Foreclosure Terms and Definitions

 


Absolute Auction – Auction with no minimum bid amount. The highest bidder gets the property.

Abstract (Abstract of Title) – Recorded history of the property listing sales, mortgages, liens, etc.

Acceleration Clause – A provision that allows the lender to call the entire balance of the mortgage loan when the borrower fails to make some installment payments.

Acre – Land of 43,560 square feet.

Adjustable Rate Mortgage (ARM) – A mortgage loan with an interest rate adjusted periodically (every six months or a year). The rates start at below-market rates to keep the monthly installments low during the initial periods.

Ad Valorem Tax – A real estate tax based on the assessed value of the property.

Adverse Possession – Acquiring title to real property by physical possession of the property for a certain period of time by someone other than the owner.

Affidavit – A written statement sworn before an authorized official or notary.

AIDT – All inclusive trust deed

AIM – All inclusive mortgage

Alienation – Transfer of interest in or title to home to another person or entity.

Amenity – A feature (good schools, architecture, etc.) that increases the value of the property.

Amortized Loan – A loan that is paid back in installments for its principal and interest.

Annual Percentage Rate (APR) – The actual annual interest rate covering the interest and other costs. The Truth in Lending Act requires announcement of APR by lenders.

Appraisal – Evaluation of real estate property.

Appurtenance – A right, privilege or improvement that belongs to and passing with the land.

Arbitration – Binding or nonbonding settlement of a dispute by a third-party arbitrator.

APR – Annual Percentage Rate.

ARM – Adjustable Rate Mortgage.

Assessment – Real estate tax or fee imposed by a local government against the property.

Assignee – Party to who a property is transferred.

Assignor – Party transferring the property.

Assumption – Taking over an existing mortgage by the new buyer. Most mortgage loans are not assumable.

Balloon Payment – Large installment payment by the end of the term to pay off the entire principal of a debt.

Basis Adjusted Cost – Property value for tax purposes.

Basis Point – One basis point is equal to 0.01 percent.

Bill of Sale – Document transferring title to another party.

Bond – A security document issued by an insurer to guarantee payment in case of failure by the borrower to pay installment payments or any other obligation. Contractors obtain bonds to guarantee their works for homeowners. Compensation is limited by the amount indicated on the bond.

Bridge Loan – A temporary loan to finance a new purchase of a real estate property until another owned property is sold.

Broker – An independent agent between the lender and the borrower or between the buyer and the seller of a real estate property. Many states require that real estate agents work under a real estate broker.

Building Code – An ordinance specifying the minimum standards of construction for buildings to protect public safety and health.

Buy Down – Buying a loan below its original cost (interest or payment). Temporary buy down is for reducing the installments during the first few years.

Cap – Limit placed on ARM for annual increase in interest rate.

Capital Gain – Profit made by selling a real estate property that is subject to tax.

Capitalization Rate (CAP) – Rate of return on an investment property on cash basis.

Capital Recovery Period – Annual rate that will result in recovering the value of the property until the end of its useful economic life, also called return of an investment.

Cash Flow – Net disposable income from an investment property after deducting all fixed and operational expenses. There is a negative cash flow if expenses exceed income.

Cash on Cash – Ratio of cash flow to the equity investment amount.

Caveat Emptor – “Let the buyer beware”

Certificate of Occupancy – An authorization by the municipality allowing newly constructed property to be occupied.

Certificate of Reasonable Value (CRV) – The name of an appraisal by the Veteran’s Administration (VA).

Chain of Title – Listing of all previous owners of the property in chronological order.

Change Order – An agreement, in writing, to amend remodeling or repair contract due to changes in materials, prices, dates for completion, deletion, and addition of works.

C.H.A.R.M. – Consumer Handbook on Adjustable Rate Mortgages (CHARM) required to be given to borrowers of ARM.

Chattel – Personal property not related to real estate property.

Chattel Mortgage – A lien on personal property.

Clear Title – Title having no defects or encumbrances.

Closing – Accounting of costs of buyer and seller in a real estate sale.

Closing Costs – All costs, excluding down payment incurred in buying a real estate property or obtaining a loan.

Cloud – Gap in the chain of ownership, lien, unpaid taxes, etc. affecting ownership.

