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.
Broker
(See real estate broker)
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction
may not extend. The building line may be established by a filed plat of
subdivision, by restrictive covenants in deeds or leases, by building
codes, or by zoning ordinances.
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 at 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 FeeThe 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.
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.
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.
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.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
HUD
U.S. Department of Housing and Urban Development. Office of
Housing/Federal Housing Administration within HUD insures home mortgage
loans made by lenders and sets minimum standards for such homes.
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.
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.)
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.)
Special Assessments
A special tax imposed on property, individual lots or all property in the
immediate area, for road construction, sidewalks, sewers, street lights, etc.
Special Lien
A lien that binds a specified piece of property, unlike a general lien,
which is levied against all one's assets. It creates a right to retain
something of value belonging to another person as compensation for labor,
material, or money expended in that person's behalf. In some localities
it is called "particular" lien or "specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to
protect the grantee against title defects or claims asserted by the
grantor and those persons whose right to assert a claim against the title
arose during the period the grantor held title to the property. In a
special warranty deed the grantor guarantees to the grantee that he has
done nothing during the time he held title to the property which has, or
which might in the future, impair the grantee's title.
State Stamps
(See documentary stamps.)
Survey
A map or plat made by a licensed surveyor showing the results of
measuring the land with its elevations, improvements, boundaries, and
its relationship to surrounding tracts of land. A survey is often
required by the lender to assure him that a building is actually sited on
the land according to its legal description.
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.)