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Abridgement

Abstract A summary of an abridgement. Before the use of photo copying, public records were kept by abstracts of recorded documents

Abstract of Title A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an opinion as to the condition of this title. Still in use in some states, but giving way to the use of title insurance.

Acceleration Clause Clause used in an installment note and mortgage which give the lender the right demand the payment in full upon the happening of a certain event, such as failure to pay an installment by a certain date, change of ownership without the lender's consent, destruction of the property, or other event which endangers the security of the loan.

Acre  A measure, usually of land, equal to 43,560 square feet in any shape.

Adjustable Rate Mortgage (ARM) Mortgage loans under which the interest rate periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan.

Agent One who is authorized to act for or represent another. Authority may be either written or implied.

Agreement of Sale In some states it is synonymous with a purchase agreement. In other states, it is synonymous with a land contract. This is different depending upon the area of country.

Alienation Clause A clause that calls for debt under a mortgage or deed of trust to be due in its entirety, upon transfer of ownership of the property. This is the same as "Due on Sale" clause.

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

Annual Percentage Rate (APR) The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. Example: 6% add-on interest would be much more that 6% simple interest, even though both would say 6%. The APR is disclosed as a requirement of federal truth in lending status.

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

Arrears Payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.

Assessment A local tax levied against a property for a specific purpose, such as a sewer, or street lights.

Assumption of Mortgage The agreement by a buyer to assume the liability under an existing not secured by a mortgage or deed of trust. The lender usually must approve the new debtor in order to release the existing debtor from liability.

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B

Balloon Note A note calling for periodic payments which are insufficient to fully amortize the face amount of the not prior to maturity, so that a principal sum known as a "balloon" is due at maturity.

Binder A report issued by a title insurance company setting forth the condition of title to certain property as of a certain date, and setting forth conditions, which if satisfied will cause a policy of title insurance to be issued.

Blanket Mortgage A mortgage covering more than one property of the mortgagor, such as a mortgage covering all the lots of a builder in a subdivision.

Bridge Financing A form of interim loan, generally made between a short term loan and a long term loan, when the borrower needs to have more time before taking on long term financing.

Broker A person who, for a fee, acts as the agent of another, assisting in arranging funding or negotiating contracts for a client's purchase of real estate.

Buy down A payment to the lender from the seller, buyer, third party, or some combination of these, causing the lender to reduce the interest rate during the early years of the loan. 

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C

Cap Caps A maximum amount of charge. Example: An Adjustable Rate Mortgage with a 5% rate cap could not adjust the interest rate by more than 5%.

Closing The meeting between the buyer, seller, and lender of their agents, where the property and funds legally change hands. Also called a settlement

Closing Cost Expenses incurred in the closing of a real estate or mortgage transaction. These expenses include loan fees, title fees, appraisal fees, processing fees, etc.

Cloud on Title An invalid encumbrance on real property which, if valid, would affect the rights of the owner. 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.

Co-maker A surety under a loan. The co-maker is equally responsible for repayment as the borrower.

Commitment Title insurance term for the preliminary report issued before the actual policy. Said report shows the condition of title and the steps necessary to complete the transfer of title as contemplated by buyer and seller.

Comparables Properties used as comparisons to determine the value of a specified property.

Condominium A structure of two or more units, the interior space of which are individually owned; the balance of the property is owned in common by the owners of the individual units.

Construction loan Short term financing of real estate construction. The lender advance funds to the builder at periodic intervals as the work progresses. Generally followed by long term financing called "take out" loan, issued upon completion of improvements.

Contingency The dependence upon a stated event which must occur before a contract is binding.

Contract of Sale Depending on the area of country, it may be a Land Sale Contract or a Purchase Agreement.

Conventional loan A mortgage or deed of trust not obtained under a government insured program (such as FHA or VA)

Credit Report A report documenting the credit and payment history, and current status of a borrower's credit standing.

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D

Debt-to-Income Ratio The ratios, expressed as a percentage, between a borrower's monthly payment obligation on long term debts, and his gross monthly income

  Declaration of Restrictions A set of restrictions filed by a subdivider to cover an entire tract or subdivision.

Deed of trust In some states, this document is used 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.

Default Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.

Defective Title Title to a negotiable instrument obtained by fraud. Title to real property which lacks some of the elements necessary to transfer a good title.

Delinquency Failure to make payments on time.

