Glossary

401(k)/403(b)
An employer-sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profit organizations.

401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.

Abstract of title
The condensed history of a title to a particular parcel of real estate, consisting of a summary of the original grant and all subsequent conveyances and encumbrances affecting the property and a certification by the abstractor that the history is complete and accurate.

Abutting
The joining, reaching, or touching of adjoining land. Abutting pieces of land have a common boundary.

Acceleration clause
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant.

Acceptance
An offeree’s consent to enter into a contract and be bound by the terms of the offer.

Accessed value
Accessed value is the valuation placed on property by a public tax assessor for purposes of taxation.

Accession
Acquiring title to additions or improvements to real property as a result of the annexation of fixtures or the accretion of alluvial deposits along the banks of streams.

Accretion
The increase or addition of land by the deposit of sand or soil washed up naturally from a river, lake or sea.

Accrued ltecs
On a closing statement, items of expense that are incurred but not yet payable, such as interest on a mortgage loan or taxes on real property.

Acknowled gement
A formal declaration made before a duly authorized officer, usually a notary public, by a person who has signed a document.

Acre
A measure of land equal to 43,560 square feet, 4,840 square yards, 4,047 square meters, 160 square rods or 0.4047 hectares.

Actual eviction
The legal process that results in the tenant’s being physically removed from the leased premises.

Actual notice
Express information or fact; that which is known; direct knowledge.

Additional principal payment
A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjustable-Rate Mortgage (ARM)
A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-of-funds index.

Adjusted basis
The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis.

Adjustment date
The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment period
The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Adjustment interval
On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, usually one, three or five years

Adjustments
Money that the buyer and sellers credit each other at the time of closing. Often includes taxes and down payment..

Administrator/Administratrix
A man/woman appointed by a court to settle the estate of a deceased person when there is no will. Contrast with executor/executrix.

Ad val orem tax
A tax levied according to value, generally used to refer to real estate tax. Also called the general tax.

Adverse possession
The actual, open, notorious, hostile and continuous possession of another’s land under a claim of title. Possession for a statutory period may be a means of acquiring title.

Affidavit of title
A written statement, made under oath by a seller or grantor of real property and acknowledged by a notary public, in which the grantor
(I) identifies himself or herself and indicates marital status,
(2) certifies that since the examination of the title on the date of the contracts no defects have occurred in the title and
(3) certifies that he or she is in possession of the property (if applicable).

Affiliate
An entity related to a Seller that is subject to common operating control and that is operated as part of the same system or enterprise. The Seller typically owns less than a majority of the voting stock or the Seller and the entity are subsidiaries of a third party.

Affordability analysis
A detailed analysis of your ability to afford the purchase of a home. An affordability analysis takes into consideration your income, liabilities, and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home, and the closing costs that you might expect to pay.

Affordable seconds
Subsidized secondary financing or other financial assistance provided under an established, documented secondary financing or financial assistance program that has formal procedures in place to provide applicant qualification, loan processing, and loan program administration on an ongoing basis.

Agency
The relationship between a principal and an agent wherein the agent is authorized to represent the principal in certain transactions.

Agency coupled with an interest
An agency relationship in which the agent is given an estate or interest in the subject of the agency (the property).

Agent
An authorized person who manages or transacts business for another. Laws governing real estate–especially relating to agents–vary considerably from state to state. While some standardization has been achieved, it is best to check the particulars in each state.

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 specific terms spelled out in writing and signed by both parties.

Air lot
A designated airspace over a piece of land. An air lot, like surface property, may be transferred.

Air rights
The right to use the open space above a property, usually allowing the surface to be used for another purpose.

Alienation
The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.

Alienation clause
The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. In effect this clause prevents the borrower from assigning the debt without the lender’s approval.

Allodial system
A system of land ownership in which land is held free and clear of any rent or service due to the government; commonly contrasted to the feudal system. Land is held under the allodial system in the United States.

Amenities
Non monetary benefits and satisfactions derived from property ownership, such as a pleasant view, pride in home ownership, etc.

American Land Title Association (ALTA) policy
A title insurance policy that protects the interest in a collateral property of a mortgage lender who originates a new real estate loan.

Ammendment
A modification to an existing contract, mutually agreed to by all parties. Examples might include a change in the pruchase price due to a low appraisal, or a change in the closing date.

Amortization
The operation of paying off indebtedness, such as a mortgage, by installments. The conventional amortization periods are15 or 30 years.

Amortization schedule
A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Amortization term
The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months. For example, for a 30-year fixed-rate mortgage, the amortization term is 360 months.

Amortize
To repay a mortgage with regular payments that cover both principal and interest.

Amortized loan
A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Amortized mortgage
A mortgage requiring periodic payments that include both interest and principal.

Annual membership
The amount that is charged annually for having a line of credit available. Often charged regardless of whether or not you use the line.

Annual mortgagor statement
A report sent to the mortgagor each year. The report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

Annual Percentage Rate (APR)
The relationship of the total finance charges associated with a loan. This must be disclosed to borrowers by lenders under the Truth-in-Lending Act.

Annuity
An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

Anticipation
The appraisal principle that holds that value can increase or decrease based on the expectation of some future benefit or detriment produced by the property.

Antitrust laws
Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition. Most violations of antitrust laws in the real estate business involve either price-fixing (brokers conspiring to set fixed compensation rates) or allocation of customers or markets (brokers agreeing to limit their areas of trade or dealing to certain areas or properties).

Application
An initial statement of personal and financial information, which is required to approve your loan.

Application fee
Fees that are paid upon application. Charges for property appraisal and a credit report are usually included in the application fee.

Appraisal
An estimate of the quantity, quality or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.

Appraised value
An estimate of the present worth.

Appraiser
A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appreciation
An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent; opposite of depreciation.

Appurtenance
A right, privilege or improvement belonging to, and passing with, the land.

Appurtenant easement
An easement that is annexed to the ownership of one parcel and allows the owner the use of the neighbor’s land.

ARM (Adjustable Rate Mortgage)
A financing technique in which the lender can raise or lower the mortgage interest rate according to a set index, such as six-month Treasury bills.

Asking (List) price
The price placed on property for sale.

Assemblage
The combining of two or more adjoining lots into one larger tract to increase their total value.

Assessed value
The valuation placed on property by a public tax assessor for purposes of taxation.

Assessment
The imposition of a tax, charge or levy, usually according to established rates.

Assessment report
Report that appraisers use to record property values, marketability analyses and any pertinent comments regarding the subject property. Assessment reports are classified as appraisal reports or inspection reports.

Assessor
A local government official who determines the value of the property for taxation purposes.

Asset
Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignee
A person to whom a property right is transferred. For example, an assignee may take over a lease from a tenant who wants to permanently move out before the lease expires. The assignee takes control of the property and assumes all the legal rights and responsibilities of the tenant, including payment of rent. However, the original tenant remains legally responsible if the assignee fails to pay the rent.

Assignment
The transfer in writing of interest in a bond, mortgage, lease or other instrument.

Assumable mortgage
An existing mortgage that can be taken over by the buyer on the same terms given to the original borrower.

Assumption
The transfer of the seller’s existing mortgage to the buyer. See assumable mortgage.

Assumption clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption fee
The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Assumption of mortgage
Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

Attachment
The act of taking a person’s property into legal custody by writ or other judicial order to hold it available for application to that person’s debt to a creditor.

Attorney-in-fact
One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

Attorney’s opinion of title
An abstract of title that an attorney has examined and has certified to be, in his or her opinion, an accurate statement of the facts concerning the property ownership.

Attractive nuisance
Something on a piece of property that attracts children but also endangers their safety. For example, unfenced swimming pools, open pits, farm equipment and abandoned refrigerators have all qualified as attractive nuisances.

Auction
A public sale of property to the highest bidder.

Automatic extension
A clause in a listing agreement that states that the agreement will continue automatically for a certain period of time after its expiration date. In many states, use of this clause is discouraged or prohibited.

Avulsion
The sudden tearing away of land, as by earthquake, flood, volcanic action or the sudden change in the course of a stream.

Balance
The appraisal principle that states that the greatest value in a property will occur when the type and size of the improvements are proportional to each other as well as the land.

Balance sheet
A financial statement that shows assets, liabilities, and net worth as of a specific date.

Balloon mortgage
A mortgage where the final payment is considerably larger than the preceding payments. Contrast with amortized mortgage.

Balloon payment
A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Bank draft
A payment method where your loan payment is automatically deducted from your checking or savings account, so you don’t have to mail in your payment each month.

Bankrupt
A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy
A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Bargain and sale deed
A deed that carries with it no warranties against liens or other encumbrances but that does imply that the grantor has the right to convey title. The grantor may add warranties to the deed at his or her discretion.

Base line
The main imaginary line running east and west and crossing a principal meridian at a definite point, used by surveyors for reference in locating and describing land under the rectangular (government) survey system of legal description.

Basis
The financial interest that the Internal Revenue Service attributes to an owner of an investment property for the purpose of determining annual depreciation and gain or loss on the sale of the asset. If a property was acquired by purchase, the owner’s basis is the cost of the property plus the value of any capital expenditures for improvements to the property, minus any depreciation allowable or actually taken. This new basis is called the adjusted basis.

Before-tax income
Income before taxes are deducted.

