Real Estate Glossary

These definitions are to acquaint you with terms commonly used in Real Estate transactions. These are intended to be general and brief and are not complete and wholly accurate when applied to all possible uses of the term. Please consult your Real Estate Agent for more information or questions regarding these terms.

Acceleration Clause
A clause in a Deed of Trust or Note that accelerates or hastens the time when the debt becomes due. For example, most Deeds of Trust of loans contain a provision that the Note shall become due immediately upon the sale of transfer of title of the loan, or upon failure to pay an installment of principal or interest. This is also called a due on sale clause.

Adjustable Rate Mortgage
A mortgage instrument with an interest rate that is periodically adjusted to follow a preselected published index. The interest rate is adjusted at certain intervals during the loan period.

Agency
Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the principal. Agency involving real property should be in writing, such as listing, trust, powers of attorney, etc.

Amortization
Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

Appraisal
An opinion of value based on factual analysis. Legally, an estimation of value by two discriminated persons of suitable qualifications.

APR (Annual Percentage Rate)
The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. The APR is disclosed as a requirement of Federal Truth in Lending Statutes.

Assessed Value
Value placed upon property for property tax purposes by the Tax Collector.

Assessment
A levy against property in addition to general taxes. Usually for improvements such as streets, sewers, etc.

Assumption of Mortgage
Agreement by a buyer to assume the liability under an existing note secured by a mortgage or Deed of Trust. The lender usually must approve the new debtor in order to release the existing debtor (usually the seller) for liability.

Balloon Note
A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a "balloon" is due at maturity.

Beneficiary
(1) One for whose benefit a trust is created. (2) In states in which deeds of trust are commonly used instead of mortgages, the lender (mortgagee) is called the beneficiary.

Borrower
One who borrows funds, with the express or implied intention of repaying the loan in full, or giving the equivalent.

Breach of Contract
Failure to perform a contract, in whole or in part, without legal excuse.

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.

Buy Down
A fixed rate loan where the interest rate and payment are reduced for a specific period of time by paying the interest up front to subsidize the lower payment.

Cal-Vet Loans
Real estate loans available to Armed Forces Veterans from California, at low interest rates.

Chain of Title
The chronological order of conveyances of a parcel of land, from the original owner to the present owner.

Clear Title
Real property against which there are no liens, especially involuntary liens (mortgages).

Closing
In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed.

Closing Costs
Expenses incidental to a sale of real estate, such as loan fees, appraisal fees, etc.

Closing Statement
The statement which lists the financial settlement between buyer and seller, and the costs each must pay.

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.

Community Home Buyers' Program
A fixed rate loan with a low 3 to 5% down payment, no cash reserve requirement, and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a 4 hour training course on home ownership.

Consideration
Anything which is, legally, of value, and induces one to enter into a contract.

Conventional Mortgage
A mortgage or Deed of Trust not obtained under a government insured program such as FHA or VA.

Conveyance
Transfer of title to land. Includes most instruments by which an interest in real estate is created, mortgaged or assigned.

Covenants, Conditions, and Restrictions (CC&Rs)
A term used in some areas to describe the restrictive limitations which may be placed on property.

Deed
Generally, an instrument given to pass fee title or easement to property that has to be recorded with the County Recorder.

Deed of Trust
An Instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.

Deposit
Money given by the buyer with an offer to purchase. Shows good faith. Also called earnest money.

Discount Points
A negotiable fee paid to the lender to secure financing for the buyer. Discount points are up front charges to reduce the interest rate on the loan over the life or a portion of the loan's term. One discount point equals one percent of the loan amount.

Disposable Income
Monthly income left over after fixed obligations and living expenses are paid for that period.

Documentary Transfer Tax
A state tax on the sale of real property, based on the sale price.

Down Payment
Cash portion of the purchase price paid by a buyer from his/her own funds.

Encumbrance
A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

Equity
The market value of real property, less the amount of existing liens.

Execute
To put into effect: carry out. To make valid, as by signing a deed.

Fair Credit Reporting Act
A Federal law giving one the right to see his/her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the buyer which company issued the report. The buyer may see the report without charge if refused credit.

