A
Abstract (Of Title)
A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews an abstract
of title to determine whether there are any title defects which must be
cleared before a buyer can purchase clear, marketable, and insurable title.
Acceleration Clause
Condition in a mortgage that may require the balance of the loan to
become due immediately, if regular mortgage payments are not made or for
breach of other conditions of the mortgage.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement,
or sales agreement according to location or jurisdiction. A contract in
which a seller agrees to sell and a buyer agrees to buy, under certain
specific terms and conditions spelled out in writing and signed by both
parties.
Amortization
A payment plan which enables the borrower to reduce his debt gradually
through monthly payments of principal.
Appraisal
An expert judgment or estimate of the quality or value of real estate as
of a given date.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally
liable for payment of an existing mortgage. In an assumption, the
purchaser is substituted for the original mortgagor in the mortgage
instrument and the original mortgagor is to be released from further
liability in the assumption, the mortgagee's consent is usually required.
The original mortgagor should always obtain a written release from
further liability if he desires to be fully released under the
assumption. Failure to obtain such a release renders the original
mortgagor liable if the person assuming the mortgage fails to make the
monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject to
a mortgage." When one purchases subject to a mortgage, the purchaser
agrees to make the monthly mortgage payments on an existing mortgage, but
the original mortgagor remains personally liable if the purchaser fails to
make the monthly payments. Since the original mortgagor remains
liable in the event of default, the mortgagee's consent is not required
to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are
used to finance the sale of property. They may also be used when a
mortgagor is in financial difficulty and desires to sell the property to
avoid foreclosure.
C
Certificate of Title
A certificate issued by a title company or a written opinion rendered by
an attorney that the seller has good marketable and insurable title to
the property which he is offering for sale. A certificate of title offers
no protection against any hidden defects in the title which an examination of
the records could not reveal. The issuer of a certificate of title is
liable only for damages due to negligence. The protection offered a
homeowner under a certificate of title is not as great as that offered in
a title insurance policy.
Closing Costs
The numerous expenses which buyers and sellers normally incur to complete
a transaction in the transfer of ownership of real estate. These costs
are in addition to price of the property and are items prepaid on the
closing day. This is a typical list:
BUYER'S EXPENSES SELLER'S EXPENSES
Documentary Stamps on Notes Cost of Abstract
Recording Deed and Mortgage Documentary Stamps on Deed
Escrow Fees Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Inspection Escrow Fees
Survey Charge Attorney's Fee
The agreement of sale negotiated previously between the buyer and the
seller may state in writing who will pay each of the above costs.
Closing Day
The day on which the formalities of a real estate sale are concluded. The
certificate of title, abstract, and deed are generally prepared for the
closing by an attorney and this cost charged to the buyer. The buyer
signs the mortgage, and closing costs are paid. The final closing merely
confirms the original agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the
marketability of title.
Commission
Money paid to a real estate agent or broker by the seller as
compensation for finding a buyer and completing the sale. Usually it is a
percentage of the sale price--6 to 7 percent on houses, 10 percent on land.
Condemnation
The taking of private property for public use by a government unit,
against the will of the owner, but with payment of just compensation
under the government's power of eminent domain. Condemnation may also be
a determination by a governmental agency that a particular building is
unsafe or unfit for use.
Condominium
Individual ownership of a dwelling unit and an individual interest in the
common areas and facilities which serve the multi-unit project.
Contract of Purchase
See agreement of sale.
Contractor
In the construction industry, a contractor is one who contracts to erect
buildings or portions of them. There are also contractors for each phase
of construction: heating, electrical, plumbing, air conditioning, road
building, bridge and dam erection, and others.
Conventional Mortgage
A mortgage loan not insured by HUD or guaranteed by the
Veterans' Administration. It is subject to conditions
established by the lending institution and state statutes. The
mortgage rates may vary with different institutions and between
states. (States have various interest limits.)
Cooperative Housing
An apartment building or a group of dwellings owned by a corporation, the
stockholders of which are the residents of the dwellings. It is operated
for their benefit by their elected board of directors. In a cooperative,
the corporation or association owns title to the real estate. A resident
purchases stock in the corporation which entitles him to occupy a unit in
the building or property owned by the cooperative. While the resident
does not own his unit, he has an absolute right to occupy his unit for as
long as he owns the stock.