Bench mark
A permanent reference mark or point established for use by surveyors in measuring differences in elevation.

Beneficiary
(1) The person for whom a trust operates or in whose behalf the income from a trust estate is drawn.
(2) A lender in a deed of trust loan transaction.

Bequeath
To transfer personal property through a will.

Best faith estimate
An estimate of the total costs for securing a real estate loan, that is given to borrowers prior to closing.

Betterment
An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

Bilateral contract
A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Bill of sale
A written instrument given to pass title to personal property.

Binder
An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser’s good faith and intent to complete the transaction.

Biweekly payment mortgage
A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fixed-rate mortgage, and they are usually drafted from the borrower’s bank account. The result for the borrower is a substantial savings in interest.

Blanket insurance policy
A single policy that covers more than one piece of property (or more than one person).

Blanket loan
A mortgage covering more than one parcel of real estate, providing for each parcel’s partial release from the mortgage lien upon repayment of a definite portion of the debt.

Blanket mortgage
One mortgage on a number of parcels of real property.

Blockbusting
The illegal practice of inducing homeowners to sell their properties by making representations regarding the entry or prospective entry of persons of a particular race or national origin into the neighborhood.

Blue-sky laws
Common name for those state and federal laws that regulate the registration and sale of investment securities.

Bona fide
In good faith, without fraud.

Bond
(1) A written agreement purchased from a bonding company that guarantees a person will properly carry out a specific act, such as managing funds, showing up in court, providing good title to a piece of real estate or completing a construction project. If the person who purchased the bond fails at his or her task, the bonding company will pay the aggrieved party an amount up to the value of the bond.
(2) An interest-bearing document issued by a government or company as evidence of a debt. A bond provides pre-determined payments at a set date to the bond holder. Bonds may be “registered” bonds, which provide payment to the bond holder whose name is recorded with the issuer and appears on the bond certificate, or “bearer” bonds, which provide payments to whomever holds the bond in-hand. Mortgage interest rates are closely related to long term bond interest rates.

Bond market
Usually refers to the daily buying and selling of thirty year treasury bonds. Lenders follow this market intensely because as the yields of bonds go up and down, fixed rate mortgages do approximately the same thing. The same factors that affect the Treasury Bond market also affect mortgage rates at the same time. That is why rates change daily, and in a volatile market can and do change during the day as well.

Bonus to selling agent (BTSA)
Compensation, above and beyond the sales commission, offered to the real estate agent who brings the buyer to the transaction. A BTSA is used to provide an extra incentive for real estate agents to show a particular listing. Often the bonus is tied to closing within a certain time period or the property selling for a certain price. A buyer’s agent should not consider the BTSA a factor in any negotiations between buyer and seller. Realistically, most BTSA’s tend to disappear during initial negotiations, eventhough they should never be considered as negotiable after they have been offered. Any bonus to selling agent should be contained in a written agreement between the seller and listing broker. The BTSA is technically offered by the listing broker, not the seller, and thus should not be a subject of negotiation.

Boot
Money or property given to make up any difference in value or equity between two properties in an exchange.

Branch office
A secondary place of business apart from the principal or main office from which real estate business is conducted. A branch office usually must be run by a licensed real estate broker working on behalf of the broker.

Breach
A violation of any legal obligation.

Breach of contract
Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.

Bridge loan
A form of second trust that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as “swing loan.”

Broker
One who acts as an intermediary on behalf of others for a fee or commission.

Brokerage
The bringing together of parties interested in making a real estate transaction.

BTSA
Acronym – bonus to selling agent.

Budget
A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

Budget category
A category of income or expense data that you can use in a budget. You can also define your own budget categories and add them to some or all of the budgets you create. “Rent” is an example of an expense category. “Salary” is a typical income category.

Buffer zone
A strip of land, usually used as a park or designated for a similar use, separating land dedicated to one use from land dedicated to another use
(e.g., residential from commercial).

Building code
An ordinance that specifies minimum standards of construction for buildings to protect public safety and health.

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 set by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Building permit
Written governmental permission for the construction, alteration or demolition of an improvement, showing compliance with building codes and zoning ordinances.

Bundle of legal rights
The concept of land ownership that includes ownership of all legal rights to the land–for example, possession, control within the law and enjoyment.

Buydown
A financing technique used to reduce the monthly payments for the first few years of a loan. Funds in the form of discount points are given to the lender by the builder or seller to buy down or lower the effective interest rate paid by the buyer, thus reducing the monthly payments for a set time.

Buydown account
An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in effect.

Buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower’s monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

Buyer-agency agreement
A principal-agent relationship in which the broker is the agent for the buyer, with fiduciary responsibilities to the buyer. The broker represents the buyer under the law of agency.

Buyer agent
An agent who represents the buyer in a real estate transaction. A buyer agent may be paid by the buyer, seller, or listing agent at closing, provided all parties consent.

Buyer’s broker
A licensee who has declared to represent only the buyer in a transaction, regardless of whether compensation is paid by the buyer or the listing broker through a commission split. Some brokers conduct their business by representing buyers only.

Calendar Year
A year using the actual number of days in each month for a total of 365 days in a year (366 days in a leap year).

Call option
A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Cap
The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Capital
(1) Money used to create income, either as an investment in a business or an income property. (2) The money or property comprising the wealth owned or used by a person or business enterprise. (3) The accumulated wealth of a person or business. (4) The net worth of a business represented by the amount by which its assets exceed liabilities.

Capital expenditure
The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital gain
Profit earned from the sale of an asset.

Capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Capitalization
A mathematical process for estimating the value of a property using a proper rate of return on the investment and the annual net operating income expected to be produced by the property. The formula is expressed as
Income ——– = Value Rate.

Capitalization rate
The rate of return a property will produce on the owner’s investment.

Cash flow
The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. When expenses exceed income, a negative cash flow results.

Cash out
Receiving money back when refinancing your present mortgage.

Cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash that can be used for any purpose.

Cash rent
In an agricultural lease, the amount of money given as rent to the landowner at the outset of the lease, as opposed to sharecropping.

Caveat emptor
A Latin phrase meaning “Let the buyer beware.”

Ceiling
The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Census
An official count of the number of people living in a certain area, such as a district, city, county, state, or nation. The United States Constitution requires the federal government to perform a national census every ten years. The census includes information about the respondents’ sex, age, family, and social and economic status.

Certificate of deposit
A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period.

Certificate of deposit index
An index that is used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six-month negotiable certificates of deposit. See adjustable-rate mortgage (ARM).

Certificate of eligibility
The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of reasonable value (CRV)
A form indicating the appraised value of a property being financed with a VA loan.

Certificate of sale
The document generally given to the purchaser at a tax foreclosure sale.
A certificate of sale does not convey title; normally it is an instrument certifying that the holder received title to the property after the redemption period passed and that the holder paid the property taxes for that interim period.

Certificate of title
A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

Chain of title
The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.

Change
The appraisal principle that holds that no physical or economic condition remains constant.

Change frequency
The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Channeling
The illegal practice of directing people to, or away from, certain areas or neighborhoods because of minority status; Steering.

Chattel
Items, called chattels, that do not fit into the definition of real property; movable objects.

Civil rights act of 1866
An act that prohibits racial discrimination in the sale and rental of housing.

Cleaning fee
A nonrefundable fee charged by a landlord when a tenant moves in. The fee covers the cost of cleaning the rented premises after you move out, even if you leave the place spotless. Cleaning fees are illegal in some states and specifically allowed in others, but most state laws are silent on the issue. Landlords in every state are allowed to use the security deposit to clean a unit that is truly dirty.

Clear title
A land title that doesn’t have any liens (including a mortgage) against it.

CLO (Computerized Loan Origination)
A computer network of major lenders that allows agents to initiate mortgage applications in their office. HUD has approved the procedure as long as 1) full disclosure is made of the fee; 2) multiple lenders are displayed on the computer screen to give borrowers a basis for comparison; 3) the fee charged is a dollar amount rather than a percentage of the loan.

Closing
The point at which real estate formally changes ownership. Closing costs are fees paid for services associated with a home’s closing such as title insurance, surveying fees, recording fees, deeds, and affidavits.

Closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney’s fees. Many closing cost items are included as numbered items on the HUD-1 statement.

Closing costs
Costs the buyer must pay at the time of the closing in addition to the down payment which may include points, title charges, credit report fee, document preparation fee, mortgage insurance premium, inspections, appraisals, prepayments for property taxes, deed recording fee, and homeowners insurance. Closing costs can vary considerably from one financial institution to another.

Closing statement
A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction.

Cloud on title
Any document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

Clustering
The grouping of homesites within a subdivision on smaller lots than normal, with the remaining land used as common areas.

CMA (Competitive Market Analysis)
A method of determining the value of a property by comparing the prices paid for similar properties.Code of Ethics A written standard of ethical conduct embraced by the NATIONAL ASSOCIATION OF REALTORS®, a trade organization of more than 700,000 members representing all branches of the real estate industry.

Code of ethics
A written system of standards for ethical conduct.

Codicil
A supplement or an addition to a will, executed with the same formalities as a will, that normally does not revoke the entire will.

Coinsurance
A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Coinsurance clause
A clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage generally equal to at least 80 percent of the property’s actual replacement cost.

