreement of Sale
- Known by various names, such as contract of purchase, purchase
agreement, or sales agreement according to location or jurisdiction.
A contract in which a seller agrees to sell and a buyer agrees to
buy, under certain specific terms and conditions spelled out in
writing and signed by both parties.
- Amortization
- Also amortization schedule; Amortization is the payment of
an obligation in a series of installments or transfers. The
mortgage amortization schedule is a listing of interest and
principal payment amounts included in each mortgage payment. As
you pay down the home mortgage, the amount of principal paid
towards your mortgage (from each monthly payment) will increase
and consequently the interest expense will decrease.
- Appraisal
- An appraisal is an estimation of the Fair Market Value (FMV)
of a property generally for mortgage lending purposes. The
appraised market value is based on the professional opinion of
the appraiser as of a given date. A number of items will affect
appraised home value including economic factors, quality and
attributes of the property under review and other relevant
factors.
- Assumption of Mortgage
- An obligation undertaken by the purchaser of property to be
personally liable for payment of an existing mortgage. In an assumption,
the purchaser is substituted for the original mortgagor in the mortgage
instrument and the original mortgagor is to be released from further
liability in the assumption, the mortgagee consent is usually required.
The original mortgagor should always obtain a written release
from further liability if he desires to be fully released under
the assumption. Failure to obtain such a release renders the original
mortgagor liable if the person assuming the mortgage fails to make
the monthly payments
An "Assumption of Mortgage" is often confused with "purchasing
subject to a mortgage." When one purchases subject to a mortgage,
the purchaser agrees to make the monthly mortgage payments on an
existing mortgage, but the original mortgagor remains personally
liable if the purchaser fails to make the monthly payments. Since
the original mortgagor remains liable in the event of default, the
mortgage's consent is not required to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage"
are used to finance the sale of property. They may also be used
when a mortgagor is in financial difficulty and desires to sell
the property to avoid foreclosure.
B
- Binder or "Offer to Purchase"
- A preliminary agreement, secured by the payment of earnest money,
between a buyer and seller as an offer to purchase real estate.
A binder secures the right to purchase real estate upon agreed terms
for a limited period of time. If the buyer changes his mind or is
unable to purchase, the earnest money is forfeited unless the binder
expressly provides that it is to be refunded.
-
- Building Line or Setback
- Distances from the ends and/or sides of the lot beyond which
construction may not extend. The building line may be established
by a filed plat of subdivision, by restrictive covenants in deeds
or leases, by building codes, or by zoning ordinances.
C
- Certificate of Title
- A certificate issued by a title company or a written opinion
rendered by an attorney that the seller has good marketable and
insurable title to the property which he is offering for sale. A
certificate of title offers no protection against any hidden defects
in the title which an examination of the records could not reveal.
The issuer of a certificate of title is liable only for damages
due to negligence. The protection offered a homeowner under a certificate
of title is not as great as that offered in a title insurance policy.
- Closing Costs
- The numerous expenses which buyers and sellers normally incur
to complete a transaction in the transfer of ownership of real estate.
These costs are in addition to price of the property and are items
prepaid at the closing day. This is a typical list:
BUYER'S EXPENSES SELLER'S EXPENSES
Documentary Stamps on Notes Cost of Abstract
Recording Deed and Mortgage Documentary Stamps on Deed
Escrow Fees Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Home Inspection Fee Escrow Fees
Survey Charge Attorney's Fee
The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.
- Closing Day
- The day on which the formalities of a real estate sale are concluded.
The certificate of title, abstract, and deed are generally prepared
for the closing by an attorney and this cost charged to the buyer.
The buyer signs the mortgage, and closing costs are paid. The final
closing merely confirms the original agreement reached in the agreement
of sale.
- Cloud (On Title)
- An outstanding claim, lien or other encumbrance which
adversely affects the marketability of title (ownership in a
particular property) is often referred to as a Cloud on the
title. Generally, these will be discovered by an title attorney
or title insurance company doing a title search (see abstract of
title) “Clouds” will need to be cleared before a buyer can
purchase clear, marketable, and insurable title to the home.
- Commission
- Money or fee paid to a real estate agent or broker usually by the seller as
compensation for finding a buyer, listing and advertising the
home and completing the sales transaction. Typically this fee is
expressed as a percentage of the sale price. Usually 6 to 7 percent on houses
and
10 percent on raw undeveloped land.
- Condemnation
- The taking of private property for public use by a government
unit, against the will of the owner, but with payment of just compensation
under the government's power of eminent domain. Condemnation may
also be a determination by a governmental agency that a particular
building is unsafe or unfit for use.
- Condominium
- Individual ownership of a dwelling unit and an individual interest
in the common areas and facilities which serve the multi- unit project.