D
Deed
A formal written instrument by which title to real property is
transferred from one owner to another. The deed should contain an
accurate description of the property being conveyed, should be signed and
witnessed according to the laws of the state where the property is
located, and should be delivered to the purchaser at closing day. There
are two parties to a deed: the grantor and the grantee. (See also deed of
trust, general warranty deed, quitclaim deed, and special warranty deed.)
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as
security for a debt. However, in a deed of trust there are three parties
to the instrument: the borrower, the trustee, and the lender (or
beneficiary). In such a transaction, the borrower transfers the legal
title for the property to the trustee who holds the property in trust as
security for the payment of the debt to the lender or beneficiary. If the
borrower pays the debt as agreed, the deed of trust becomes void. If,
however, he defaults in the payment of the debt, the trustee may sell the
property at a public sale, under the terms of the deed of trust. In most
jurisdictions where the deed of trust is in force, the borrower is
subject to having his property sold without benefit of legal proceedings.
A few states have begun in recent years to treat the deed of trust like a
mortgage.
Default
Failure to make mortgage payments as agreed to in a commitment based on
the terms and at the designated time set forth in the mortgage or deed of
trust. It is the mortgagor's responsibility to remember the due date and
send the payment prior to the due date, not after. Generally, thirty days
after the due date if payment is not received, the mortgage is in
default. In the event of default, the mortgage may give the lender the
right to accelerate payments, take possession and receive rents, and
start foreclosure. Defaults may also come about by the failure to
observe other conditions in the mortgage or deed of trust.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in the
neighborhood, or any other reason.
Discount Points
See points.
Documentary Stamps
A state tax, in the forms of stamps, required on deeds and mortgages when
real estate title passes from one owner to another. The amount of stamps
required varies with each state.
Downpayment
The amount of money to be paid by the purchaser to the seller upon the
signing of the agreement of sale. The agreement of sale will refer to
the downpayment amount and will acknowledge receipt of the downpayment.
Downpayment is the difference between the sales price and maximum mortgage
amount. The downpayment may not be refundable if the purchaser fails to
buy the property without good cause. If the purchaser wants the
downpayment to be refundable, he should insert a clause in the agreement
of sale specifying the conditions under which the deposit will be
refunded, if the agreement does not already contain such clause. If the
seller cannot deliver good title, the agreement of sale usually requires
the seller to return the downpayment and to pay interest and expenses
incurred by the purchaser.
E
Earnest Money
The deposit money given to the seller or his agent by the potential buyer
upon the signing of the agreement of sale to show that he is serious
about buying the house. If the sale goes through, the earnest money is
applied against the downpayment. If the sale does not go through, the
earnest money will be forfeited or lost unless the binder or offer to
purchase expressly provides that it is refundable.
Easement Rights
A right-of-way granted to a person or company authorizing access to or
over the owner's land. An electric company obtaining a right-of-way
across private property is a common example.
Encroachment
An obstruction, building, or part of a building that intrudes beyond a
legal boundary onto neighboring private or public land, or a building
extending beyond the building line.
Encumbrance
A legal right or interest in land that affects a good or clear title, and
diminishes the land's value. It can take numerous forms, such as zoning
ordinances, easement rights, claims, mortgages, liens, charges, a pending
legal action, unpaid taxes, or restrictive convenants. An encumbrance does
not legally prevent transfer of the property to another. A title search
is all that is usually done to reveal the existence of such encumbrances,
and it is up to the buyer to determine whether he wants to purchase with
the encumbrance, or what can be done to remove it.
Equity
The value of a homeowner's unencumbered interest in real estate. Equity
is computed by subtracting from the property's fair market value the
total of the unpaid mortgage balance and any outstanding liens or other
debts against the property. A homeowner's equity increases as he pays
off his mortgage or as the property appreciates in value. When the
mortgage and all other debts against the property are paid in full the
homeowner has 100% equity in his property.
Escrow
Funds paid by one party to another (the escrow agent) to hold until the
occurrence of a specified event, after which the funds are released to a
designated individual. In FHA mortgage transactions an escrow account
usually refers to the funds a mortgagor pays the lender at the time of
the periodic mortgage payments. The money is held in a trust fund,
provided by the lender for the buyer. Such funds should be adequate to cover
yearly anticipated expenditures for mortgage insurance premiums, taxes,
hazard insurance premiums, and special assessments.
M
Marketable Title
A title that is free and clear of objectionable liens, clouds, or other
title defects. A title which enables an owner to sell his property freely
to others and which others will accept without objection.