Collateral
Something of value deposited with a lender as a pledge to secure repayment of a loan.

Collection
The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Co-maker
A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

Commingling
The illegal act by a real estate broker of placing client or customer funds with personal funds. By law brokers are required to maintain a separate trust or escrow account for other parties’ funds held temporarily by the broker.

Commission
Payment to a broker for services rendered, such as in the sale or purchase of real property; usually a percentage of the selling price of the property.

Commitment letter
A formal offer by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a “loan commitment.”

Common area assessments
Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners’ association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc

Common elements
Parts of a property that are necessary or convenient to the existence, maintenance and safety of a condominium or are normally in common use by all of the condominium residents. Each condominium owner has an undivided ownership interest in the common elements.

Common law
The body of law based on custom, usage and court decisions.

Community Home Improvement Mortgage Loan®
An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs. The repair work can account for as much as 30 percent of the appraised value.

Community Land Trust Mortgage Loan
An alternative financing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofit Community Land Trust and to lease the land on which the property stands.

Community property
A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law found predominantly in western states; the system was unknown under English common law.

Community reinvestment act
The federal law which requires federally regulated lenders to describe the geographical market area they serve. Deposits from that area are to be reinvested in that area whenever practical.

Community seconds®
An alternative financing option for low- and moderate-income households under which an investor purchases a first mortgage that has a subsidized second mortgage behind it. The second mortgage may be issued by a state, county, or local housing agency, foundation, or nonprofit organization. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate at all). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

Comparables
Properties used in an appraisal report that are substantially equivalent to the subject property.

Competition
The appraisal principle that states that excess profits generate competition.

Competitive market analysis (CMA)
A comparison of the prices of recently sold homes that are similar to a listing seller’s home in terms of location, style and amenities.

Compound interest
Interest which is computed on the principal and any unpaid accumulated interest.

Comprehensive plan
A comprehensive plan to guide the long-term physical development of a particular area.

Condemnation
A judicial or administrative proceeding to exercise the power of eminent domain, through which a government agency takes private property for public use and compensates the owner.

Conditional-use permit
Written governmental permission allowing a use inconsistent with zoning but necessary for the common good, such as locating an emergency medical facility in a predominantly residential area.

Condominium
The absolute ownership of a unit in a multi-unit building based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the com- mon elements, which are owned jointly with the other condominium unit owners.

Condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium hotel
A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

Confession of judgement clause
Permits judgment to be entered against a debtor without the creditor’s having to institute legal proceedings.

Conformity
The appraisal principle that holds that the greater the similarity among properties in an area, the better they will hold their value.

Consideration
(1) That received by the grantor in exchange for his or her deed.
(2) Something of value that induces a person to enter into a contract.

Construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Constructive eviction
Actions of a landlord that so materially disturb or impair a tenant’s enjoyment of the leased premises that the tenant is effectively forced to move out and terminate the lease without liability for any further rent.

Constructive notice
Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

Consumer Credit Counseling Service (CCCS)
A national non-profit agency that, at no cost, helps debtors plan budgets and repay their debts. One major criticism of CCCS is that each office is primarily funded by voluntary donations from the creditors that receive payments from debtors repaying their debts through that office. The goal of CCCS is to insure that consumers repay the debts that they owe. CCCS may arrange easy payment plans that increase the chances for repayment, but harm a consumer’s credit in the process. Agreeing to a payment plan and following it to the letter may not stop creditors from reporting delinquent repayment information to credit bureaus for each month the payment falls short of the previous minimum amount.

Consumer reporting agency (or bureau)
An organization that prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Contingency
A provision in a contract that requires a certain act to be done or a certain event to occur before the contract becomes binding.

Contract
A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy.
A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed.

Contract for deed
A contract for the sale of real estate where the deed (title) of the property is transferred only after all the payments have been made. Also known as a land contract, agreement of sale, conditional sales contract, or installment contract. Buyers should be wary of this type of contract, since they can lose their entire investment if the owner declares brankruptcy, before the deed has been transferred.

Contract for exchange of real estate
A contract for the sale of real estate in which the consideration is paid wholly or partly in real property instead of cash.

Contract of sale
The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Contribution
The appraisal principle that states that the value of any component of a property is what it gives to the value of the whole or what its absence detracts from that value.

Conventional loan
A loan that requires no insurance or guarantee.

Conventional mortgage
A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.

Convertibility clause
A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes after loan origination.

Convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

Conveyance
A term used to refer to any document that transfers title to real property.
The term is also used in describing the act of transferring.

Cooperating broker
The broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the cooperating broker, from whose office negotiations leading up to a sale are initiated. The listing broker and the cooperating broker may be the same person.

Cooperative (Co-op)
A residential multi-unit building whose title is held by a trust or corporation that is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corporation, each possessing a proprietary lease.

Cooperative corporation
A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Cooperative housing
(1) A form of real estate, usually a dwelling in which residents own shares, but do not directly own the space they inhabit. Rather, owning a share of the building entitles the shareholder with the right to inhabit a certain space within the dwelling, such as an apartment. Shares are usually proportional to the amount of space in each apartment.
(2) A living arrangement in which residents must perform certain duties or chores to benefit the entire residence, in addition to paying room and board. A common form of dormitory living.

Cooperative mortgages
Mortgages related to a cooperative project. This usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

Cooperative project
A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

Cooperative sale
A sale of property in which the buyer is brought to the transaction by a real estate agent who works for a different real estate broker than the listing agent. Both brokers/companies have agreed to cooperate in closing the property, and typically, splitting the commission. Offers of cooperation and compensation are commonly found in the MLS property listings.

Co-ownership
Title ownership held by two or more persons.

Corporate relocation
Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Corporation
An entity or organization, created by operation of law, whose rights of doing business are essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures.

Correction lines
Provisions in the rectangular survey (government survey) system made to compensate for the curvature of the earth’s surface. Every fourth township line (at 24-mile intervals) is used as a correction line on which the intervals between the north and south range lines are remeasured and corrected to a full six miles.

Cost approach
The process of estimating the value of a property by adding to the estimated land value the appraiser’s estimate of the reproduction or replacement cost of the building, less depreciation.

Cost of funds index (COFI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See adjustable-rate mortgage (ARM).

Cost recovery
An Internal Revenue Service term for depreciation.

Co-tenants
Two or more tenants who rent the same property under the same lease or rental agreement. Each co-tenant is 100% responsible for carrying out the rental agreement, which includes paying the entire rent if the other tenant skips town and paying for damage caused by the other tenant.

Counter offer
A new offer made in response to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.

Covenant
A written agreement between two or more parties in which a party or parties pledge to perform or not perform specified acts with regard to property; usually found in such real estate documents as deeds, mortgages, leases and contracts for deed.

Covenant of quiet enjoyment
The covenant implied by law by which a landlord guarantees that a tenant may take possession of leased premises and that the landlord will not interfere in the tenant’s possession or use of the property.

Covenants, conditions & restrictions (CC&R)
The restrictions governing the use of real estate, usually enforced by a homeowners’ association and passed on to the new owners of property. For example, CC&Rs may tell you how big your house can be, how you must landscape your yard or whether you can have pets. If property is subject to CC&Rs, buyers must be notified before the sale takes place.

Credit
On a closing statement, an amount entered in a person’s favor–either an amount the party has paid or an amount for which the party must be reimbursed.

Credit bureau
A private, profit-making company that collects and sells information about a person’s credit history. Typical clients include banks, mortgage lenders and credit card companies that use the information to screen applicants for loans and credit cards. There are three major credit bureaus, Equifax, Experian and Trans Union, and they are regulated by the federal Fair Credit Reporting Act.

Credit file
An account of your credit history, prepared by a credit bureau. A credit report will contain both credit history, such as what you owe to whom and whether you make the payments on time, as well as personal history, such as your former addresses, employment record and lawsuits in which you have been involved. An estimated 50% of all credit reports contain errors, such as accounts that don’t belong to you, an incorrect account status or information reported that is older than seven years (ten years in the case of a bankruptcy).

Credit history
A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit insurance
Insurance a lender offers or requires a borrower to purchase to cover the loan.
If the borrower dies or becomes disabled before paying off the loan, the policy will pay off the remaining balance. Federal and state consumer protection laws require the lender to disclose to existing and potential borrowers the terms and costs of obtaining credit insurance because it can affect the terms of the loan.

Credit life insurance
A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Credit limit
The maximum amount that you can borrow under a home equity plan.

Creditor
A person or entity (such as a bank) to whom a debt is owed.

Credit report
An account of your credit history, prepared by a credit bureau. A credit report will contain both credit history, such as what you owe to whom and whether you make the payments on time, as well as personal history, such as your former addresses, employment record and lawsuits in which you have been involved. An estimated 50% of all credit reports contain errors, such as accounts that don’t belong to you, an incorrect account status or information reported that is older than seven years (ten years in the case of a bankruptcy).