Department of Veterans Affairs (VA) An independent agency of the federal governments which guarantees long-term, low-or-no-down payment mortgages to eligible veterans.

Depreciation Decrease in value to real property improvements caused by deterioration or obsolescence.

Devise Real estate left by will

Devisee One to whom real estate is given by will.

Devisor A testator who leaves real estate.

Disbursements Payments made at closing.

Discount Points Prepaid interest assessed at closing by the lender. Each point is equal to one percent of the loan amount. Example: 3 points on a $100,000 mortgage would cost $3,000

Down Payment Money paid to make up the difference between the purchase price and the mortgage amount. Depending upon the loan type, down payments are usually 3 to 20 percent of the sales price

Due-on-Sale A clause included in the mortgage that allows the lender to call the loan due and payable at its option, if the borrower sells the property

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E

Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction

Easement A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another.

Eminent Domain A Government right to acquire private property for public use by condemnation, and the payment of just compensation.

Encroachment Generally construction onto the property of another, such as a wall, fence, building, etc.

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.

Equal Credit Opportunity Act (ECOA) A federal law that requires lenders and other creditors to make credit equally available without discrimination based upon race, color, religion, national origin, age, sex, martial status, or receipt of income from public assistance programs

Equity The value an owner has in real estate over and above the obligation against the property

Escrow Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event.

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F

Farmers Home Administration (FmHA) The federal agency which makes, participates, and insures loans for rural housing and farms.

Federal Home Loan Bank Board (FHLBB) A regulatory and supervisory agency for federally chartered savings institutions

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac) A semi-governmental agency that purchases mortgages in the secondary market. Also known as "Freddie Mac"

Federal Housing Administration (FHA) A division of the Department of Housing and Urban Development whose main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages

Federal National Mortgage Association (FNMA or Fannie Mae) A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. Also known as "Fannie Mae"

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

FHA Loan A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of the FHA loans, they are generous enough to handle moderately price homes almost anywhere in the United States

FHA Mortgage Insurance Requires a fee paid at closing or a portions of this feed added to each monthly payment of an FHA loan to insure the loan with FHA

Fixed Rate Mortgage A mortgage for which the interest rate is set for the term of the loan.

Foreclosure A proceeding, in or out of court, to extinguish all rights, title, and interest, of the owner(s) of property in order to sell the property to satisfy a lien against it.

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G

Government National Mortgage Association (GNMA or Ginnie Mae) A federal association, working with FHA, which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

Grandfather Clause The clause in a law permitting the continuation of a use, business, etc. which, when established, was permissible but because of a change in the law, is now not permissible.

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H

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

Heir and Assigns Words usually found in a deed showing the interest the grantee is receiving.

Home Owner Association (HOA) An association of people who own homes in a given area formed for the purpose of improving or maintaining the quality of the area.

Housing Expenses-to-Income Ratio The ratio, expressed as a percentage, between a borrower's montly housing expenses, and his gross monthly income

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I

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

Installment Sale A tax term used to describe a sale wich is usually accomplished by use of a land contract. If the seller receives less than 30% of the sale price in the year of the sale (not including interest), the tax on the profit (gain) from the sale may be paid over the installment period, provided the 30% rule is followed each year.

Insured Mortgage A mortgage insured against loss to the mortgagee in the event of default and a failure to the mortgaged property to satisfy the balance owing plus costs of foreclosure.

Interest Rate The percentage of an amount of money which is paid for its use for a specified time. Usually expressed as an annual percentage rate.

Investor A money source for a lender

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J

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

Judgement The decision of a court of law. Money judgements, when recorded, become a lien on real property of the defendant.

Jumbo Loan A loan amount that is over $340,000.

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L

Late Charge A penalty for failure to pay an installment payment on time.

Lease with Option to Purchase A lease under which the lessee has the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period . Lender Any person or entity advancing funds which are to be repaid. A general term encompassing all mortgagees and beneficiaries under deeds of trust.

Letter of Intent A formal method of stating that a prospective developer, buyer or lessee, is interested in property. Not an offer and creates no obligation.

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

Life Estate An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party.

Limited Partnership A partnership consisting of one or more general partners who conduct the business and are responsible for losses, and one or more special partners, contributing capital and liable only to the amount contributed.

Loan Package The file of all items necessary for the lender to decide to give or not give a loan. These items would include the information on the prospective borrower and information on the property.