- Contract of Purchase
- (See agreement of sale)
- Contractor
- In the construction industry, a contractor is one who contracts
to erect buildings or portions of them. There are also contractors
for each phase of construction: heating, electrical, plumbing, air
conditioning, road building, bridge and dam erection, and others.
- Conventional Mortgage
- A mortgage loan not insured by HUD or guaranteed by the Veterans'
Administration. It is subject to conditions established by the lending
institution and State statutes. The mortgage rates may vary with
different institutions and between States. (States have various
interest limits.)
- Cooperative Housing
- An apartment building or a group of dwellings owned by a corporation,
the stockholders of which are the residents of the dwellings. It
is operated for their benefit by their elected board of directors.
In a cooperative, the corporation or association owns title to the
real estate. A resident purchases stock in the corporation which
entitles him to occupy a unit in the building or property owned
by the cooperative. While the resident does not own his unit, he
has an absolute right to occupy his unit for as long as he owns
the stock.
D
- Deed
- A formal written instrument by which title to real property
is transferred from one owner to another. The deed should contain
an accurate description of the property being conveyed, should be
signed and witnessed according to the laws of the State where the
property is located, and should be delivered to the purchaser at
closing day. There are two parties to a deed: the grantor and the
grantee. (See also deed of trust, general warranty deed, quitclaim
deed, and special warranty deed.)
- Deed of Trust
- Like a mortgage, a security instrument whereby real property
is given as security for a debt. However, in a deed of trust there
are three parties to the instrument: the borrower, the trustee,
and the lender, (or beneficiary). In such a transaction, the borrower
transfers the legal title for the property to the trustee who holds
the property in trust as security for the payment of the debt to
the lender or beneficiary. If the borrower pays the debt as agreed,
the deed of trust becomes void. If, however, he defaults in the
payment of the debt, the trustee may sell the property at a public
sale, under the terms of the deed of trust. In most jurisdictions
where the deed of trust is in force, the borrower is subject to
having his property sold without benefit of legal proceedings. A
few States have begun in recent years to treat the deed of trust
like a mortgage.
- Default
- Failure to make mortgage payments as agreed to in a commitment
based on the terms and at the designated time set forth in the mortgage
or deed of trust. It is the mortgagor's responsibility to remember
the due date and send the payment prior to the due date, not after.
Generally, thirty days after the due date if payment is not received,
the mortgage is in default. In the event of default, the mortgage
may give the lender the right to accelerate payments, take possession
and receive rents, and start foreclosure. Defaults may also come
about by the failure to observe other conditions in the mortgage
or deed of trust.
- Depreciation
- Decline in value of a house due to normal wear and tear, adverse changes
in the neighborhood, economic conditions or any other reason.
- Documentary Stamps
- A State tax, in the forms of stamps, required on deeds and mortgages
when real estate title passes from one owner to another. The amount
of stamps required varies with each State.
- Down Payment
- The amount of money to be paid by the purchaser to the seller
upon the signing of the agreement of sale. The agreement of sale
will refer to the down payment amount and will acknowledge receipt
of the down payment. Down payment is the difference between the
sales price and maximum mortgage amount. The down payment may not
be refundable if the purchaser fails to buy the property without
good cause. If the purchaser wants the down payment to be refundable,
he should insert a clause in the agreement of sale specifying the
conditions under which the deposit will be refunded, if the agreement
does not already contain such clause. If the seller cannot deliver
good title, the agreement of sale usually requires the seller to
return the down payment and to pay interest and expenses incurred
by the purchaser.
- Earnest Money
- The deposit money given to the seller or his agent by the potential
buyer upon the signing of the agreement of sale to show that he
is serious about buying the house. If the sale goes through, the
earnest money is applied against the down payment. If the sale does
not go through, the earnest money will be forfeited or lost unless
the binder or offer to purchase expressly provides that it is refundable.
- Easement Rights
- A right-of-way granted to a person or company that
authorizes
access to or over the owner's land. Typical easement include
an electric or telephone company obtaining
a right-of-way across private property.
- Encroachment
- An obstruction, building, or part of a building that intrudes
beyond a legal boundary onto neighboring private or public land,
or a building extending beyond the building line.
- Encumbrance
- A legal right or interest in land that affects a good or clear
title, and diminishes the land's value. It can take numerous forms,
such as zoning ordinances, easement rights, claims, mortgages, liens,
charges, a pending legal action, unpaid taxes, or restrictive covenants.
An encumbrance does not legally prevent transfer of the property
to another. A title search is all that is usually done to reveal
the existence of such encumbrances, and it is up to the buyer to
determine whether he wants to purchase with the encumbrance, or
what can be done to remove it.