Credit repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Credit score
In the mortgage lending world, credit scores either make or break you when it comes to obtaining a home mortgage or getting the best rate you can. There are three different scores available to a mortgage lender each being generated by the three different credit agencies. The most popular, known as a Fico score is from Experian (formally TRW), then there is a Beacon score from Equifax, and finally a Emperica score from Trans Union. This is the “mortgage scoring” system used to get a conventional mortgage.
Simply, credit scores are numbers calculated based upon your credit history. The better your credit, the higher your number or score will be – the worse your credit, the lower the score. The number of inquiries or times your credit has been pulled in the past 90 days will also lower your “score”. In some instances, lack of credit results in “no score” on your report requiring you to provide “alternative credit” via your rental, utility or telephone payment histories. There’s plenty you can do to improve your score if you know how the system works. Just don’t expect much help from your lender–most consider the actual formulas a trade secret and don’t want people angling for an advantage. Congress is currently working on legislation to provide consumers with access to their credit scores and the formulas used to calculate these scores.
There are some lenders that do not rely on credit scores to the degree that most do. Some times, credit reports contain inaccuracies that lower your score, this is when a lender has to use a common sense approach to approving your loan. In some instances you may have to correct your credit report, wait for your score to improve, then reapply for the loan. Talk with your mortgage broker or lender to understand what your options are.

CRS (Certified Residential Specialist)
A professional designation awarded to experienced agents who complete an advanced course of study in residential real estate and demonstrate proficiency in sales and production. CRS Designees are members of the Residential Sales Council, a not-for-profit affiliate of the NATIONAL ASSOCIATION OF REALTORS®.

Cul-de-sac
A dead end street which widens sufficiently at the end to permit an automobile to make a “U” turn.

Curtest
A life estate, usually a fractional interest, given by some states to the surviving husband in real estate owned by his deceased wife. Most states have abolished curtesy.

Datum
A horizontal plane from which heights and depths are measured.

DBA
Doing Business As. Business names or aliases filed with the county.

Debenture
Bonds issued without security.

Debit
On a closing statement, an amount charged; that is, an amount that the debited party must pay.

Debt
An amount owed to another.

Debt service
The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Debt-service ratio
The measurement of debt payments to gross household income which may include, in addition to the main wage earner’s salary, salaries of other wage earners, commissions, bonuses, overtime, etc.

Decedent
A person who has died.

Deceptive trade practices act
Part of the federal Consumer Protection Act originally passed in 1973 and made specifically applicable to real estate in 1975, specifically prohibiting a lengthy number of false, misleading and deceptive acts or practices. The Texas Supreme Court has defined a deceptive trade practice as one “which has the capacity to deceive an average, ordinary person, even though that person may have been ignorant, unthinking, or credulous.”

Dedication
The voluntary transfer of private property by its owner to the public for some public use, such as for streets or schools.

Deduction
In tax law, an amount that you can subtract from the total amount on which you owe tax. Examples of federal income tax deductions include mortgage interest, charitable contributions and certain state taxes. For example, if Aimee receives an income of $60,000 in 1998 and pays $12,000 in mortgage interest during that same year, she can deduct $12,000 when she fills out her federal tax return, leaving an amount of $48,000 upon which she must pay tax.

Deed
A written instrument that, when executed and delivered, conveys title to or an interest in real estate.

Deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a “voluntary conveyance.”

Deed in lieu of foreclosure
A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.

Deed in trust
An instrument that grants a trustee under a land trust full power to sell, mortgage and subdivide a parcel of real estate. The beneficiary controls the trustee’s use of these powers under the provisions of the trust agreement.

Deed of trust
An instrument of conveyance of title to property wherein the transferre will be holding the title to the property on behalf on another person.

Deed restriction
Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions, for example, they may limit the density of buildings, dictate the types of structures that can be erected or prevent buildings from being used for specific purposes or even from being used at all.

Default
The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

Defeasance clause
A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

Defeasanse
A clause in a deed, lease, will or other legal document that completely or partially negates the document if a certain condition occurs or fails to occur. Defeasance also means the act of rendering something null and void. For example, a will may provide that a gift of property is defeasable–that is, it will be void–if the beneficiary fails to marry before the willmaker’s death.

Defeasible fee estate
An estate in which the holder has a fee simple title that may be divested upon the occurrence or nonoccurrence of a specified event. There are two categories of defeasible fee estates: fee simple on condition precedent (fee simple determinable) and fee simple on condition subsequent.

Deficiency judgement
Point levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

Delinquency
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.

Delivery
The actual transfer of the deed, or an act of a seller showing intent to make a deed effective, without which, there is no transfer of title to the property.

Demand
The amount of goods people are willing and able to buy at a given price; often coupled with supply.

Density zoning
Zoning ordinances that restrict the maximum average number of houses per acre that may be built within a particular area, generally a subdivision.

Deposit
A sum of money given in advance of a larger amount being expected in the future. Often called in real estate as an “earnest money deposit.”

Depreciation
(I) In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and external obsolescence.
(2) In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.

Descent
Acquisition of an estate by inheritance in which an heir succeeds to the property by operation of law.

Developer
One who attempts to put land to its most profitable use through the construction of improvements.

Devise
A gift of real property by will. The donor is the devisor, and the recipient is the devisee.

Disclosure
Revealing what previously was private knowledge. Any statement of fact that is required by law.

Discount
Difference between the face amount of a note or mortgage and the price at which the instrument is sold in the secondary market.

Discount point
A unit of measurement used for various loan charges; one point equals 1 percent of the amount of the loan.

Discount rate
(1) The rate charged member banks who borrow from the Federal Reserve System.
(2) The rate used to convert future income into present value.

Dispossess
To oust from land by legal process.

Dominant tenement
A property that includes in its ownership the appurtenant right to use an easement over another person’s property for a specific purpose.

Dower
The legal right or interest, recognized in some states, that a wife acquires in the property her husband held or acquired during their marriage. During the husband’s lifetime the right is only a possibility of an interest; upon his death it can become an interest in land.

Down payment
A percentage of the purchase price the buyer pays in cash.

Dual agency
Representing both parties to a transaction. This is unethical unless both parties agree to it, and it is illegal in many states.

Due on sale
A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Due-on-sale-clause
A provision in the mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.

Due-on-sale-provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

Due-on-transfer provision
This terminology is usually used for second mortgages. See due-on-sale provision.

Duress
Unlawful constraint or action exercised upon a person whereby the person is forced to perform an act against his or her will. A contract entered into under duress is voidable.

Earnest money
Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied to the purchase price if the sale is closed.

Earnest money contract (EMC)
A contract for the sale or purchase of real estate in which the purchaser is required to tender earnest money to evidence good faith in completing the contractual obligations. Almost every sales contract for real estate in Texas will be an earnest money contract.

Earnest money deposit
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

Easement
A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land.

Easement by condemnation
An easement created by the government or government agency that has exercised its right under eminent domain.

Easement by necessity
An easement allowed by law as necessary for the full enjoyment of a parcel of real estate; for example, a right of ingress and egress over a grantor’s land.

Easement by prescription
An easement acquired by continuous, open and hostile use of the property for the period of time prescribed by state law.

Easement in gross
An easement that is not created for the benefit of any land owned by the owner of the easement but that attaches personally to the easement owner. For example, a right granted by Eleanor Franks to Joe Fish to use a portion of her property for the rest of his life would be an easement in gross.

Economic life
The number of years during which an improvement will add value to the land.

Economic obsolescence
Loss of value of real property due to external forces or events; eg., a sewer plant is built next door to the subject property.

Effective age
An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective gross income
Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Effective interest rate
The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Effluxion of time
The normal expiration of a lease due to the passage of time, rather than due to a specific event that might cause the lease to end, such as destruction of the building.

Egress
An exit, or the act of exiting. The most famous use of this word was by P.T. Barnum, who put up a large sign in his circus tent saying “This Way to the Egress.” Thinking an egress was some type of exotic bird, people eagerly went though the passage and found themselves outside the circus tent.

Emblements
Growing crops, such as grapes and corn, that are produced annually through labor and industry; also called fructus industriales.

Eminent domain
The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.

Employee
Someone who works as a direct employee of an employer and has employee status. The employer is obligated to withhold income taxes and social security taxes from the compensation of employees. See also independent contractor.

Employer-assisted housing
A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

Employment contract
A document evidencing formal employment between employer and employee or between principal and agent. In the real estate business this generally takes the form of a listing agreement or management agreement.

Enabling acts
State legislation that confers zoning powers on municipal governments.

Enclave community
Smaller in scope than master-planned communities, enclave communities typically blend different price ranges of residential neighborhoods with amenities such as public recreation areas and parks, neighborhood schools and extensive landscaping. Recreation areas may include public swimming pools, tennis courts, and children’s play grounds. Many offer large water features and gated access.

Encroachment
A building–or some portion of it–a wall or fence for instance, that extends beyond the land of the owner and illegally intrudes on some land of an adjoining owner or a street or alley.

Encumbrance
Anything, such as a mortgage, tax, or judgment lien, an easement, a restriction on the use of the land or an outstanding dower right that may diminish the value or use and enjoyment of a property.

Endorsement
Writing one’s name, either with or without additional words, on a negotiable instrument, or on a paper attached to it.

Endorser
A person who signs ownership interest over to another party. Contrast with co-maker.

Equal credit opportunity act (ECOA)
The federal law that prohibits discrimination in the extension of credit because of race, color, religion, national origin, sex, age or marital status.

Equalization
The raising or lowering of assessed values for tax purposes in a particular county or taxing district to make them equal to assessments in other counties or districts.

