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Abstract of Title

A summary of public records relating to the title of a particular parcel of land.

Acceleration

The right of the mortgage (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgager (borrower), or by using the right vested in the Due-on-Sale Clause.

Acknowledgement

A formal declaration, usually before a notary, that the person has executed a document.

Adjustable Rate Mortgage (ARM)

Is a mortgage in which the interest rate is adjusted periodically based on a pre selected index. Also sometimes known as the renegotiable rate mortgage, the variable mortgage or the Canadian roll over mortgage.

Adjustment Interval

On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Administrator

Person appointed by the court to take possession of a person who died intestate, without leaving a will, pay their debts and distribute the balance of the property to those entitled to it by law.

Adverse Possession

Physical possession of real estate inconsistent with the rights of the true owner. In many states, a party in adverse possession, after satisfying the requirements of the statutes, can then acquire the title to the land. These requirements may include the payment of property taxes on the real estate as well as the passing of a number of years.

Affiant

One who swears to or affirms the statement in an affidavit.

Affirmative Coverage

Provision in title policy where the title insurer insures against risks and losses not usually covered. For example: insurance against loss caused by violation of truth in lending laws. As you may imagine, title insurers very rarely offer this coverage.

All Inclusive Rate

A quote for title insurance that includes the cost of title search, title examination and the policy.

ALTA

American Land Title Association.

Amortization

Means loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance. Comes from the French word, "mort", literally to kill the loan owing.

Annual Percentage Rate (APR)

Is a interest rate reflecting the cost of a mortgage as a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal

An estimate of the value of property, made by a qualified professional called an "appraiser". There are different types of qualified appraisers. The highest qualification is considered to be the MAI.

Approved Attorney

An attorney approved by a title insurance company as one whose opinion of title will be accepted and relied upon by the company for the issuance of title insurance policies.

Appurtenances

Rights that pass with the title to the land. These rights may affect other, usually adjoining lands, such as a access easement.

Assessment

A local tax levied the County usually against a property for a specific purpose, such as a sewer or street lights. Also can mean the assessed value of the property. Similar, but not the same as an "appraisal" see above. Typically the property tax assessment amount is less than the fair market value.

Assignment

A transfer of a right and/or interest in land. Often used for transferring the rights of a lender, buyer or tenant. The person who assigns rights is the Assignor, the person who acquires those rights is the Assignee.

Assumption

The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, probably higher, market-rate interest charges will apply. Most mortgages today are unassumable as Lenders have found that assumed loans tend to have a far higher rate of default.

 

FHA loans closed before 12/15/89 and VA loans closed before 3/1/88 are freely assumable with no qualifying.

 

Note that the original borrower is still just as liable for the loan as the new home buyer unless the previous borrower gets a release from the Lender. This is called "novation".

Attorney in Fact

A person who holds a power of attorney from another to execute documents on behalf of the giver (or grantor) of that power. A power of attorney can be restricted or unrestricted. All powers of attorney can be withdrawn by notice in writing.

Balloon payment

A balloon mortgage is one where a lump sum, the balance of the loan principal, becomes payable at the end of the term. A mortgage can be interest only with the whole principal due at the end of the term or it may be calculated to amortize over a longer period, say 30 years, but with the outstanding principal balance payable at the end of, say, 10 years.

Base Title or Basic Title

Title to an area or tract of land out of which other parts are later conveyed or a subdivision is made.

Binder or commitment

An enforacable agreement from a title company that states that if the requirements outlined are satisfied, the title company will issue title insurance subject to any named exceptions.

Blanket Mortgage

A mortgage covering at least two pieces of real estate as security for the same mortgage. This provides greater security for the Lender. It may be possible to get a "partial" release so the Borrower can sell one of the properties provided a suitable principal reduction is made.

Bond

An insurance agreement under which the insurer agrees to pay, subject to agreed limits, compensation for financial loss caused to another by specified acts or defaults of a third party OR a long term interest bearing security instrument, issued by a goverment or corporation.

Borrower (Mortgagor)

One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full. The mortgage is not actually the loan, it just creates the security interest in the property. It is the promissory note that spells out the repayment terms and interest.