Federal Home Loan Banks
A system of 11 regional banks established by the Home Loan Bank Act of 1932 in order to keep a permanent supply of money available for home financing.

Fee Simple
An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

F.H.A. (Federal Housing Administration)
A Federal Agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

FHLMC (Freddie Mac)
Federal Home Loan Mortgage Corporation. A Federal Agency purchasing first mortgages, both conventional and federal insured, from members of the Federal Reserve System and the Federal Home Loan Bank System.

First Mortgage
A mortgage having priority over all other voluntary liens against the property it is liening on.

Fixed Rate Mortgage
A mortgage having a rate of interest which remains the same for the life of the mortgage.

Flood Insurance
Insurance indemnifying banks against loss by flood damage. Required by lenders (usually banks) in areas designated (federally) as potential flood areas. The insurance is private but federally subsidized.

FNMA (Fannie Mae)
Federal National Mortgage Association. A private corporation dealing in the purchase of first mortgages, at discounts.

GNMA (Ginnie Mae)
Government National Mortgage Association. A Federal Association, working with F.H.A., which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

Good Faith
Having good intentions, such as a buyer putting a deposit for a house or when a lender discloses all information/costs to the loan.

Grant Deed
One of the many types of deeds used to transfer real property. Grantee - one to whom a grant is made, generally the buyer. Grantor - one who grants property or property rights.

Hazard Insurance
Real Estate insurance protecting against loss caused by fire, natural causes, vandalism, etc., depending upon the terms of the policy.

Homeowner's Association
(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 of planned developments, and required by statute in some states. The builder's participation as well as the duties of the association are controlled by statute.

Homeowner's Insurance
Includes the coverage of Hazard Insurance plus added coverage such as personal liability, theft outside of the home (items stolen from the insured's car), and other such coverage.

Housing Starts
Number of houses on which construction has begun. The figures are used to determine the availability, housing, need for real estate loans, need for labor and materials, etc.

Impound Account
Account held by lender for payment of taxes, insurance, or other periodic debts against real property. The borrower pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

Index
An index used to adjust the interest rate of an adjustable rate mortgage loan. For example: the change in U.S. Treasury securities (T-bills) with a 1 year maturity. The weekly average yield on securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly. This change in interest rates is the "index" for the change in the specific adjustable rate mortgage.

Instrument
A legal document, such as a deed, mortgage, will, lease, etc.

Interest Rate
The percentage of an amount of money which is paid in order to borrow money for a specified amount of time.

Interest Rate Cap
The maximum interest rate increase of an adjustable rate loan. For example: 6% loan with a 5% interest rate cap would have a maximum interest for the life of the loan which would not exceed 11%.

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

Late Charge
A charge to the borrower for failure to pay an installment payment on time.

Lease
An agreement by which an owner of real property gives the right of possession to another for a specified period of time and for a specified consideration (rent). Title does not pass.

Legal Description
A method of geographically identifying a parcel of land, which is acceptable in a court of law. A description of a parcel of land sufficient to identify the property such as a lot and tract number.

Lien
An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.

Lis Pendens
A legal notice recorded to show pending litigation relating to real property, and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

Loan Origination Fee
A one time set up fee charged by a lender.

Loan Package
The file of all items necessary for the lender to decide to give or not to give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.) and information on the property (appraisal, survey, etc.).

Maintenance Reserve
Money reserved to cover anticipated maintenance costs.

Maker
One who executes (signs) as the maker (borrower) of a note.

Marketability
Saleability. The probability of selling property at a specific time, price and terms.

Marketable Title
Title which can be readily marketed (sold) to a reasonably 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.

Material Fact
A fact upon which an agreement is based, and without which, said agreement would not be made.

Maturity
(1) Termination period of a note. For example: A 30 year mortgage has a maturity of 30 years.

Mechanic's Lien
A lien created by 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 to land, and which attaches to the land as well as the improvements.

Moisture Barrier
Insulating materials used to prevent the build up of moisture (condensation) in walls and other parts of a building.

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

Mortgage Credit Certificate (MCC) Program
A first time home buyer program subject to purchase price and income limits and limited to certain counties. The MCC program is actually a special tax credit and assists buyers in qualifying on almost any loan program.