- Equity
- Equity is a home owner's financial interest in a real estate
property. Stated another way it’s the ownership interest in the
home. Equity is calculated as the fair market value (FMV) of a
real estate property less the amount of outstanding mortgage
liability and any liens or other debts against the property.
Home Equity loans are loans secured by this “ownership” interest
in a home. Your equity (ownership interest) increases with every
monthly mortgage payment until the mortgage is paid in full.
- Escrow
- Funds paid by one party to another (the escrow agent) to hold
until the occurrence of a specified event, after which the funds
are released to a designated individual. In FHA mortgage transactions
an escrow account usually refers to the funds a mortgagor pays the
lender at the time of the periodic mortgage payments. The money
is held in a trust fund, provided by the lender for the buyer. Such
funds should be adequate to cover yearly anticipated expenditures
for mortgage insurance premiums, taxes, hazard insurance premiums,
and special assessments.
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F
- Foreclosure
- A legal term applied to any of the various methods of enforcing
payment of the debt secured by a mortgage, or deed of trust, by
taking and selling the mortgaged property, and depriving the mortgagor
of possession.
G
- General Warranty Deed
- A deed which conveys not only all the grantor's interests in
and title to the property to the grantee, but also warrants that
if the title is defective or has a "cloud" on it (such as mortgage
claims, tax liens, title claims, judgments, or mechanic's liens
against it) the grantee may hold the grantor liable.
- Grantee
- That party in the deed who is the buyer or recipient.
- Grantor
- That party in the deed who is the seller or giver.
H
- Hazard Insurance
- Protects against damages caused to property by fire, windstorms,
and other common hazards.
Home Inspection
A home inspection is an objective visual examination of the
physical structure and systems of a home, from roof to
foundation. A home inspection is the equivalent of a physical
examination from your doctor. When problems or symptoms of
problems are found, the inspector may recommend further
evaluation or remedies.
A standard home inspection summarizes findings from a visual
inspection of the condition of the subject home’s heating
system, central air conditioning system (temperature
permitting), interior plumbing and electrical systems; roof,
attic, and visible insulation; walls, ceilings, floors, windows
and doors; foundation, basement, and the visible structures of
the home. The home inspection fee will generally vary according
to the size of the home to be inspected, the age of the home,
and any additional services that may be required such as termite
inspections, testing water wells, septic systems and other house
features.
- HUD
- U.S. Department of Housing and Urban Development. Office of
Housing/Federal Housing Administration within HUD insures home mortgage
loans made by lenders and sets minimum standards for such homes.
I
- Interest
- A charge paid for borrowing money. (See mortgage note)
L
- Lien
- A claim by one person on the property of another as security
for money owed. Such claims may include obligations not met or satisfied,
judgments, unpaid taxes, materials, or labor. (See also special
lien.)
M
- Marketable Title
- A title that is free and clear of objectionable liens, clouds,
or other title defects. A title which enables an owner to sell his
property freely to others and which others will accept without objection.
- Mortgage
- A lien or claim against real property given by the buyer to
the lender as security for money borrowed. Under government- insured
or loan- guarantee provisions, the payments may include escrow amounts
covering taxes, hazard insurance, water charges, and special assessments.
Mortgages generally run from 10 to 30 years, during which the loan
is to be paid off.
- Mortgage Commitment
- A written notice from the bank or other lending institution
saying it will advance mortgage funds in a specified amount to enable
a buyer to purchase a house.
- Mortgage Insurance Premium
- The payment made by a borrower to the lender for transmittal
to HUD to help defray the cost of the FHA mortgage insurance program
and to provide a reserve fund to protect lenders against loss in
insured mortgage transactions. In FHA insured mortgages this represents
an annual rate of one- half of one percent paid by the mortgagor
on a monthly basis.
- Mortgage Note
- A written agreement to repay a loan. The agreement is secured
by a mortgage, serves as proof of an indebtedness, and states the
manner in which it shall be paid. The note states the actual amount
of the debt that the mortgage secures and renders the mortgagor
personally responsible for repayment.
- Mortgage (Open- End)
- A mortgage with a provision that permits borrowing additional
money in the future without refinancing the loan or paying additional
financing charges. Open- end provisions often limit such borrowing
to no more than would raise the balance to the original loan figure.
- Mortgagee
- The lender in a mortgage agreement.
- Mortgagor
- The borrower in a mortgage agreement.
P
- Plat
- A map or chart of a lot, subdivision or community drawn by a
surveyor showing boundary lines, buildings, improvements on the
land, and easements.
- Points
- Sometimes called "discount points." A point is one percent of
the amount of the mortgage loan. For example, if a loan is for $25,000,
one point is $250. Points are charged by a lender to raise the yield
on his loan at a time when money is tight, interest rates are high,
and there is a legal limit to the interest rate that can be charged
on a mortgage. Buyers are prohibited from paying points on HUD or
Veterans' Administration guaranteed loans (sellers can pay, however).