Broker

An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Building setback

An invisible line from the front, sides and rear of the outside boundaries of the property beyond which no permanent structure may extend. This could be found in city zoning ordinances, the subdivision deed or other restrictive covenants.

Caps (interest)

A limit on the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan. For example a 4/1 cap would mean a maximum interest increase of 4% over the life of the loan and no more than 1% each year.

Caps (payments)

Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change. Mortgage may change per year and/or the life of the loan.

Certificate of title

A written opinion by an attorney that ownership of a parcel of property is as stated in the certificate OR a deed issued by the court as a result of a foreclosure.

Chain of title

The successive transfers of ownership over the history of a parcel of land. Each deed that transfers ownership is a link in the chain.

Chain and links

An old method of land measurement. Surveyors used to use a chain of a length of 66 feet = 22 yards.

Closing

The meeting between the buyer, seller and lender or their agents where the property and funds legally changes hands. Also called settlement. Closing costs usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording, credit report charge and other costs assessed at settlement. The cost of closing usually are about three to six percent of the mortgage amount. Commitment and agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions.

Cloud on title

An outstanding claim or encumbrance revealed by a title search that adversely affects the marketability of the property. For example: a mechanic's lien, lis pendens recorded option to purchase etc.

Coinsurance

An insurance agreement where more than one company shares a part of a single risk. This applies only to large risks and each fractional part is covered by a separate insurance contract.

Collateral

Security for a loan. In the case of a mortgage this would be the real property. But stocks and personal property can also be used as collateral for a loan.

Commitment

A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. Construction loan (interim loan) - A loan to provide the funds necessary to pay for the construction of buildings or homes. These are usually designed to provide periodic disbursements to the builder as it progresses.

Community property. A category of property, exist­ing in some states, in which all property (except proper­ty specifically acquired by husband or wife as separate property) acquired by a husband and wife, or either, during marriage, is owned in common by the husband and wife.

Condemnation. (1) The lawful taking of private land for public use by a government under its right of emi­nent domain. (2) A declaration by a governmental agency that a building is unfit for use.

Condominium. A system of real estate ownership wherein there is separate ownership of units in a multi-unit project with each separate unit ownership being coupled with an undivided share in the entire project less all of the units.

Condominium declaration. The document which establishes a condominium and describes the most important property rights of the unit owners. Special statutes in each state prescribe the contents of this document, known in some states as a "master deed."

Construction disbursement service. A direct pay­ment plan for disbursement of construction loan and equity funds through the title company as an inde­pendent escrow agent to subcontractors and suppliers upon approval of the owner, general contractor, and lender.

Construction loan. A loan which is made to finance the actual construction or improvement on land. It is often the practice to make disbursements in increments as the construction progresses.

Contract for deed (Agreement for deed, land contract) 

A contract between purchaser and a seller of real estate to convey title after certain conditions have been met. It is a form of installment sale. It may be recordable or non-recordable. It creates a legal interest in real estate however the buyer cannot obtain secondary financing.

 

Contract of sale. Agreement by one person to buy and another person to sell a specified parcel of land at a specified price.

Conventional Loan

A mortgage not insured by FHA or guaranteed by the VA.

Conveyance. (1) A document which transfers an in­terest in real property from one person to another; e.g., a deed. (2) The act of executing and delivering a deed or mortgage.

Cooperative (apartment). An apartment building which is owned by a corporation and in which tenancy in an apartment unit is obtained by purchase of the pertinent number of shares of the stock of the corpo­ration and where the owner of such shares is entitled to occupy a specific apartment in the building.

Cotenancy. Ownership of the same interest in a par­ticular parcel of land by more than one person; e.g., tenancy in common, joint tenancy, tenancy by the entireties.

Covenant. An agreement between the parties in a deed whereby one party promises either (1) the per­formance or non-performance of certain acts with re­spect to the land or (2) that a given state of things with respect to the land are so; e.g., covenant that the land will be used only for residential purposes.

Credit Report

A report documenting the credit history and current status of a borrower's credit standing. Credit is rated for mortgage purposes from A, excellent, down to D, very poor. To obtain a conforming loan that can be resold to Fannie Mae, the Borrower usually needs A grade credit.

Cross Default

Language often in a second mortgage that states that a failure to pay or a default on the first mortgage is a default on the second mortgage. 
Also that if the borrower has more than one mortgage with the same lender, then a default on just one of the mortgages puts ALL the other mortgages into default.