Mortgage Insurance
Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price. The Federal government writes this form of insurance through the FHA and VA.

Mortgagor
The party who borrows the money and gives the mortgage.

Multiple Listing
An exclusive listing, submitted to all members of an association, so that each may have an opportunity to sell the property.

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. It usually provides for interest and is generally secured by mortgage or trust deed.

Notice of Action
A recorded notice that real 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 Cessation
A notice stating that work has stopped on a construction project. Done to accelerate the period of filing a mechanic's lien.

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).

Offer
A presentation or proposal for acceptance, in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

Origination Fee
A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

Owner Occupied
Property physically occupied by the owner.

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.

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.

Personal Property
Any property which is not designated by law as real property.

Piggyback Loan
A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. One 90% loan, for example, any 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 (property) and insurance (hazard) are the four major portions of a usual monthly payment.

Power of Attorney
An authority by which one person (principal) enables another (attorney-in-fact) to act for him. (1) General power authorizes sale, mortgaging, etc., of all property of the principal. Invalid in some jurisdictions. (2) Special power specifies property, buyers, price and terms. How specific it must be varies in each state.

Preliminary Title Report
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 Items
Those expenses of property which are paid in advance and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment Penalty
A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.

Principal
(1) The person who gives authority to an agent or attorney. (2) Amount of debt, not including interest. The face value of a note, mortgage, etc.

Private Mortgage Insurance
Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Promisee
One to whom a promise has been made, such as the lender under a promissory note.

Promisor
One who makes a promise. The borrower under a promissory note.

Promissory Note
A Promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or on order, or to bearer.

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

Public Records
Usually at a county level, the records of all documents which are necessary to give notice. The records are available to the public. All transactions for real estate should be recorded.

Purchase Agreement
An agreement between a buyer and seller of real property, setting forth the price and terms of the sale.

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.

Real Estate
(1) Land and anything permanently affixed to the land, such as buildings, fences, and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items which would be personal property if not attached. The term is generally synonymous with real property, although in some states a fine distinction may be made. (2) May refer to rights in real property as well as the property itself.

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.

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

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

RESPA
Real Estate Settlement Procedures Act. A Federal statute effective June 20, 1975, requiring disclosure of certain costs in the sale of residential (one to four family) improved property which is to be financed by a Federally insured lender.

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

Sales Contract
Another name for a sales agreement; purchase agreement, etc.

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 a first, second, third, etc. lien.

Septic System
A sewage system, whereby waste is drained through pipes and a tile field (a system of clay tiles and gravel) into a septic tank. Found in areas where city or county sewers have not yet been installed.

Septic Tank
An underground tank into which a sanitary sewer drains from a building. The sewage is held until bacterial action changes the solids into liquids or gasses, which are then released in the ground.

Simple Interest
Interest computed on principal alone, as opposed to compound interest.

Special Assignment
Lien assessed against real property by a public authority to pay costs of public improvements (sidewalks, sewers, street lights, etc.) which directly benefits the assessed property.

Specific Performance
An action to compel the performance of a contract, when money damages for breach would not be satisfactory.

Statement of Identity
Also called Statement of Information, a confidential form filled out by buyer and seller to help a title company determine if any liens are recorded against either. Very helpful when people with common names are involved.

Statute
A law which comes from a legislative body. A written law, rather than law established by court cases.

Subordinate
To make subject to or junior to.

Succession
The passing of real property by will or inheritance, rather that by grant or deed or any other form of purchase

Tax and Insurance Escrow
When a mortgage loan is provided to a borrower, the lender establishes a fund called a tax and insurance escrow to accumulate the debtor's monthly payments for property taxes and insurance premiums for the mortgaged property.

Tax Assessor
Government official who values real estate property for tax purposes and ascertains the annual property tax assessments that must be collected.

Tax Base
The collective value of property, income or other taxable activity or assets subject to a tax. Tax revenues are computed as the tax base times the tax rate. For property taxation, the tax base is the total assessed value of all taxable property less exemptions.