Equalization factor
A factor (number) by which the assessed value of a property is multiplied to arrive at a value for the property that is in line with statewide tax assessments. The ad valorem tax would be based on this adjusted value.

Equal treatment/Different impact
It is possible to be guilty of discrimination even by treating two individuals the same. If the results of the treatment are discriminatory, or tend to exclude or otherwise harm members of a minority group, or have discriminatory impact, they are against the law. For example, an apartment house which rents only to doctors and lawyers, where there are few, if any, minority doctors or lawyers in the area, may be a violation of the Fair Housing Laws.

Equitable lien
A lien imposed on property by statute, a tax lien, for example–in contrast to an equitable lien, which arises out of common law.

Equitable right of redemption
The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges.

Equitable title
The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name.

Equity
The interest or value that an owner has in property over and above any indebtedness.

Erosion
The gradual wearing away of land by water, wind and general weather conditions; the diminishing of property by the elements.

Escalator clause
The clause in a contract permitting adjustments of the payments.

Escheat
The reversion of property to the state or county, as provided by state law, in cases where a decedent dies intestate without heirs capable of inheriting, or when the property is abandoned.

Escrow
The closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.

Escrow account
The trust account established by a broker under the provisions of the license law for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction.

Escrow analysis
Once each year your lender will perform an “escrow analysis” to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

Escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow instructions
A document that sets forth the duties of the escrow agent, as well as the requirements and obligations of the parties, when a transaction is closed through an escrow.

Escrow payment
The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as “impounds” or “reserves” in some states.

Estate
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Estate (tenancy) at sufferance
The tenancy of a lessee who lawfully comes into possession of a landlord’s real estate but who continues to occupy the premises improperly after his or her lease rights have expired.

Estate (tenancy) at will
An estate that gives the lessee the right to possession until the estate is terminated by either party; the term of this estate is indefinite.

Estate (tenancy) for years
An interest for a certain, exact period of time in property leased for a specified consideration.

Estate (tenancy) from period to period
An interest in leased property that continues from period to period, week to week, month to month or year to year.

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

Estate taxes
Federal taxes on a decedent’s real and personal property.

Estimate of value
An appraisal; the appraised value.

Estoppel
Method of creating an agency relationship in which someone states incorrectly that another person is his or her agent, and a third person relies on that representation.

Estoppel certificate
A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.

Ethics
The system of moral principles and rules that becomes standards for professional conduct.

Et ux
Abbreviation for “et uxor”, meaning “and wife”.

Eviction
A legal process to oust a person from possession of real estate.

Evidence of title
Proof of ownership of property; commonly a certificate of title, an abstract of title with lawyer’s opinion, title insurance or a Torrens registration certificate.

Examination of title
The report on the title of a property from the public records or an abstract of the title.

Exchange
A transaction in which all or part of the consideration is the transfer of like-kind property (such as real estate for real estate).

Exclusive-agency listing
A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time to sell the property, on the owner’s stated terms, for a commission. The owner reserves the right to sell without paying anyone a commission if he or she sells to a prospect who has not been introduced or claimed by the broker.

Exclusive listing
A written agreement in which the seller appoints only one agent to market the property for a specific period of time. If the owner sells the property himself, he is not required to pay a commission.

Exclusive right-to-sell listing
A listing contract under which the owner appoints a real estate broker as his or her exclusive agent for a designated period of time, to sell the property on the owner’s stated terms, and agrees to pay the broker a commission when the property is sold, whether by the broker, the owner or another broker.

Exculpatory clause
A provision in a lease that absolves the landlord from responsibility for all damages, injuries or losses occurring on the property, including those caused by the landlord’s actions. Most states have laws that void exculpatory clauses in rental agreements, which means that a court will not enforce them.

Executed contract
A contract in which all parties have fulfilled their promises and thus performed the contract.

Execution
The signing and delivery of an instrument. Also, a legal order directing an official to enforce a judgment against the property of a debtor.

Executor/executrix
A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.

Executory contract
A contract under which something remains to be done by one or more of the parties.

Express agreement
An oral or written contract in which the parties state the contract’s terms and express their intentions in words.

Express contract
An oral or written contract in which the parties state the contract’s terms and express their intentions in words.

Expropriation
The right of government to take private property for public use, through court action known as condemnation. The Fifth Amendment to the United States Constitution allows the government to take private property if the taking is for a public use and the owner is “justly compensated” (usually, paid fair market value) for his or her loss. A public use is virtually anything that is sanctioned by a federal or state legislative body, but such uses may include roads, parks, reservoirs, schools, hospitals or other public buildings. Sometimes called expropriation.

External depreciation
Reduction in a property’s value caused by outside factors (those that are off the property).

Fair credit reporting act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one’s credit record.

Fair housing act
The federal law that prohibits discrimination in housing based on race, color, religion, sex, handicap, familial status and national origin.

Fair housing laws
Federal, state, and local laws, particularly Title VIII of the 1968 Civil Rights Act, Title VI of the Civil Rights Act of 1964, and the Civil Rights Act of 1866, which forbid discrimination because of race, sex, color, religion, or national origin, in the selling or renting of homes or apartments, and in other specified transactions. These laws have been recently been expanded to include familial status (having children) and disabilities (Americans with Disabilities Act).

Fair market value
The highest price that a buyer, willing but not compelled to buy, would pay,
and the lowest a seller, willing but not compelled to sell, would accept.

Fannie mae
A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

Fannie mae’s community home buyer’s program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.

Fannie 97®
A financing option for a fixed-rate mortgage that offers home buyers a 3 percent down payment loan with either a 25- or 30-year term. The mortgage features a loan-to-value (LTV) percentage of 97 percent, and is designed to expand homeownership opportunities for people with modest incomes. Borrowers must take a pre-purchase home-buyer education session to qualify for a Fannie 97 mortgage.

Farmer’s home administration (FmHA)
An agency of the federal government that provides credit assistance to farmers and other individuals who live in rural areas.

Federal deposit insurance corporation (FDIC)
An independent federal agency that insures the deposits in commercial banks.

Federal emergency management agency (FEMA)
FEMA is the governmental unit that has leadership responsibilities for the Nation’s emergency management system. Once the President has declared a major disaster, FEMA coordinates not only its own response activities but also those of as many as 28 other Federal agencies that may participate. FEMA also works with States, territories, and communities during non-disaster periods to help plan for disasters, develop mitigation programs, and anticipate what will be needed when major disasters occur. Among its many responsibilities the agency operates the Federal Insurance Administration, which makes flood insurance available to residents of communities that agree to adopt and enforce sound floodplain management practices.

Federal home loan mortgage corporation (FHLMC)
A corporation established to purchase primarily conventional mortgage loans in the secondary mortgage market.

Federal housing administration (FHA)
A federal agency established to improve housing standards and conditions.
The FHA provides mortgage insurance to approved lending institutions.

Federal national mortgage association (FNMA)
A quasi-government agency established to purchase any kind of mortgage loans in the secondary mortgage market from the primary lenders.

Federal reserve system
The country’s central banking system, which is responsible for the nation’s monetary policy by regulating the supply of money and interest rates.

Fee simple
The greatest possible interest a person can have in real estate.

Fee simple absolute
The maximum possible estate or right of ownership of real property, continuing forever.

Fee simple defeasible
An estate in which the holder has a fee simple title that may be divested upon the occurrence or nonoccurrence of a specified event. There are two categories of defeasible fee estates: fee simple on condition precedent (fee simple determinable) and fee simple on condition subsequent.

Fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

Feudal system
A system of ownership usually associated with precolonial England, in which the king or other sovereign is the source of all rights. The right to possess real property was granted by the sovereign to an individual as a life estate only.

FHA coinsured mortgage
A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor’s default.

FHA loan
A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA’s regulations.

FHA Mortgage
A mortgage that is insured by the Federal Housing Administration (FHA).
Along with VA loans, an FHA loan will often be referred to as a government loan.

Fiduciary
One in whom trust and confidence is placed; a reference to a broker employed under the terms of a listing contract or buyer agency agreement.

Fiduciary relationship
A relationship of trust and confidence, as between trustee and beneficiary, attorney and client or principal and agent.

Financial institutions reform, recovery and enforcement act (FIRREA)
This act restructured the savings and loan association regulatory system; enacted in response to the savings and loan crisis of the 1980s.

Finder’s fee
A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

Firm commitment
A lender’s agreement to make a loan to a specific borrower on a specific property.

First mortgage
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fiscal policy
The government’s policy in regard to taxation and spending programs.
The balance between these two areas determines the amount of money the government will withdraw from or feed into the economy, which can counter economic peaks and slumps.

Fixed installment
The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Fixed-rate mortgage (FRM)
A mortgage in which the interest rate does not change during the entire term of the loan.

Fixture
An item of personal property that has been converted to real property by being permanently affixed to the realty.

Flood control district
A special taxing district created to provide flood control in specific areas of a county.