Mortgage
A lien or claim against real property given by the buyer to the lender as
security for money borrowed. Under government-insured or loan-guarantee
provisions, the payments may include escrow amounts covering taxes,
hazard insurance, water charges, and special assessments. Mortgages
generally run from 10 to 30 years, during which the loan is to be paid off.
Mortgage Commitment
A written notice from the bank or other lending institution saying it
will advance mortgage funds in a specified amount to enable a buyer to
purchase a house.
Mortage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD to
help defray the cost of the FHA mortgage insurance program and to
provide a reserve fund to protect lenders against loss in insured
mortgage transactions. In FHA insured mortgages this represents an annual
rate of one-half of one percent paid by the mortgagor on a monthly
basis.
Mortgage Note
A written agreement to repay a loan. The agreement is secured by a
mortgage, serves as proof of an indebtedness, and states the manner in
which it shall be paid. The note states the actual amount of the debt
that the mortgage secures and renders the mortgagor personally
responsible for repayment.
Mortgage (Open-End)
A mortgage with a provision that permits
borrowing additional money in the future without refinancing the loan or
paying additional financing charges. Open-end provisions often limit
such borrowing to no more than would raise the balance to the original
loan figure.
Mortgagee
The lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage agreement.
P
Plat
A map or chart of a lot, subdivision or community drawn by a surveyor
showing boundary lines, buildings, improvements on the land, and easements.
Points
Sometimes called "discount points." A point is one percent of the amount
of the mortgage loan. For example, if a loan is for $25,000, one point is
$250. Points are charged by a lender to raise the yield on his loan at a
time when money is tight, interest rates are high, and there is a legal
limit to the interest rate that can be charged on a mortgage. Buyers are
prohibited from paying points on HUD or Veterans' Administration
guaranteed loans (sellers can pay, however). On a conventional mortgage,
points may be paid by either buyer or seller or split between them.
Prepayment
Payment of mortgage loan, or part of it, before due date. Mortgage
agreements often restrict the right of prepayment either by limiting the
amount that can be prepaid in any one year or charging a penalty for
prepayment. The Federal Housing Administration does not permit such
restrictions in FHA insured mortgages.
Principal
The basic element of the loan as distinguished from interest and mortgage
insurance premium. In other words, principal is the amount upon which
interest is paid.
Purchase Agreement
See agreement of sale.
R
Real Estate Broker
A middle man or agent who buys and sells real estate for a company, firm,
or individual on a commission basis. The broker does not have title to
the property, but generally represents the owner.
Refinancing
The process of the same mortgagor paying off one loan with the proceeds
from another loan.
Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive
covenants are created by deed and may "run with the land," binding all
subsequent purchasers of the land, or may be "personal" and binding only
between the original seller and buyer. The determination whether a
covenant runs with the land or is personal is governed by the language of
the covenant, the intent of the parties, and the law in the state where
the land is situated. Restrictive covenants that run with the land are
encumbrances and may affect the value and marketability of title.
Restrictive covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be erected, or
prevent particular businesses from operating or minority groups from
owning or occupying homes in a given area. (This latter discriminatory
covenant is unconstitutional and has been declared unenforceable by the
U.S. Supreme Court.)
T
Tax
As applied to real estate, an enforced charge imposed on persons,
property or income, to be used to support the state. The governing body
in turn utilizes the funds in the best interest of the general public.
Title
As generally used, the rights of ownership and possession of particular
property. In real estate usage, title may refer to the instruments or
documents by which a right of ownership is established (title documents),
or it may refer to the ownership interest one has in the real estate.
Title Insurance
Protects lenders or homeowners against loss of their interest in property
due to legal defects in title. Title insurance may be issued to a
"mortgagee's title policy." Insurance benefits will be paid only to the
"named insured" in the title policy, so it is important that an owner
purchase an "owner's title policy", if he desires the protection of title
insurance.
Title Search or Examination
A check of the title records, generally at the local courthouse, to make
sure the buyer is purchasing a house from the legal owner and there are
no liens, overdue special assessments, or other claims or outstanding
restrictive convenants filed in the record, which would adversely affect
the marketability or value of title.
Trustee
A party who is given legal responsibility to hold property in the best
interest of or "for the benefit of" another. The trustee is one placed
in a position of responsibility for another, a responsibility enforceable
in a court of law. (See deed of trust.)