Tenancy at Will
A license to use or occupy lands and buildings at the will of the owner. The tenant may decide to leave the property at any time or must leave at the landlord's will. Agreement may be written or oral.

Tenancy by the Entirety
Ownership by a husband and wife where they hold title together and where the surviving spouse becomes the owner of the entire property.

Tenancy for Life
A freehold equity in an estate, restricted to the duration of the life of the grantee or other stipulated individual.

Tenancy for Years
Created by a lease for a fixed term.

Tenancy from Year to Year
Possession and use of a property estate by virtue of a lease. There are four types of leasehold estates: estate for years, periodic tenancy, tenancy at will, and tenant at sufferance.

Tenancy in Common
Ownership of realty by two or more persons, each of whom has an undivided interest, without the right of survivorship. Upon the death of one of the owners, the ownership share of the decedent is inherited by the party or parties designated in the decedent's will.

Tenancy in Severalty
Ownership of property by one person or on legal entity (corporate ownership).

Third Party
One who is not directly involved in a transaction or contract but may be involved or affected by it.

Title Examination
The check of the public record, by the title company, to determine the legal ownership and that there are no claims or liens affecting the property.

Title Insurance
The policy that is issued to protect against loss due to a dispute in property ownership.

Title Report
A document indicating the current state of the title, such as easements, covenants, liens and any defects. The title report does not describe the chain of title.

Townhouse
A dwelling unit, generally having two or more floors plus a garage and is attached to other similar units via party walls. Such dwellings are typically found in condominiums and cooperatives or as part of a planned unit development.

Township
Six-mile by six-mile square area of land delineated by Government Rectangular Survey.

Trust Deed
A conveyance of real estate to a third party to be held for the benefit of another. Commonly used in some states in place of mortgages that conditionally convey title to the lender.

Trustor
Individual creating a trust.

Truth in Lending Act
Federal law allowing a consumer to cancel a home-improvement loan, second mortgage or other loan until midnight of the third business day after a contract is signed, if the home was pledged as security(except for a first mortgage or first trust deed).

Utilities
Services provided to land or houses by public utility companies such as water, gas, electricity, etc.

Utility Easement
A passage through property that is granted by the owner to a public utility.

VA Loan
A loan made through the Department of Veteran Affairs.

Vacancy Rate
Percentage of unoccupied rental property. Idle space causes significant cash drain when cash inflows are not received to offset the cash outflows of maintenance. Most properties have a minimum occupancy rate to break even.

Variable Interest Rate
Loan rate that changes based on fluctuations in the rate paid on Treasury bills or bank certificates of deposit.

Vesting Deed
An instrument whereby settled land is conveyed to, or vested in, a tenant for life or statutory owner.

Void

  1. The cancellation of a legal contract with no consequences on either party.
  2. Canceling a check or something that is written.
  3. Having no legal standing in a matter.
  4. The absence of matter.

Warranty
Legally binding agreement to do something.

Warranty Deed
Deed that assures that the title to a property is free of any legal claims or encumbrances and includes covenants of seizin, express warranties of title, right to quiet enjoyment, freedom from encumbrances.

Will
Legal document, which outlines the disposition of a deceased person's estate.

Winterize
Adapting a structure or machinery for operation or storage during cold weather by sealing cracks, putting up storm windows, etc. in a home or adding anti-freeze to machines.

Writ of Execution
Court order allowing the seizure and sale of property due to non-payment of taxes or foreclosure of property.

Zero Lot Line
Lot where a home is set to the lot boundary, which leaves very little space between the houses.

Zero Net
When there is no money left for the seller, from the sale of a property, after all outstanding expenses are paid.

Zoning
Rules and regulations controlling the use of land, which is broken down into districts and determines how private property is to be used or what construction is allowed. Zoning may be either commercial, residential, industrial or agricultural. Zoning also restricts height limitations, noise, parking, open space. Residential zoning may consist of single-family, two family or apartments.

Zoning Ordinances
Regulations determined by each municipality to establish different zoning restrictions and classifications, for example building height, type of buildings, etc. Penalties are assessed for violation of zoning ordinances. In some instances, variations to zoning ordinances are allowed and are called variances.

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