Agent

One who represents or has the power to act for another person (called the principal). The authorization may be express, implied, or apparent. A fiduciary relationship is created under the law of agency when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent.

 

Amortized Loan

A loan in which the principal and interest are payable in monthly or other periodic installments over the term of the loan.

 

Appraisal

A written opinion of property value by a licensed professional. Appraisals, generally, are not professional statements of the property condition and should not be relied upon as such.

 

ARM

This acronym stands for Adjustable Rate Mortgage. In contrast with a mortgage loan with a fixed rate of interest, the ARM rate will adjust from time to time in accordance with an agreed upon formula. Upon each adjustment, the new payment amount will be calculated by applying the new interest rate to the principal balance amortized over the remaining life of the loan.

 

Assumable Mortgage

Provisions in a mortgage loan that allows for the purchaser of your home to assume the balance of your mortgage and to take over your payments. Most mortgages are not assumable unless the prospective purchasers make application with and are approved by the holder of the existing loan.

 

Comparables

The sold properties, listed in an appraisal report, which are substantially equivalent to the subject property.

 

Contract

An agreement entered into by two or more legally competent parties by the terms of which one or more of the parties, for a consideration, undertakes to do or to refrain from doing some legal act or acts. A contract may either be unilateral, where only one party is bound to act, or bilateral, where all parties to the instrument are legally bound to act as prescribed.

 

Deed

A legal instrument by which an interest in real estate is transferred from one owner to the next. The Deed is prepared by the settlement attorney. It will contain the names of the existing owners as “Grantors” and the new owners as “Grantees” and will describe the property conveyed.

 

Deed of Trust (Mortgage)

The legal instrument by which real estate is pledged as collateral for a loan. Like the Note, the Deed of Trust or Mortgage is prepared by the lender and delivered to the settlement agent in the closing package. The Deed of Trust/Mortgage will typically contain many standard terms and covenants. One important condition is that it gives the beneficiary of the Deed of Trust/Mortgage the legal right to foreclose on the real estate pledged as collateral if the other terms of the loan are breached and not cured.

 

Deed  Restrictions

The clauses in a deed limiting the future uses of the property. Deed restrictions may impose a variety of limitations and conditions, such as limiting the density of buildings, dictating the types of structures that can be erected, and preventing buildings from being used for specific purposes or from being used at all.

 

Default

Failure to comply with the terms of the loan documents. A borrower’s default may allow the lender to demand full repayment of the loan immediately or result in foreclosure of the Deed of Trust.

 

Discount Fee

A fee paid to the lender, at or before settlement, to secure a preferred rate of interest on a loan. This fee is generally referred to in terms of a percentage of the loan amount or “points.” Generally, the more discount points paid, the lower the interest rate.

 

Due on Sale Clause

A standard provision in a note which provides that the note will become due immediately (or may be “accelerated” by the lender) upon the transfer by borrower of any interest in the real estate pledged as collateral for the loan, unless written consent from the lender is obtained.

 

Equity

The extent to which the fair market value (FMV) of the property exceeds the mortgage loan balance. (FMV-Loan Balance=Equity)

 

Fee-simple Estate

The maximum possible estate or right of ownership of real property continuing forever. Sometimes called a fee or fee-simple absolute.

 

Grantee

A person to whom real estate is conveyed; the buyer.

 

Grantor

A person who conveys real estate by deed; the seller.

 

Ground Lease

A lease of land only, on which the tenant usually owns a building or is required to build her or his own building as specified in the lease. Such leases are usually long-term net leases; a tenant’s rights and obligations continue until the lease expires or is terminated through default.

 

Home Inspection Report

A written report of the physical condition of the premises, prepared by a professional inspector. Typically this inspection is ordered by the purchaser to be conducted within a specified time period following contract ratification.

 

House Location Drawing

A drawing which shows the structures and improvements on a lot in relation to the platted boundary lines, building restriction lines and easements. The drawing may also include a certification that the property is not within a special flood hazard zone.

Improvement

1. Improvements on land; any structure, usually privately owned, erected on a site to enhance the value of the property; for example, buildings, fences, and driveways. 2. Improvements to land: usually a publicly owned structure; for example, curbs, sidewalks, and sewers.

 

Joint Tenancy

The ownership of real estate by two or more parties who have been named in one conveyance as joint tenants. On the death of a joint tenant, her or his interest passes to the surviving joint tenant or tenants by the right of survivorship.

 

Lien

A right given by law to certain creditors to have their debt paid out of the property of a defaulting debtor, usually by means of a court sale.

 

Market Value

The most profitable price a property will bring in a competitive and open market under all conditions requisite to a fair sale. The price at which a buyer would buy and a seller would sell, each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

 

Mortgage

A conditional transfer or pledge of real estate as security for a loan. Also, the document creating a mortgage lien.

 

Mortgage Insurance Premium

(M.I.P.)

The premium paid for insurance to protect the lender in the event of a foreclosure where the money collected from the sale of the real estate is insufficient to cover the outstanding balance and costs due to the lender. Mortgage insurance is usually required from conventional loans that exceed 80% of the appraised value of the property and for all Federal Housing Administration (FHA) loans.

 

Note

A legal instrument constituting a promise to repay money borrowed from a lender. The Note is typically prepared by the lender and delivered to the settlement agent with the closing package. The Note will include the original principal amount of the loan, the initial rate of interest, the maturity date, and it will describe any contemplated changes to the interest rate or due date. The Note will also describe the conditions of repayment and the penalties for failure to comply with its terms.

 

Origination Fee

A fee charged by a lender or mortgage broker to initiate the loan process. This fee is typically referred to in terms of a percentage of the loan amount or “points.”

 

Points

Common term used in the industry when referring to loan origination fees and discount fees. Each “point” represents one percent (1%) of the loan amount.

 

Real Estate

Land; a portion of the earth’s surface extending downward to the center of earth and upward infinitely to space, including all things permanently attached thereto, whether by nature or by man.

 

Special Assessment

A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement, such as a street or sewer.

 

Settlement Statement (HUD-1)

The final accounting of all lender’s fees, settlement costs and adjustments paid by or exchanged between the Buyer and Seller. The HUD-1 is prepared on a standardized form by your settlement attorney or agent; it is reviewed and signed by all parties at the settlement table.

 

Tenancy

The legal term used to describe the form of co-ownership in which real estate title is held by more than one person. The tenancy of co-owners must be specified in the Deed. Joint Tenancy (with right of survivorship) is a form of co-ownership where, upon the death of any joint tenant, title to the property will automatically transfer to the surviving joint tenant(s) (NOTE: each joint tenant must take title to an equal

share of the property). Tenancy by the Entirety is a form of co-ownership held by a married couple. Upon the death of either spouse, title to the property will automatically transfer to the surviving spouse. Tenancy in Common is a form of ownership where, upon the death of any tenant in common, the share owned by the deceased does not automatically transfer to the surviving tenant(s) in common, but rather is distributed as part of the estate of the deceased (i.e., as designated in the decadent’s will or as prescribed by state law if the deceased died without a will.)

 

“Time Is Of The Essence”

A phrase in a contract that requires the performance of a certain act within a stated period of time.

 

Title Insurance

Insurance which protects the purchaser and the lender against loss or damage resulting from defects of title or the enforcement of liens against real estate existing at the time of issuance. Potential defects covered will include matters that may not be discovered from a search of public records, such as past frauds or forgeries. Title insurance requires one-time premium paid at settlement which protects you for a long as you own the property.

 

Variance

An exception from the zoning ordinances; permission granted by zoning authorities to build a structure or conduct a use that is expressly prohibited by zoning ordinance.