Collateral – Any value used as security until the loan is paid off. The real estate is a collateral for a mortgage loan.

CMA – Comparative Market Analysis to compare the prices of recently sold homes that have similar specifications in terms of location, style, and amenities.

CMT – Constant Maturity Treasury Index

COE – Close of Escrow

COFI – Cost of fund index

Combination Loan – Conversion of a construction loan into a permanent loan.

Commission – Fee paid to real estate agent/broker in selling and finding a property.

Commissions are typically 6 percent of the property value divided equally between listing and buyer’s agent.

Commitment Fee – A percentage of a new loan charged by the lender to make the funds available for a certain period.

Common Area – Jointly owned areas of a property owned by more than one owner.

Comparables – Properties in the same neighborhood that are equivalent or very similar to the property in question.

Compensating Factor – A favorable factor that helps borrower who has insufficient points in other areas in loan application.

Compound Interest – Interest is calculated on the principal plus previously accrued interest.

Condominium – Also called condo is a multi-unit real estate property owned individually, jointly, or by a developer.

Conforming – A loan that is in compliance with the guidelines created by Fannie Mae or Freddie Mac. The lenders can easily sell such loans to these institutions in the secondary market.

Consideration – Money, value, something in kind, benefit, interest, good, real estate, service, anything that has a value. Consideration does not have to be cash.

Contingency – A contract clause requiring a certain act to be done or a certain event to occur before the contract becomes binding.

Contractor – A person or a company that agrees to build, remodel, or repair a real estate property. General contractor agrees to coordinate several different works that require special skills.

Conventional Loan – Loan extended without a government agency insurance, guarantee, or funding.

Conveyance – A document transferring title to real property.

Cost of Living Increase – Annual increase in lease amount due to increase in prices (inflation).

Covenant – Rules and restrictions imposed by the management in using real estate.

Creditor – Lender that can be a commercial bank, savings bank, credit union, or any other entity licensed to lend money.

Credit Score – Numerical rating of a borrower’s credit, also called credit rating.

C.R.V. – Certificate of Reasonable Value

Debt Service – Making installment payments.

Deed – Document that shows ownership and is used to transfer ownership to a real estate property.

Deed In Lieu of Foreclosure – A transfer of title to the mortgagee upon foreclosure.

Deed Restrictions – Clauses that limit the use of a real estate property.

Deed of Trust – A mortgage securing a note related to a real estate where a third party acts as a trustee. A written instrument in place of mortgage in some states.

Default – Nonperformance of a duty, failure to meet obligations of the loan.

Deferred Payment Mortgage – A mortgage that allows the borrower to make payments with delays when the borrower’s income is low during the initial period. See balloon payment.

Deficiency Judgment – If the sales proceeds of the security of a loan less than the loan balance the borrower is requested to pay the lender the difference between the mortgage balance and the proceeds of the foreclosure sale.

Delinquency – An overdue loan within grace period.

Depreciation – Decrease in the value. Depreciation in taxation language is reducing the value of the property over the years.

Desktop Underwriting – Automatic underwriting online.

Discounted Mortgage – Selling a mortgage at a lower value.

Discount Points – See points.

Dower – A wife’s interest in her husband’s estate upon his death.

Due-on-Sale – Lender has the right to request repayment in full upon sale or conveyance of a property.

Earnest Money – Money given with the offer to purchase a property showing buyer’s serious intent in consideration on a binding contract.

Easement – The right to use the land of another for a particular purpose.

Eminent Domain – The right of a government to take over a property by paying the fair market value.

Economic Life – The expected useful life of a property not based on the physical conditions but on economic conditions.

Encroachment – A building or some portion of it (a wall, roof, or a fence) extending beyond the land of the owner and illegally intrudes on some land of an adjoining owner or a street.

Encumbrance – Mortgage, lien, tax, or any restriction on the use of land.

Equal Credit Opportunity Act (ECOA) – A federal law that requires extension of loan to all creditworthy customer without regard to race, color, religion, national origin, age, and sex or marital status.

Equity – Value in a property that exceeds owner’s indebtedness, that is, the value of the property minus debts owed on it. Important factor determining amount of loan that you can get.

Equity Build-Up – Repayment amounts that reduce the principal balance.

Equity Line Of Credit – Rotating loan extended up to a certain limit. Interest is paid only on the portion of the loan actually used.