Flood insurance
Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Flood plain
Flood plains are by definition subject to periodic flooding. They are generally characterized by relatively flat topography and soil types that were laid down during past inundations by flood waters. If your property is in the 100-year flood plain, there is a 1-in-100 chance in any given year that your property will flood. If it is in the 25-year flood plain, there is a 1-in-25 chance in any given year that your property will flood. The statistical chance of flooding is not changed by any one flooding event; but repeated flooding may result in the flood plain being recalculated.
A 100-year flood plain is always wider than a 25-year flood plain, and the 25-year flood plain is contained within the 100-year flood plain. The flood prone areas of the United States cover approximately 150,000 square miles or 94 million acres of land, an area roughly the size of the State of Montana. People living in flood plains are 26 times more likely to experience a flooding disaster than they are a fire disaster during the life of the 30-year mortgage on their homes.
The changes in flood plain maps reflect changes in land use (such as increased building activity), changes in the waterways, and flood control improvements (such as detention ponds or other flood control measures).
As more lots are covered with more buildings and parking lots, the amount of water that flows into creeks and lakes increases because there is less vegetation to absorb the water when it rains. This is one reason why buildings that were not originally built in a flood plain are now in the 25-year or 100-year flood plain.

Foreclosure
A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

Forfeiture
The loss of property or a privilege due to breaking a law. For example,
a landlord may forfeit his or her property to the federal or state government if the landlord knows it is a drug-dealing site but fails to stop the illegal activity. Likewise, a homeowner may lose his house to satisfy IRS debts or if the government suspects the home was bought with money derived from criminal acts. The government may seize and sell the property at auction, often far below its fair market value, before the homeowner has been allowed the due process of a trial. If the homeowner is found not guilty, the government is only required to pay back the amount received at auction, and not the market value.

For sale by owner (FSBO)
An individual homeowner who is attempting to sell his property without a real estate broker. The acronym, FSBO is pronounced “fizzbo.”

Fractional section
A parcel of land less than 160 acres, usually found at the edge of a rectangular survey.

Fraud
A misstatement of a material fact made with intent to deceive or made with reckless disregard of the truth, and which actually does deceive.

Freddie mac
Chartered by Congress in 1970, Freddie Mac is a publicly held corporation that purchases mortgages in the secondary mortgage market. Freddie Mac came into being as the Federal Home Loan Mortgage Corporation (FHLMC) with the mission to create a continuous flow of funds to mortgage lenders. By supplying lenders with the money to make mortgages and packaging the mortgages into marketable securities which are sold to investors, Freddie Mac also helps to sustain a stable mortgage credit system which in turn, reduces the mortgage rates paid by homebuyers. Over the years, Freddie Mac has been responsible for opening the door to homeownership for one out of six home buyers in America who would not have qualified otherwise.

Front foot
One linear foot (12 inches) along the street side of a lot.

Fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Functional obsolescence
Loss of value of real property caused by modernization or changing tastes or standards; e.g.. single bath, inadequate closet space, etc.

Gap
A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.

Garden home
A single-family home that sits on a small lot, often with one outside wall of the structure sitting on the property line. Patio homes have no common structural walls with adjoining propeties, but their zero lot line wall may form part of their neighbors backyard fence/wall. These properties often have a small back or side yard large enough for a patio or garden area. Also known as a garden home.

Gated community
A neighborhood or group of neighborhoods, usually surrounded by masonary walls, restricting access through the use of a manned guard station or electronically operated gates. The electronic gates may be opened through the use of individual remote controls and/or a numeric keypad and code. Some gated communities restrict entry at all times, while others only limit access during the evening hours. The City of Houston does not allow public city streets to be gated off, so only neighborhoods with private streets, may have restricted access. The costs associated with maintaining a manned guard gate can significantly impact monthly maintenance fees, depending on the size of the community.

General lien
A lien that includes all the property owned by a debtor, rather than a specific property. Contrast with Specific Lien.

General warranty deed
A deed in which the grantor fully warrants good and clear title to the property. A general warranty deed offers the most protection of any deed.

Ginnie mae
The common nickname for the Government National Mortgage Association. Ginnie Mae was created in 1968 as a wholly owned corporation within the Department of Housing and Urban Development (HUD), having been separated from Fannie Mae. Ginnie Mae does not loan money for mortgages. Instead, it operate in the secondary mortgage market, buying loans and selling mortgage-backed securities investors, which in turn, increases the availability of mortgage credit.

Good faith estimate
An estimate of charges which a borrower is likely to incur in connection with a loan closing.

Government loan
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Government mortgage
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage.

Government national mortgage association (GNMA)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA).

Government survey method
A system of land description (not used in Texas) which uses meridians (north and south lines) and base lines (east and west lines). Areas include quadrangles (24 miles on each side), townships (6 miles on each side), and sections (1 mile on each side). Also known as the Rectangular Survey Method. Contrast with metes and bounds, and recorded plat (Lot and Block Number) method.

Grace period
A time allowed, usually 15 days, for making late payments without a penalty.

Grant deed
A deed containing an implied promise that the person transfering the property actually owns the title and that it is not encumbered in any way, except as described in the deed. This is the most commonly used type of deed. Compare quitclaim deed.

Grantee
The person to whom an interest in real property is conveyed.

Grantor
The person conveying an interest in real property.

Gross debt service
The amount of money needed to pay principal, interest and taxes, and sometimes energy costs. If the dwelling unit is a condominium, all or a portion of common fees are excluded, depending on what expenses are covered.

Gross income
For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Gross lease
A commercial real estate lease in which the tenant pays a fixed amount of rent per month or year, regardless of the landlord’s operating costs, such as maintenance, taxes and insurance. A gross lease closely resembles the typical residential lease. The tenant may agree to a “gross lease with stops,” meaning that the tenant will pitch in if the landlord’s operating costs rise above a certain level. In real estate lingo, the point when the tenant starts to contribute is called the “stop level,” because that’s where the landlord’s share of the costs stops. Contrast with Net Lease.

Gross monthly income
The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Ground rent
The amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

Group home
A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. The structure provides long-term housing and support services that are residential in nature.

Growing-equity mortgage (GEM)
A fixed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

Guarantee mortgage
A mortgage that is guaranteed by a third party.

Guaranteed loan
Also known as a government mortgage.

Guaranty
A pledge made by one person (the guarantor) to ensure that another person (the obligor) will fulfill an obligation to a third party (the obligee).

Habendum clause
The “to have and hold” clause which defines or limits the quantity of the estate granted in the premises of the deed.

Hard-money mortgage
Cash loan to a borrower.

Hazard insurance
Insurance coverage that in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

Hereditaments
Property, personal and real, capable of being inherited.

High-rise
A nine-story or taller building containing residential apartments or condominium units. In addition to spectacular views, most high-rises offer their residents a full range of amenities. Building features may include 24-hour concierge service, swimming pools, spas, saunas, tennis courts, exercise areas, party rooms and guest suites. Security is enhanced at these buildings by the manned entry desks and limited access, covered parking garages. Compare with mid-rise.

Highest and best use
The particular use of a real property which will produce the greatest financial return. The optimum use of a site as used in appraisal. This is often determined by location, neighboring properties, deed restrictions and local zoning regulations. A home built on a busy street, surrounded by commercial property, and not restricted from other development, is not fulfilling its highest and best use. Once the property is redeveloped into commercial property, it can meet it economic potential.

Hold harmless
In a contract, a promise by one party not to hold the other party responsible if the other party carries out the contract in a way that causes damage to the first party. For example, many leases include a hold harmless clause in which the tenant agrees not to sue the landlord if the tenant is injured due to the landlord’s failure to maintain the premises. In most states, these clauses are illegal in residential tenancies, but may be upheld in commercial settings.

Home equity conversion mortgage (HECM)
A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specific financial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.

Home equity line of credit
A mortgage loan, usually in second position, that allows the borrower to obtain cash drawn against the equity of his home, up to a predetermined amount.

Home equity loan
A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax-deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans. Home equity loans were recently made available in Texas due to changes the homestead laws as of January 1, 1999.

Home inspection
A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

HomeKeeperSM
Fannie Mae’s adjustable-rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years or older who either owns his or her own home free and clear or has very low mortgage debt is eligible.

Homeowner’s association (HOA)
A nonprofit association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowner’s insurance
An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowner’s warranty (HOW)
A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

Homestead
(1) The house in which a family lives, plus any adjoining land and other buildings on that land.
(2) Land, and the improvements thereon, designated by the owner as his homestead and, therefore, protected by state law from forced sale by certain creditors of the owner. Texas offers homestead protection for a single residential property. In addition, Texas mandates a minimum $15,000 school district property tax exemption on the appraised value of a homestead property. Other taxing authorities, such as cities and counties, may offer additional property tax exemptions on homesteads. Homestead protection will not stop foreclosures for deliquent mortgages, taxes or mandatory homeowner’s association dues.
(3) Land acquired out of the public lands of the United States. The term “homesteaders” refers to people who got their land by settling it and making it productive, rather than purchasing it outright.

HomeStyle® mortgage loan
A mortgage that enables eligible borrowers to obtain financing to remodel, repair, and upgrade their existing homes or homes that they are purchasing. The financing takes the form of a conventional second mortgage or a Federal Housing Administration (FHA) Section 203(k) first mortgage.

Home warranty
A service contract that covers a major housing system–for example, plumbing or electrical wiring–for a set period of time from the date a house is sold. The warranty guarantees repairs to the covered system and is renewable. A basic, one year Buyer’s warranty costs $295 to $350 with additional coverage available for garage door openers, spas, swimming pools, sprinkler system and other appliances.

House closing
The final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded. Also known as just “closing”.