Curtesy.

A husband's life estate in the property of his deceased wife. By statute in most states, it is a life estate in one third of the land she owned during their mar­riage. Curtesy has been abolished by statute in some states.

Debt-to-Income Ratio

The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net effective income (FHA/VA) or gross monthly income (conventional). See Housing expenses-to-income ratio.

 

Dedication. The granting of land by the owner for some public use and its acceptance for such use by authorized public officials.

Deed. A written instrument duly executed and de-livered by which the title to land is transferred from one person to another.

 

Deed of Trust

In many states, this document is used in place of a mortgage to secure the payment of a note. It involves a third party, the trustee, who holds the deed to the property.

Default

Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage. This can also mean failure to pay property taxes, maintain insurance on the property or even to maintain the interior and exterior of the property.

Deferred Interest

see Negative Amortization

Deficiency judgment. A judgment against a person liable for the debt secured by a mortgage in an amount by which the funds derived from a foreclosure or trustee's sale are less than the amount due on the debt. Not legal in every state, for example California.

Delinquency

Failure to make payments on time. This can lead to foreclosure. See default.

Devise. A gift of land by will or to give land by will. A devisee is the person to whom property is given by a will.

Discount Point

see Point

Dower. An estate for life to which a married woman by statute is entitled on the death of her husband. In most states it is a life estate of one third of the value of all land which the husband owned during their mar­riage. Dower has been abolished by statute in some states. The reason for requiring a wife's joining in the deed of any land by her husband is the release of her dower right.

 

Down Payment

Money paid to make up the difference between the purchase price and the mortgage amount. Down payments usually are 10 to 20 percent of the sales price on a conventional loan. VA loans have no downpayment but are only available to Veterans who have not used up their VA entitlement. FHA loans are often as low as 3% downpayment.

 

When the down payment is less than 20% the Lender will usually require PMI (Private Mortgage Insurance) on a conventional loan, or MIP (Mortgage Insurance Premium) on an FHA loan.

Draw. Disbursement of a portion of the mortgage loan. Usually applies to construction loans when partial advances are made as improvements to the property progress.

Due-on-Sale Clause

A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

Earnest Money

Money given by a buyer when making an offer to a seller as part of the purchase price to bind a transaction or assure payment. It should be held in escrow by the real estate company, a title company or an attorney. This is usually returnable if the contract does not go through for valid reasons. It may not be returnable if the buyer just changes his mind.

 

Easement. A privilege or right of use or enjoyment which one person may have in the lands of another; for example, a right of way to install, operate, and main­tain utility lines.

Eminent domain. The right of a government to ap­propriate private property for a public use by making reasonable payment to the owner of such property.

Encroachment. The intrusion of any improvement partly or entirely on the land of another.

Encumbrance. Any right or interest in land held by persons other than the fee owner which right or interest lessens the value of the fee title. Examples are judg­ment liens, easements, mortgages, restrictions.

Endorsement. A form issued by the insurer at the request of the insured which changes term(s) or item(s) in an issued policy or commitment.

Equity. (1) The interest or value which an owner has in real estate over and above the debts against it. (2) A type of court of record.

Equity participation. A type of mortgage transaction in which the lender, in addition to receiving a fixed rate of interest on the loan, acquires an interest in the borrower^'s land and shares in the profits derived from the land.

Escheat. The transfer of title of property to the state if the owner dies intestate and without heirs.

 

Escrow

Refers to a neutral third party who carries out the instruction of both the buyer and seller to handle all the paperwork of settlement or closing. Escrow may also refer to an account held by the lender into which the home buyer pays money for tax or insurance payments.

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, sex, marital status, handicap status or receipt income from public assistance programs.

Equity

The difference between the fair market value and current indebtedness, also referred to as the owner's interest.

Estate. The degree, quantity, nature, and extent of interest which a person has in land.

Et ux. And wife.

Examination of title. The review of the chain of tide as revealed by an abstract of the tide or public records.

Exceptions. Those matters affecting title to the par­ticular parcel of realty which matters are excluded from coverage of the particular title insurance policy.

Exclusion. Those general matters affecting title to real property excluded from coverage of a title insurance policy.