Loan-to-Value Ratio The ratio, expressed as a percentage, between the amount of the mortgage loan and the appraised value of the property

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M

Margin The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate

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

Mechanics Lien A lien created by statute for the purpose of securing priority of payment for the price of 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.

MIP (Mortgage Insurance Premium) The premium paid by the borrower on the insurance policy from FHA to the lender, against incurring a loss due to the borrower's default

Mortgagee The party lending the money and receiving the mortgage.

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

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N

Negative Amortization A condition created when a loan payment is less than interest alone. Even though payments are made on time, the amount owing increases.

Non-Assumption Clause A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender

Non-Conforming Use A property which does not conform to the zoning of the area.

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

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O

Open End Mortgage A mortgage permitting the mortgagor to borrow additional money under the same mortgage with certain conditions, usually as to the assets of the mortgage.

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.

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P

Partial Release A release of a portion of property covered by a mortgage.

Perk Test (Percolation) The test to determine the capability of the soil to absorb liquid, both for construction and septic systems.

Permanent Mortgage A mortgage on completed construction for a long period of time.

PITI Payment consisting of principal, interest taxes and insurance. Used to indicate what is included in a monthly payment on real property. These are the four major portions of a usual monthly payment.

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

Power of Attorney A legal document authorizing one person to act on behalf of another

Pre-paid Expenses Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance, and special assessments

Pre-payment A privilege in a mortgage permitting the borrower to make payments in advance of their due date

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

Principal The amount of debt, not counting interest, left on a loan

Pro Rate To divide in proportionate shares, such as taxes, insurance, rent, or other items which the buyer and seller share as of the time of closing or other agreed upon time.

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R

Recision of a Contract The annulling or cancellation of a contract and placing the parties to it in a position as if there had not been a contract. With respect to mortgage refinancing, the law that gives the homeowner three days (the recision period) to cancel a contract if the transaction uses equity in the primary home as security

Recital Setting forth in a deed or other writing some explanation for the transaction.

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

Refinance Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property

Reissue Rate A charge for a title insurance policy if a previous policy on the same property was issued within a specified period. Reissue is less than the original charge.

REIT (Real Estate Investment Trusts) A method in investing in real estate in a group, with certain tax advantages. Federal and state statutes dictate procedure.

Release An instrument releasing property from the lien of the mortgage, judgement, etc.

RESPA (Real Estate Settlement Procedures Act) A federal statute effective June 20, 1975, requiring disclosure of certain costs in the sale of residential improve property which is to be financed by a federally insured lender.

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S

Second Mortgage A mortgage made subsequent to another mortgage and subordinate to the first one

Secondary Mortgage Market The market where primary mortgage lenders sell the mortgages the make to obtain more funds to originate more new loans. It provides liquidity for the lenders security

Security Real or personal property pledged by a borrower as additional protection for the lender's interest.

Servicing The steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like

Settlement Statement A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate transaction.

Simple Interest Interest which is computed only on the principal balance

Statutory Lien An involuntary lien, includes tax liens, judgement liens, mechanic liens, etc.

Substitute of Trustee A document which is recorded to change the trustee under the deed of trust.

Survey A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any buildings.

Sweat Equity Equity created by a purchaser performing work an a property being purchased

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T

Tax Sale Public sale of property at auction by governmental authority, after a period of nonpayment of property taxes.

Tenancy by the Entirety A form of ownership by husband and wife whereby each owns the entire property. In event of the death of one, the survivor owns the property without probate.

Testator One who dies leaving a testament or will.

Title The document that gives legal evidence of an individual's ownership of property

Title Insurance Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances.

Title Search A review of all recorded documents affecting a specific piece of property to determine the present condition of title.

Truth-in-Lending The federal law requiring disclosure of the Annual Percentage Rate (APR) to home buyers shortly after they apply for the loan.

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U

Underwriting The decision whether to make a loan to a potential home buyer based upon credit, employment, assets, other factors and the matching of this risk to an appropriate rate and term or loan amount.

V

VA Loan A long term, low-or-no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

Verification of Deposit (VOD) A document signed by the borrower's financial institution verifying the status and balance of his financial accounts. Most lenders require that the funds used for real estate purchase be "seasoned", or on deposit in the account for at least 60 days.

Verification of Employment (VOE) A document signed by the borrower's employer verifying his position and salary. Most lenders require a minimum of a two year history of stable and constant employment.

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