Escrow – Deposit with a third party (broker, title company, bank, or attorney) for performance or future claims under a contract.

Escrow Agent – A third party holding money, check, etc. to secure real estate transaction. Typically it is a listing (selling) broker.

Equity – Value of the property owned by the homeowner = buying price + appreciation in value + improvement made – mortgage.

Exclusive Right of Sale – An authorization by the seller to sell the property exclusively by listing it only one broker (exclusive agency).

Execution – Signing and delivery of an instrument.

Eviction – Removing a nonpaying tenant from the property.

Fair Market Value (FMV) – The value a buyer is willing and capable to pay for a property. An appraisal based on comparisons of similar properties in the neighborhood.

Fannie Mae – Federal National Mortgage Association (FNMA) that buys and sells mortgages in the secondary market.

Farmers Home Administration (FmHA) – A federal government agency under the U.S. Department of Agriculture providing loans to farmers and rural residents and communities.

Fee Simple – Very common term used to indicate complete and highest form of legal ownership of a property.

FHA – Federal Housing Administration under U.S. Department of Housing and Urban Development (HUD).

First Mortgage – A first lien on real estate property having priority over other mortgages on the same property.

Fixed Rate Mortgage (FRM) – A mortgage loan with an interest rate fixed for the life of the loan.

Fixture – An attached part of the property.

Flat Rental – A lease under which rent stays the same during the lease period.

Floating Rate – An interest rate that is adjusted periodically by adding a certain percentage to a pre-determined index.

Foreclosure – Legal action taken by the lender when the borrower fails to pay monthly installments.

Forfeiture – Cashing the deposit upon failure to perform under a contract.

Fraud – Deception intended to cause a person to give up property or a lawful right. Freddie Mac – Federal Home Loan Mortgage Corporation (FHLMC) that insures loans by the full faith and credit of the U.S. Government.

Front End Zero – Including the upfront of first year’s insurance premium in the loan.

Functional Obsolescence – Old-fashioned design or layout of a real estate property that reduces the value.

Ginnie Mae – Government National Mortgage Association (GNMA) that guarantees, buys, and sells homes.

Good Faith Estimate – The lender is required by law to give you an estimate of fees that you will be asked to pay at closing.

Grace Period – A period between the due and the overdue date during which no late payment penalty applies.

Graduated Mortgage Payment (GMP) – A loan that has lower installments in the beginning and increasing in amount after the initial period.

Gross Income – Total income before any withholding.

Gross Income Multiplier (GIM) – Dividing the sale price by the gross rent to verify appraised value of the real estate property.

Gross Lease – Landlord pays all property charges.

Growing Equity Mortgage (GEM) – A loan with increasing amortization for early repayment of the principal.

Guarantee – Any person receiving (such as buyer) any interest in real estate.

Guarantor – Person giving (such as seller) any interest in real estate.

Hazard Insurance – An insurance against the destruction of the property.

Home Improvement Loan – In general, it is a short-term loan extended against the signature.

Homeowner’s Association (HOA) – Entity providing maintenance services in common areas of a housing community.

Homeowner’s Warranty – Insurance policy protecting new owner against any defects in the property subject to sale.

Homestead – Land owned and occupied as the family home to give the owner some protection against judgment up to a certain amount.

HUD – U.S. Department of Housing and Urban Development.

HVAC – Heating, ventilation, and air-conditioning.

Hypothecate – Pledge a property as a security for a loan without giving up possession.

Impound – Same as escrow.

Improvement – Privately owned structure (building, fence, etc.) on a site to enhance the value of the property.

Interest – Cost of funds charged by lenders.

Interest Averaging – The interest rate that is the average of all interest rates of loans on multiple properties.

Interim Financing – The temporary financing during the property is under construction or repair for sale.

Internal Rate of Return (IRR) – A discount rate that gives a zero net present value.

Jumbo Loan – Nonconforming loan exceeding the limits set forth by FNMA and FHLMC.

Junior Lien – Lien established after the first lien.

Lease Option – Leasing a property with an option to buy it within a certain period of time.

Leniency Clause – A provision allowing the lender to adjust loan repayments temporarily to accommodate a borrower experiencing financial problems.