Executor. A person named in a will to administer the estate. Executrix is the feminine form.

 

FHLMC

The federal Home Loan Mortgage Corporation provides a secondary market for saving and loans by purchasing their conventional loans. Also known as "Freddie Mac."

Fee simple. An estate in which the owner is entitled to the entire property, with unconditional power of disposition during the owner's life, and which descends to the heirs upon the owner^'s death if the owner dies without a will.

Fixed Rate Mortgage

The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

FNMA

The Federal National Mortgage Association is a secondary mortgage institution which is the largest single holder of home mortgages in the United States. FHMA buys VA, FHA and conventional mortgages from primary lenders. Also known as "Fannie Mae."

Foreclosure

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

Fannie Mae

see FNMA.

Federal Home Loan Bank Board (FHLBB)

A regulatory and supervisory agency for federally chartered savings institutions.

Federal Home Loan Mortgage Corporation (FHLMC)

also referred to as "Freddie Mac", is a quasi-government agency that purchases conventional mortgages from insured depository institutions and HUD approved mortgage bankers.

Federal National Mortgage Association (FNMA)

also know as "Fannie Mae" a taxpaying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA. Federal Housing Administration, an agency of the federal government which insures private loans for financing of new and existing housing and for home repairs under government approved programs.

Fixture. Personal property that by state law becomes real property upon being attached to real estate.

Foreclosure. Legal process by which a mortgagor of real property is deprived of interest in that property due to failure to comply with terms and conditions of the mortgage.

Freddie Mac

see Federal Home Loan Mortgage Corporation

Ginnie Mae

see Government National Mortgage Association

 

General warranty deed. A deed containing a cov­enant whereby the seller agrees to protect the buyer against being dispossessed because of any adverse claim against the land.

 

Government National Mortgage Association (GNMA)

also known as "Ginnie Mae", provides sources of funds for residential mortgage, insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM)

A type of flexible-payment where the payments increase for a specified period of time and then level off. This type of mortgage may have negative amortization built into it.

 

Grantee. In a deed, the person to whom the land is transferred.

Grantor. In a deed, the person who transfers the land.

 

Guaranty

A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

Hard Money Lender

Equity lenders who base their funding decisions on the unencumbered property value and its salability. They do not calculate debt ratio and usually do not take into account the borrower's credit and income. The combined loan-to-value ratio is usually less than 65%. Funding can be very fast. Sometime in 2 days or less.

Hazard Insurance

A form of insurance in which the insurance company protects the insured from specified losses, such as fire windstorm and the like.

 

Heir. The person who, at the death of the owner of land, is entitled to the land if the owner has died with-out a will.

 

Homestead (exemption). A person's dwelling and that part of the land which is about and contiguous to the dwelling. Many states by statute give special privileges to such lands, such as exemptions from remedies of creditors.

 

Housing Expenses-to-Income Ratio

The ratio expressed as a percentage, which results when a borrower's housing expenses are divided by his and/or her net effective income (FHA / VA loans) or gross monthly income (conventional loans). Also see Debt-to-Income Ratio.

 

HUD. The Department of Housing and Urban Development. It is responsible for the implementation and administration of U.S. government housing and urban development programs.

 

Impound

That portion of a borrower's monthly payment held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as Reserves.

Index

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one, three and five year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs of funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down. The rate must be one that is outside the influence of the lender.

 

Indemnity agreement. An agreement by the maker of the document to repay the addressee of the agree­ment up to the limit stated for any loss due to the con­tingency stated on the agreement.

Insurable title. A land title which a title insurance company is willing to insure.

Insured closing service. An agreement by the insur­er to indemnify the insured for any loss in settlement funds caused by (1) the failure of the company^'s policy issuing agents or approved attorneys to conform to closing instructions of the insured, or (2) fraud or dis­honesty of the issuing agent or approved attorney. This service is offered by the insurer to certain large lenders, developers, etc.

Interval ownership. A form of time share owner-ship. See Time share ownership.

Intestate. Without having made a valid will or one who dies without having made a will.

 

Investor

A money source for a lender. Or someone who purchases real estate as a short or long term investment.

Interim Financing

A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Jumbo Loan

A loan which is larger (more than $203,250) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Because jumbo loans can not be funded by these two agencies, they usually carry a higher interest rate.