Housing expense ratio
The percentage of gross monthly income that goes toward paying housing expenses.

HUD (U.S. Department of Housing and Urban Development
A federal department active in a variety of national housing programs including urban renewal and public housing.

HUD Median income
Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 Settlement statement
A document that provides an itemized listing of the funds that were paid at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. Each type of expense goes on a specific numbered line on the sheet. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. It is called a HUD1 because the form is printed by the Department of Housing and Urban Development (HUD). The HUD1 statement is also known as the “closing statement” or “settlement sheet.”

HUD-1 statement
A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. The totals at the bottom of the HUD-1 statement define the seller’s net proceeds and the buyer’s net payment at closing. The blank form for the statement is published by the Department of Housing and Urban Development (HUD). The HUD-1 statement is also known as the “closing statement” or “settlement sheet.”.

Hybrid financing
The joining together of two forms of finance, such as combining a convertible loan with a participation loan, under which the lender has the right at loan maturity to convert the debt to a 50 percent ownership in the property.

Improvements
Valuable additions to the land, such as buildings, fences, roads, etc., which increase the value of the property.

Implied warranty of habitability
A legal doctrine that requires landlords to offer and maintain livable premises for their tenants. If a landlord fails to provide habitable housing, tenants in most states may legally withhold rent or take other measures, including hiring someone to fix the problem or moving out.

Incidents of ownership
Any control over property. If you give away property but keep an incident of ownership–for example, you give away an apartment building but retain the right to receive rent–then legally, no gift has been made. This distinction can be important if you’re making large gifts to reduce your eventual estate tax.

Income approach to value
An estimate of value based on the monetary returns that a property can be expected to generate; capitalization. Contrast with the cost approach to value and the market data approach to value.

Income property
Real estate developed or improved to produce income.

Independent School District
In Texas, all but one of the state’s school districts are considered “Independent” since they do not fall under the direct control of any other local government, and their boundaries are not constrained by any city or county border lines. Each district is run by an elected school board, which appoints a superintendent and sets budgets and tax rates. Only the State of Texas has the authority to regulate and oversee the actions of an Independent School District.

Inspection
An examination of a property by the buyer, agent, title insurance company, or other interested party.

Index
A number used to compute the interest rate for an adjustable-rate mortgage (ARM). The index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM.. This interest rate is subject to any caps that are associated with the mortgage.

Ingress
An entrance, or the act of entering. Compare egress.

In-file credit report
An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

Inflation
An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

Initial interest rate
The original interest rate of the mortgage at the time of closing. This rate changes for an adjustable-rate mortgage (ARM). Sometimes known as “start rate” or “teaser.”

Inspection clause
A stipulation in an offer to purchase that makes the sale contingent on the findings of a home inspector.

Installment
The regular periodic payment that a borrower agrees to make to a lender.

Installment loan
Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

Insurable title
A property title that a title insurance company agrees to insure against defects and disputes.

Insurance
A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance binder
A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Insured mortgage
A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

Interest
The fee charged for borrowing money.

Interest accrual rate
The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

Interest rate
The rate of interest in effect for the monthly payment due.

Interest rate buydown plan
An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor’s monthly payments during the early years of a mortgage. During the specified period, the mortgagor’s effective interest rate is “bought down” below the actual interest rate.

Interest rate ceiling
For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor
The rate of interest in effect for the monthly payment due.

Interest Only Loan
A term loan arrangement calling for payments of interest only, not to include any amount for principal.

Interest Rate Swap
A transaction between two parties, in which each agrees to exchange payments tied to different interest rates or indices for a specified period of time.

Intermediate-Term Mortgage
A mortgage loan with a stated maturity at the time of purchase that it is equal to or less than 20 years.

Intimidation
As defined in the fair housing laws, it is the illegal act of coercing, intimidating, threatening, or interfering with a person in exercising or enjoying any right granted or protected by federal, state or local fair housing laws.

Investment property
A property that is not occupied by the owner.

Invitee
A business guest, or someone who enters property held open to members of the public, such as a visitor to a museum. Property owners must protect invitees from dangers on the property. In an example of the perversion of legalese, social guests that you invite into your home are called “licensees.”

IRA (Individual Retirement Account)
A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

Joint venture
The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.

Joint tenancy
A way for two or more people to share ownership of real estate or other property. When two or more people own property as joint tenants and one owner dies, the other owners automatically own the deceased owner’s share. For example, if a parent and child own a house as joint tenants and the parent dies, the child automatically becomes full owner. Because of this right of survivorship, no will is required to transfer the property; it goes directly to the surviving joint tenants without the delay and costs of probate. Contrast with tenancy in common.

Judgment
A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor. Alternative spelling is “judgment.”

Judicial Foreclosure
A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Other states use non-judicial foreclosure.

Jumbo Loan
A loan that exceeds Fannie Mae’s and Freddie Mac’s loan limits, currently at $252,700. Also called a nonconforming loan. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Laches
Delay or negligence in asserting one’s rights.

Landlord
The owner of any real estate, such as a house, apartment building or land, that is leased or rented to another person, called the tenant.

Late charge
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Latent defect
Hidden structural defects and flaws.

Lease option
A lease under which the tenant has the right to purchase the property either during the lease term or at its end.

Lease purchase
The purchase of real property, the consummation of which is preceded by a lease, usually long-term. Typically done for tax or financing purposes.

Legacy
A disposition of money or personal property by will.

Legal description
A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

Legally competent parties
People who are recognized by law as being able to contract with others; those of legal age and sound mind.

Leverage
The use of borrowed money to finance an investment.

Levy
To assess; to seize or collect. To levy a tax is to assess a property and set the rate of taxation. To Levy An Execution is to officially seize the property of a person in order to satisfy an obligation.

Lease
An oral or written agreement (a contract) between two people concerning the use by one of the property of the other. A person can lease real estate (such as an apartment or business property) or personal property (such as a car or a boat). A lease should cover basic issues such as when the lease will begin and end, the rent or other costs, how payments should be made, and any restrictions on the use of the property. The property owner is often called the “lessor,” and the person using the property is called the “lessee.” In Texas, any lease over one year in length, must be in writing.

Leasehold estate
A form of real estate in which a tenant is allowed to construct permanent structures upon a parcel of leased land, and derive some use or income from said structures during the period of the lease. Leasehold estates usually involve long-term leases, ranging from 20 to 99 years. Land owners are able to have their property developed, with no out of pocket expenses. Instead of having to sell their land too soon, they retain their family’s rights to the land, while receiving a steady income stream. The tenant saves the initial land acquisation costs and may gain access to property that would be otherwise unavailable. The downside is, as the lease nears the end or its term, the tenant’s investment becomes uncertain, and the landlord is in a position to make demands for compensation, above the fair market price. Leaseholds are much more common in commercial real estate, but can apply to some residential properties as well. Hawaii has many leasehold condominium projects, and even Houston has at least one mid-rise condominium building that lacks ownership of the land it occupies.

Less favorable treatment
Any time a person is treated differently on the basis of race, sex, religion, color, familial status, disability, or national origin, either by action or inaction, in the selling or leasing of real property, it is a violation of the Fair Housing Laws. Also known as unequal treatment or different treatment.

Lessee
Tenant leasing property.

Lessor
One who leases property to a tenant.

Levy Improvement District (LID)
A type of Water Control and Improvement District, used to build and maintain levies. Levies are used to contain flooding creeks and rivers.

License
(I) A privilege or right granted to a person by a state to operate as a real estate broker or salesperson.
(2) The revocable permission for a temporary use of land–a personal right that cannot be sold.

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

Lien theory
Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults.

Life
Cycle costing In property management, comparing one type of equipment to another based on both purchase cost and operating cost over its expected useful lifetime.

Life estate
An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons.

Life tenant
A person in possession of a life estate.

Liquidated damages
An amount predetermined by the parties to a contract as the total compensation to an injured party should the other party breach the contract.

Liquidity
The ability to sell an asset and convert it into cash, at a price close to its true value, in a short period of time.

Lis pendens
A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.

Listing agreement
A contract between an owner (as principal) and a real estate broker (as agent) by which the broker is employed as agent to find a buyer for the owner’s real estate on the owner’s terms, for which service the owner agrees to pay a commission.

Listing broker
The broker in a multiple-listing situation from whose office a listing agreement is initiated, as opposed to the cooperating broker, from whose office negotiations leading up to a sale are initiated. The listing broker and the cooperating broker may be the same person.

Littoral rights
(I) A landowner’s claim to use water in large navigable lakes and oceans adjacent to his or her property.
(2) The ownership rights to land bordering these bodies of water up to the highwater mark.

Listing
A written agreement between a property owner and a real estate broker authorizing the broker to find a buyer.

Lien theory state
Texas is a Lien Theory State, where legal title of mortgaged property resides with the mortgagor (borrower), with the mortgage as a lien against the property. Contrast with title theory state.

Limited equity housing
An arrangement designed to encourage low-and moderate-income families to purchase housing, in which the housing is offered at an extremely favorable price with a low down payment. The catch is that when the owner sells, she gets none of the profit if the market value of the unit has gone up. Any profit returns to the organization that built the home, which then resells the unit at an affordable price.

Liabilities
A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Liability insurance
Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.

Lifetime payment cap
For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

Line of credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit.