On a conventional mortgage, points may be paid by either buyer or
seller or split between them.
- Prepayment
- Payment of mortgage loan, or part of it, before due date. Mortgage
agreements often restrict the right of prepayment either by limiting
the amount that can be prepaid in any one year or charging a penalty
for prepayment. The Federal Housing Administration does not permit
such restrictions in FHA insured mortgages.
- Principal
- Principal is the amount of money owed on a mortgage loan.
Each monthly mortgage payment contains principal and interest
(based on the principal outstanding). Other items that may be
included in the monthly payment include mortgage insurance, real
estate taxes, homeowner association dues, etc. these items do
not reduce the amount of the loan principal.
- Purchase Agreement
- See agreement of sale.
Q
- Quitclaim Deed
- A deed which transfers whatever interest the maker of the deed
may have in the particular parcel of land. A quitclaim deed is often
given to clear the title when the grantor's interest in a property
is questionable. By accepting such a deed the buyer assumes all
the risks. Such a deed makes no warranties as to the title, but
simply transfers to the buyer whatever interest the grantor has.
(See deed.)
R
- Real Estate Broker
- A middle man or agent who buys and sells real estate for a company,
firm, or individual on a commission basis. The broker does not have
title to the property, but generally represents the owner.
- Refinancing
- Mortgage refinancing is the process of paying off an
existing mortgage with the proceeds of a loan from another
mortgage company.
- Restrictive Covenants
- Private restrictions limiting the use of real property. Restrictive
covenants are created by deed and may "run with the land," binding
all subsequent purchasers of the land, or may be "personal" and
binding only between the original seller and buyer. The determination
whether a covenant runs with the land or is personal is governed
by the language of the covenant, the intent of the parties, and
the law in the State where the land is situated. Restrictive covenants
that run with the land are encumbrances and may affect the value
and marketability of title. Restrictive covenants may limit the
density of buildings per acre, regulate size, style or price range
of buildings to be erected, or prevent particular businesses from
operating or minority groups from owning or occupying homes in a
given area. (This latter discriminatory covenant is unconstitutional
and has been declared unenforceable by the U.S. Supreme Court.)
S
- Sales Agreement
- See agreement of sale.
- Special Assessments
- A special tax imposed on property, individual lots or all property
in the immediate area, for road construction, sidewalks, sewers,
street lights, etc.
- Special Lien
- A lien that binds a specified piece of property, unlike a general
lien, which is levied against all one's assets. It creates a right
to retain something of value belonging to another person as compensation
for labor, material, or money expended in that person's behalf.
In some localities it is called "particular" lien or "specific"
lien. (See lien.)
- Special Warranty Deed
- A deed in which the grantor conveys title to the grantee and
agrees to protect the grantee against title defects or claims asserted
by the grantor and those persons whose right to assert a claim against
the title arose during the period the grantor held title to the
property. In a special warranty deed the grantor guarantees to the
grantee that he has done nothing during the time he held title to
the property which has, or which might in the future, impair the
grantee's title.
- State Stamps
- See documentary stamps
- Survey
- A map or plat made by a licensed surveyor showing the results
of measuring the land with its elevations, improvements, boundaries,
and its relationship to surrounding tracts of land. A survey is
often required by the lender to assure him that a building is actually
sited on the land according to its legal description.
T
- Tax
- As applied to real estate, an enforced charge imposed on persons,
property or income, to be used to support the State. The governing
body in turn utilizes the funds in the best interest of the general
public.
- Title
- As generally used, the rights of ownership and possession of
particular property. In real estate usage, title may refer to the
instruments or documents by which a right of ownership is established
(title documents), or it may refer to the ownership interest one
has in the real estate.
- Title Insurance
- Protects lenders or homeowners against loss of their interest
in property due to legal defects in title. Title insurance may be
issued to a "mortgagee's title policy." Insurance benefits will
be paid only to the "named insured" in the title policy, so it is
important that an owner purchase an "owner's title policy", if he
desires the protection of title insurance.
- Title Search or Examination
- A check of the title records, generally at the
local courthouse, to make sure the buyer is purchasing a house from
the legal owner and there are no liens, overdue special assessments,
or other claims or outstanding restrictive covenants filed in the
record, which would adversely affect the marketability or value
of title.
- Trustee
- A party who is given legal responsibility to
hold property in the best interest of or "for the benefit of" another.
The trustee is one placed in a position of responsibility for another,
a responsibility enforceable in a court of law. (See deed of trust.)
Z
- Zoning Ordinances
The acts of an authorized local government establishing
building codes, and setting forth regulations for property land
usage.
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