 

Joint protection policy. A title insurance policy in form suitable to insure the owner and/or lender.

Joint tenants. Persons who are co-owners of interests in the same land. At common law and in some states today, upon the death of a joint tenant, interest auto­matically passes to the surviving joint tenant(s). This survivorship feature, when it exists, is the principal distinction between a joint tenancy and a tenancy in common.

Judgment. The formal expression and evidence of the decision of a court in a specific lawsuit. Where the judgment decrees that one party (the judgment debtor) pay another party (the judgment creditor) a certain sum of money, the recording of that judgment creates a lien upon all land of the judgment debtor in that jurisdiction.

Junior mortgage. A mortgage, the lien of which is subordinate to that of another mortgage. Second and third mortgages are both junior mortgages.

 

Lien

A claim upon a piece of property for the payment of a debt or obligation.

 

Leasehold. The right to possession and use of land for a fixed period of time. The lease is the agreement which creates the right. The person who has the lease-hold is the tenant or lessee. The person who grants the leasehold is the lessor or landlord.

Legal description. A property description which by law is sufficient to locate and identify the parcel of real property.

Lien. A claim or charge on property of another for payment of some debt, obligation, or duty.

Lien waiver or waiver of liens. A document signed by the general contractor, each subcontractor, and each materialman of a construction project whereby the signators waive their right to mechanics' liens on the land involved in that particular project.

Life estate. An individual's right to the use and occu­pancy of real property for life.

Link. See Chain of title.

Links. See Chains and links.

Lis Pendens. A legal notice that there is litigation pending relating to the land and a warning that anyone obtaining an interest subsequent to the date of the notice may be bound by the judgment.

Loan policy or mortgage policy or mortgagee policy. A title insurance policy in which the insurer insures the mortgagee against loss it may suffer because the tide is not vested as stated in the policy and insures the validity and priority of the mortgage lien over any other lien not excepted to in the policy.

 

Loan-to-Value Ratio

The relationship between the amount of the mortgage loan and appraised value of the property expressed as a percentage.

Margin

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

Marketable title. A title which a reasonable purchas­er, well informed as to the facts and their legal meaning, would be willing to accept.

Market Value

The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Master deed. See Condominium declaration.

Mechanics' and materialmen's lien or mechanics' lien or M&M lien. The lien which by statute a labor­er or materialman may have against the land by reason of furnishing labor or material for the improvement of the property. The priority of such lien varies among the states; in some states M&M liens take priority over prerecorded mortgages.

Mechanics' liens surety bond. A bond in which an approved surety company agrees to indemnify the title insurance company for any loss it may suffer due to the insurer's issuing a specific policy without mechan­ics^' lien exception.

Metes and bounds. A description of a parcel of land by describing the boundary lines in length and direction.

 

MIP: Mortgage Insurance Premium

MIP is the one-half percent borrowers pay each month on FHA insured mortgage loans. It is insurance from FHA to the lender against incurring a loss due to the borrower's default. On September 1, 1983 the MIP was changed to a one time charge to the borrowers.

Mortgage. An instrument whereby an owner conditionally transfers title of property to another as security for payment of a debt. The owner retains possession and use of the land and, upon the payment of the debt, the mortgage becomes void.

 

Mortgage Insurance

Money paid to insure the mortgage when the down payment is less than 20 percent. see Private Mortgage Insurance, FHA Mortgage Insurance.

Mortgagee

The lender.

Mortgagor

The borrower or home owner.

Mortgage policy. See Loan policy.

 

Negative Amortization

Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid principal balance of the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan.

Net Effective Income

The borrower's gross income minus federal tax.

Non Assumption Clause

A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender. Note: The signed obligation to pay a debt, as a mortgage note.

Negotiable Rate Mortgage

A loan in which the interest rate is adjusted periodically. see Adjustable Rate Mortgage.

Note. A written promise to pay a certain amount of money, at a certain time, or in a certain number of installments. It usually provides for payment of interest and its payment is at times secured by a mortgage.

Open-end mortgage. A mortgage or deed of trust written so as to secure and permit advancing of funds in addition to the amount originally loaned.

 

Origination Fee

The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

 

Option. The right, acquired for a consideration, to buy, sell, or lease land at a fixed price within a specified time.