Liquid asset
A cash asset or an asset that is easily converted into cash.

Loan origination fee
A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Loan-to-value-ratio
The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

Lot-and-block (Recorded plat) system
A method of describing real property that identifies a parcel of land by reference to lot and block numbers within a subdivision. as specified on a recorded subdivision plat.

Loan Officer
Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.

Loan Servicing
After you obtain a loan, the company you make the payments to is “servicing” your loan. They process payments, send statements, manage the escrow/impound account, provide collection efforts on delinquent loans, ensure that insurance and property taxes are made on the property, handle pay-offs and assumptions, and provide a variety of other services.

Loan-To-Value (LTV)
The percentage relationship between the amount of the loan and the appraised value or sales price (whichever is lower).

Lock-In Period
The time period during which the lender has guaranteed an interest rate to a borrower.

Lock or lock In
A commitment you obtain from a lender assuring you a particular interest rate or feature or a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Loft
(1) A style of residential construction. In Houston the term “loft” is used quite liberally. It may refer to an older building that has been converted into residential condominiums, or it may mean a new mid-rise project with a “loft-style” finish to the units. There are also new construction townhomes that are promoted as being “lofts”. A builder creates new loft space by leaving exposed brick walls, bare polished concrete floors and having unhidden heating ducts, trusses, etc.
(2) An upstairs room or area that has an open wall, overlooking a room or area below.

Management agreement
A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager’s authority.

Market
A place where goods can be bought and sold and a price established.

Marketable title
Good or clear title, reasonably free from the risk of litigation over possible defects.

Market value
The most probable price property would bring in an arm’s-length transaction under normal conditions on the open market.

Master plan
A comprehensive plan to guide the long-term physical development of a particular area.

Mandatory continuing education (MCE)
The State of Texas requires that its licensed real estate brokers, and salesmen (who have met their SAE requirement), attend at least 15 hours of certified real estate education courses before each license renewal (every two years). At least six of the 15 hours must be in legal topics.

Manufactured home
A structure built in a factory, that is later shipped to, and placed on, the homesite. The term can apply to both mobile homes and pre-fab homes.

Margin
An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Marginal land
Property which is barely profitable to use.

Market approach to value
An estimate of value based on the actual sales prices of comparable properties. Contrast with cost approach to value and income approach to value.

Master-planned community
A large scale, mixed use, real estate development that follows a long term, comprehensive plan. Master-planned communities typically blend different price ranges of residential neighborhoods with some commercial properties designed to serve the residents’ needs. Residential properties may include patio homes, townhouses, condominiums and apartment complexes in addition to neighborhoods of single-family homes. Likewise, multiple home builders are included in the construction of the various neighborhoods. Commercial development can consist of retail strip centers ans shopping malls, restaurants, entertainment venues and office buildings.

Margin
For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

Master association
A homeowners’ association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a “second-level” association that handles matters affecting the entire development, while the “first-level” associations handle matters affecting their particular portions of the project.

Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Maximum financing
A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specific product. Thus, maximum financing on a fixed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

Maturity
The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Mechanic’s lien
A statutory lien created in favor of contractors, laborers and materialmen who have performed work or furnished materials in the erection or repair of a building.

Meridian
One of a set of imaginary lines running north and south and crossing a base line at a definite point, used in the rectangular (government) survey system of property description.

Metes-and-bounds description
A legal description of a parcel of land that begins at a well-marked point and follows the boundaries, using directions and distances around the tract, back to the place of beginning.

Mediation
A dispute resolution method designed to help warring parties resolve their own dispute without going to court. In mediation, a neutral third party (the mediator) meets with the opposing sides to help them find a mutually satisfactory solution. Unlike a judge in her courtroom or an arbitrator conducting a binding arbitration, the mediator has no power to impose a solution. No formal rules of evidence or procedure control mediation; the mediator and the parties usually agree on their own informal ways to proceed.

Metes and bounds
A system of land description using distance (metes) and angles/compass directions (bounds), beginning and ending at the same point. Contrast with government survey and recorded plat method.

Merged credit report
A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

Mill
One-tenth of one cent. Some states use a mill rate to compute real estate taxes; for example, a rate of 52 mills would be $0.052 tax for each dollar of assessed valuation of a property.

Minor
Someone who has not reached the age of majority and therefore does not have legal capacity to transfer title to real property.

Mid-rise
A 4-story to 8-story tall building that contains residential apartment or condominium units. While not offering the panoramic views of a high-rise, mid-rise buildings can offer comparable levels of amenities and services. Building features may include 24-hour concierge service, swimming pools, spas, saunas, tennis courts, exercise areas, and party rooms. Security is enhanced at these buildings by the manned entry desks and limited access, covered parking garages.

Mineral rights
An ownership interest in the minerals contained in a particular parcel of land, with or without ownership of the surface of the land. The owner of mineral rights is usually entitled to either take the minerals from the land himself or receive a royalty from the party that actually extracts the minerals.

Minimum payment
The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be “interest only,” (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Minority
As defined in the Civil Rights Act of 1968 as part of the Fair Housing Laws “‘minority’ means any group, or any member of a group, that can be identified either: (1) by race, color, religion, sex, disability, or national origin; or (2) by any other characteristic (such as familial status) on the basis of which discrimination is prohibited by a federal, state, or local fair housing law.

Misrepresentation
A false statement, or concealment, of material fact with the intention of inducing action of another.

MLS (Multiple Listing Service)
A means by which agents are informed of the properties offered for sale by other agents.

Monetary policy
Governmental regulation of the amount of money in circulation through such institutions as the Federal Reserve Board.

Month-to-month tenancy
A periodic tenancy under which the tenant rents for one month at a time. In the absence of a rental agreement (oral or written) a tenancy is generally considered to be month to month.

Monument
A fixed natural or artificial object used to establish real estate boundaries for a metes-and-bounds description.

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

Mortgage banker
Mortgage loan companies that originate, service and sell loans to investors.

Mortgage lien
A lien or charge on the property of a mortgagor that secures the underlying debt obligations.

Mortgagor
A borrower in a mortgage loan transaction.

Mobile home
A type of manufactured home, that is transported to the home site using wheels attached to the structure. Mobile homes come in various widths and lengths, and maybe composed of one to three pieces. A one piece home is called a “single-wide”, while a house that is joined together from two halves is called a “double-wide”. Recently, “triple-wides” have appeared, and become as the largest mobile homes available. Most sections are between 14 and 16 feet wide, and 54 to 80 feet in length. Mobile homes do not require any foundation or substructure. They sit up off the ground, with skirting used around the base to hide the wheel and jacks. While it is possible to tie down a mobile home to a piece of land, using straps and screw-in anchors, the structures are very susceptible to high winds and tornados.

Mortgage Insurance
An insurance plan that protects the lender if the borrower does not repay a loan. Mortgage insurance is required when a home buyer makes less than a 20% down payment at the time of purchase. Private mortgage insurance (PMI) covers conventional (fixed-year, fixed-rate) loans. The Federal Housing Administration charges a mortgage insurance premium (MIP) on FHA loans.

Month-to-month tenancy
A rental agreement that provides for a one-month tenancy that is automatically renewed each month unless either tenant or landlord gives the other the proper amount of written notice (usually 30 days) to terminate the agreement. Some landlords prefer to use month-to-month tenancies because it gives them the right to raise the rent after giving proper notice. This type of rental also provides a landlord with an easy way to get rid of troublesome tenants, because in most states month-to-month tenancies can be terminated for any reason. It is also common for leases to revert to month-to-month tenancies at the end of the original lease period, if another lease has not been signed.

Monument
A fixed object or point, either natural or man-made, used in making a survey.

Modification
The act of changing any of the terms of the mortgage.

Money market account
A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Money market fund
A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

Monthly fixed installment
That portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fixed installment does not include any amount for principal reduction.

Monthly payment mortgage
A mortgage that requires payments to reduce the debt once a month.

Mortgage insurance premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Mortgage life insurance
A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Multidwelling units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multifamily mortgage
A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.

Multidwelling units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Modification
Occasionally, a lender will agree to modify the terms of your mortgage without requiring you t refinance. If any changes are made, it is called a modification.

Mortgage Constant
The factor used for rapid computation of the annual payment needed to amortize a loan.

Mortgage Insurance Premium
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Mortgage Life and Disability Insurance
A type of term life insurance often bought by borrowers. The amount of coverage decreases as the principal balance declines. Some policies also cover the borrower in the event of disability. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds. In the case of disability insurance, the insurance will make the mortgage payment for a specified amount of time during the disability. Be careful to read the terms of coverage, however, because often the coverage does not start immediately upon the disability, but after a specified period, sometime forty-five days.

Multi-dwelling Units
Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multiperil policies
Insurance policies that offer protection from a range of potential perils, such as those of a fire, hazard, public liability and casualty.

Multiple-listing clause
A provision in an exclusive listing for the authority and obligation on the part of the listing broker to distribute the listing to other brokers in the multiple-listing organization.

Multiple listing service (MLS)
A marketing organization composed of member brokers who agree to share their listing agreements with one another in the hope of procuring ready, willing and able buyers for their properties more quickly than they could on their own. Most multiple-listing services accept exclusive-right-to-sell or exclusive agency listings from their member brokers.

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