Oversize policies.

Policies in which the amount (limit of risk) exceeds that which the agent is authorized to write without specific approval.

Owner's policy.

A title insurance policy insuring the owner against loss due to any defect of title not ex­cepted to or excluded from the policy.

Partition.

Division of land, usually by a legal proceed­ing, among the parties who were formerly co-owners.

Payment Constant

The total annual payments divided by the mortgage balance expressed as a percentage.

Permanent Loan

A long term mortgage, usually ten years or more.

PITI

Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Planned unit development (PUD).

A project con­sisting of individually owned parcels of land together with common areas and facilities that are owned by an association of which the owners of all the parcels are members.

Plat (of survey).

A map of land made by a surveyor showing boundary lines, buildings, and other improve­ments on the land.

Points (Loan Discount Points)

Prepaid interest assessed at closing by the lender. Each point is equal to one percent of the loan amount.

Power of Attorney

A legal document authorizing one person to act on behalf of another. It does not mean that the other person IS an attorney or that they can represent them in court as an attorney.

Prepaid Expenses

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

Prepayment

A privilege in a mortgage permitting the borrower to make payments in advance of their due date. This can enable the mortgage to be paid off much more quickly, with a major savings in total interest costs.

Prepayment Penalty

Money charged for an early repayment of debt. Prepayment penalties are allowed in some form in 36 states and the District of Columbia.

Prepayment Risk

This is the risk to the Lender that the loan will be paid off before the end of the term. It is considered to be a risk because loans are often refinanced when interest rates drop. This means the Lender gets their capital back but have to lend it out at a lower rate.

Prescription.

The doctrine by which easements are acquired by long, continuous, and exclusive use and possession of property.

Primary Mortgage Market

Lenders making mortgage loans directly to borrower's such as savings and loan association, commercial banks and mortgage companies. These lenders usually sell their mortgages into the secondary mortgage markets such as FNMA of GNMA, etc. The original lender will usually still service the loan, that is, send the payment coupons or statements to the Borrower.

Principal

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

Private Mortgage Insurance (PMI)

In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment (as low as five percent in some cases). With the smaller down payment loans, however, borrower's are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of one to five percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure.

Public records.

Records which by law impart con­structive notice of matters relating to land.

Purchase money mortgage.

A mortgage given by the purchaser to the seller simultaneously with the purchase of real estate to secure the unpaid balance of the purchase price.

Quieting title.

The removal of a cloud on title by proper action in a court.

Quit Claim Deed

Type of deed that transfers all the rights that grantor (giver) may have, which might be none. Example, you could legally give someone a quit claim deed of your rights in the Brooklyn Bridge. That does not mean that the person you give the deed to now owns the Brooklyn Bridge.

Realtor ©

A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recession

The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security. This means the money for refinance is not disbursed till after the 3 days are up. The only exception would be an emergency.

 

Recording. The noting in the designated public office of the details of a properly executed legal document, such as a deed or mortgage, thereby making it a part of the public record, and thus by law imparting con­structive notice of that document.

 

 

Recording Fees

Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records. The record is given a official records book and page number making it easy to find.

 

Redemption. The right of the owner in some states to reclaim title to property if the owner pays the debt to the mortgagee within a stipulated time after foreclosure.

 

Refinance

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

 

Reinsurance. The act of an insurer transferring a por­tion of the risk to other insurers. The original insurer is sole insurer for a portion of the risk and shares the risk in the excess amount with the reinsurers. The first portion of the loss risk retained by the ceding company as its sole liability is called the "primary liability."

Reissue rate. A reduced rate of title insurance pre­mium applicable in cases where the owner of the land has been previously insured in an owner's policy by the insurer within a certain time.

REIT. Real Estate Investment Trust, a business trust which deals principally with interest in land. REITs generally are strictly organized to conform to the re­quirements of provisions of the Internal Revenue Code which give tax advantages to conforming REITs.

Release. A deed from the mortgagee or trustee of a deed of trust which releases specific property from the lien of the mortgage or deed of trust.

Remainder. An interest or estate in land in a person other than the grantor in which the right of possession and enjoyment of the land is postponed until the ter­mination of some other interest or estate in that land.

Renegotiable rate mortgage. A loan secured by a long-term mortgage of up to 30 years, which provides for renegotiation at equal stated intervals of the interest rate for a maximum variation of 5 percent over the life of the mortgage.

Reserve. The portion of the title insurance company's retained earnings set aside for some specific purpose.

Liability reserve. A segregated or earmarked por­tion of retained earnings established to show the estimated amount of a known or potential future liability.

Reserve for undetermined title losses. The lia­bility reserve established and maintained against unpaid losses and expenses related to every specific claim presented to the title insurance company by a policyholder. The amount of reserve is established by careful estimates of probable liability. It is re-viewed periodically and changed when warranted.

Statutory reserve. The reserve requirement estab­lished by state statutes as the minimum which must be maintained by a title insurance company, either (1) by a company incorporated under the laws of that state or (2) as a qualification for a company incorporated in another state to do business in the state.

 

RESPA

Short for the Real Estate Settlement Procedures Act.

(12 U.S.C. 2601) which, together with Regulation X promulgated pursuant to the Act, regulate real estate transfers involving a "federally related mortgage loan" by requiring, among other things, certain disclosures to borrowers.

RESPA is a federal law that allows consumers to review information known or estimated settlement cost once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Restriction. Provision in deed or will or in a "Declara­tion of Condition, Reservations and Restrictions" which limits in some way the right to use land or convey its title. Examples are building setback lines and limita­tions to residential uses.

Reverse Annuity Mortgage (RAM)

A form of mortgage in which the lender makes periodic payments to the borrower using using the borrower's equity in the home as Satisfaction of Mortgage (The document issued by the mortgagee when the mortgage loan is paid in full.

 

Reversion. Provision in conveyance by which, upon the happening of an event or contingency, title to the land will return to the grantor or the successor in interest in the land.

Right of way. See Easement.

Riparian. Pertaining to the banks of a watercourse. The owner of land adjacent to a watercourse is called a riparian owner and the rights of the riparian owner related to that watercourse are called riparian rights.

Sale and leaseback. A financial device which an owner of land may employ to raise money and still have the use of the land by selling the land to the financier and immediately leasing it back for the period the owner wishes to use it.

 

Seasoned Mortgage

A mortgage that payments have been made on. The longer the seasoning and payment history of the mortgage, the greater the likelihood it will be paid in the future.

Second Mortgage

A mortgage made subsequent to another mortgage and subordinate to the first one. If the borrower does not make payments on the first mortgage, they can foreclose it and wipe out the interest of the second mortgage holder.

Secondary Mortgage Market

The place where primary mortgage lenders sell the mortgages they make to obtain more funds to originate more new loans. It provides liquidity for the lenders security.

Separate property. Property a husband or wife owns independently of the other.

 

 

Servicing

All 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.

Service charge. A charge paid by the borrower to the lender for the lender^'s expenses in processing the loan.

Setback. See Building line.

 

Settlement / Settlement Costs

see Closing / Closing Costs

 

Shared appreciation mortgage. A loan having a fixed interest rate set below the market rate for the term of the loan which provides for contingent interest based upon a percentage of the appreciation in the value of the security at the sale or transfer of the prop­erty, or the payment of the loan.

 

Simple Interest

Interest which is computed only on the principal balance.

Simultaneous issue. Simultaneous issuance of an owner^'s policy and a mortgagee policy, or an owner^'s policy and a leasehold policy, or owner^'s policy to dif­ferent insureds. A reduced premium rate is applicable in such cases.

Special warranty deed. A deed containing a cov­enant whereby the seller agrees to protect the buyer against being dispossessed because of any adverse claims to the land by the seller, or anyone claiming through the seller.

Standard coverage policy. A form of title insur­ance which contains certain standard printed excep­tions not included in the ALTA policies. This form of policy is used primarily in some of the western states.

Starter. See Back title letter.

Subdivision. A tract of land surveyed and divided into lots for purposes of sale.

Subordination. The act of a creditor acknowledging in writing that the lien of the debt due from a debtor shall be inferior to the lien of the debt due another creditor from the same debtor.

Subrogation. The substitution of one person in the place of another with reference to a claim, demand, or right, so that the individual who is substituted succeeds to the rights of the other in relation to the debt or claim and its rights, remedies, or securities.

Substitution loan and substitution rate. A loan made to the same borrower on the same land, or by the same lender on the same land, the title to which was insured by the insurer in connection with the original loan. A reduced rate for premium is given in such cases.

 

Survey

A measure of land, 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 purchasers work on a property purchased.

 

Take out loan. A permanent mortgage loan which a lender agrees to make to a borrower upon completion of improvements on the borrower^'s land. The proceeds of the loan are used principally to pay off the construc­tion loan.

 

Tandem plan. The purchase by the Government Na­tional Mortgage Association of certain mortgages at par for subsequent resale at market prices to the Federal National Mortgage Association.

Tax deed. The deed given to a purchaser at a public sale of land for non-payment of taxes. It conveys to the purchaser only such title as the defaulting taxpayer had and does not convey good title to that extent unless statutory procedures for the sale were strictly followed.

Tenancy by the entirety or entireties. A form of

ownership existing in many states where husband and wife together are treated as an entity.

Tenant. One who has right of possession of land by any kind of title. The word "tenant^" used alone in modern times is used almost exclusively in the limited meaning of a tenant of a leasehold estate.

Tenants in common. Persons who are co-owners of residential interest in the same land. At death of a co-tenant, interest passes by will or by laws of intestate succession.

Testate. Having made a will. One who makes a will is known as the testator or testatrix.

Time share ownership. A technique for dividing the title to a commercial property or a vacation home among many different owners, with each owner acquir­ing the right to occupy the premises during a specified portion of each year.

Time share unit. An interest in a residential or com­mercial property which by contract or by conveyance of a real property interest allows a purchaser to occupy the unit during a particular week or weeks for a stated number of years. There are two major forms of time share estate:

(a)   Interval ownership. A time share estate where the unit purchaser is deeded an estate for years, giv­ing a right to occupy the unit for a particular week during a stated number of years with a remainder interest in fee as a tenant in common with all other purchasers of the unit.

(b)  Time span ownership. A time share estate where the unit purchaser is deeded an undivided percen­tage interest in the unit as a tenant in common with all other purchasers and the right to occupy the unit for a particular time period is governed by contrac­tual provisions of the time share declaration.

 

Title

A document that gives evidence of an individual's ownership of property

Title Insurance

A policy, usually issued by a title insurance company which insures a home buyer or lender against errors in the title search. The cost of the policy is usually a function of the value of property, and is often borne by the purchaser and /or seller.

 

Title plant. A compilation of records maintained by tide companies and containing information about spe­cific parcels of land. This information would be ascer­tained otherwise only by a search of the public records.

 

Title Search

An examination of municipal records to determine the legal ownership of the property. Usually is performed by a title company

Torrens system. A governmental title registration system wherein tide to land is evidenced by a certificate of title issued by a public official known as the registrar of title.

 

Truth-in-Lending

A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for a the loan.

Turnkey housing. Housing initially financed and built by private sponsors and purchased by housing authorities for use by low-income families under the public housing program.

 

 

Underwriting

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

Usury

Interest charged in excess of the legal rate established by law.

 

VA loan. A loan for purchase of land in which the Veteran's Administration guarantees the lender pay­ment of a home mortgage by a qualified veteran.

 

Variable Rate Mortgage

see Adjustable Rate Mortgage

 

Vendor. Seller.

 

Verification of Deposit (VOD)

A document signed by the borrower's financial institution verifying the status and balance of his or her financial accounts.

Verification of Employment (VOE)

A document signed by the borrower's employer verifying his or her position and salary.

Vest. To become owned by.

Waiver of liens. See Lien waiver.

Warranty deed. A deed in which the grantor war-rants or guarantees that good title is being conveyed.

Wraparound mortgage. A mortgage which secures a debt which includes the balance due on an existing senior mortgage and an additional amount advanced by the wraparound mortgagee. The wraparound mort­gagee thereafter makes the amortizing payments on the senior mortgage. An example: A landowner has a mort­gage securing a debt with an outstanding balance of $2,000,000. A lender now advances the same mort­gagor a new $1,000,000 and undertakes to make the remaining payments due on the $2,000,000 debt. A $3,000,000 wraparound mortgage on the land is taken to secure this new $3,000,000 wraparound note.

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