Letter of Intent (LOI) – Letter written by a potential buyer who is willing to sign a contract to buy a real estate property by depositing an amount.

Liability Insurance – An insurance policy issued for homeowners against lawsuits for risk incurred by others on the property and for contractors to protect the homeowners against lawsuits that may be brought by workers hired by the contractors.

Lien – A claim (mortgage) on the real estate property for payment of debt.

Lien Waiver – Removal of any obligations on a homeowner to pay off debts.

Lis Pendens – Pending lawsuit.

Listing Agreement – Agreement between seller and real estate agent to sell the property within a certain period of time (30 or 90 days, or longer.

Loan Prospector – Automated underwriting by Freddie Mac.

Loan-To-Value (LTV) – Ratio of a loan to the property value.

Lock-In – Interest rate and points, if there is any, guaranteed by the lender for a specified period of time.

Lot and Block System – A legal definition of a land by using references to blocks and lot numbers.

Margin – Percentage point interest added to a pre-determined index to adjust the interest rate usually used in ARM.

Market Value – Price of a property for which able and willing buyers are ready to pay.

Maturity – Due date of a debt or loan.

Mechanic’s or Materialmen’s Lien – Lien created by statute on property by suppliers of labor or material.

Mediation – Reconciling differences by a mutually selected third party.

Moratorium – Temporary suspension of debt repayment.

Mortgage – Use of real estate as security.

Mortgagee – Holder of a mortgage loan.

Mortgagor – Borrower of a mortgage loan.

Mortgage Broker – An intermediary who acts on behalf of lenders.

Mortgage Insurance – Insurance on a mortgage for the protection of the lender against default by the borrower.

MRV – Maximum Retail Value

Multifamily Residential Property – A residential property having more than four units.

Multiple Dwelling – Multi-unit apartment complex.

Multiple Listing Service (MLS) – An online database of properties listed for sale.

Negative Amortization – Addition of unpaid interest to the principal of the loan increasing the amount of the principal.

Net Lease – A commercial tenant pays the rent and also the operating costs, including real estate taxes, insurance, utilities, HVAC, etc.

Net Worth – Amount of assets that exceeds liabilities.

New Basis – Adjusted cost basis by taking into account your old property when you transfer to a new property.

Nominal Interest Rate – Rates written in the loan agreement.

Nonconforming – Loan that does not conform to the guidelines set forth by Fannie Mae or Freddie Mac.

No-Neg Loan – Loan with no negative amortization

Nonjudicial Foreclosure – Right to sell a property without a court decree as allowed in some states.

Open Listing – Selling a property through multiple brokers with no exclusive right to list and sell the real estate property.

Origination Fee – Application fee (one percent, in general) for processing (originating and closing) a loan.

Par Value – Nominal value of a share or bond at the time it is issued.

Payback Period – Number of years to recover an investment.

Personal Property – Separation of appliances, carpeting, etc. from an investment property to benefit from shorter depreciation period.

Petition – Formal written request to court or a public agency to do something.

PITI – Principal, Interest, Taxes, and Insurance.

Plat Map – Section or subdivision of a town showing the location and boundaries of a property.

Points – Charge by the lender in extending a loan. One point equals one percent of the loan amount and is additional to other charges and interest.

Prepaid Items of Expenses – The expenses paid in advance are prorated and credited to the seller at closing.

Prepayment Penalty – Fee charged to borrower who pays off the loan ahead of schedule.

Prime Rate – Best interest rate applied by banks to their favorite customers.

Principal – The amount of the loan, excluding interest.

Private Mortgage Insurance (PMI) – An insurance requested by the lender when your down payment is less than 20 percent of the loan.

Probate – Legal action where court determines who will inherit the property of a decedent, and what assets he/she had.

Promissory Note – Legal document stating debt and its terms with or without a lien.

Quitclaim Deed – Deed indicating that owner gave up his/her interest/claim in the property.

Quite Title – Removal of a cloud on the title by a court action.

Ratification – Signing of agreement by both parties.

Real Estate – Land, all attachments above and below the ground.

Realtor – Sales agent who is a member of the National Association of Realtors subscribing to its ethical standards.

Recordation – Filing sales information with an official agency for public record.

Redemption – Right of defaulted previous owner to re-own his/her property by curing the default.

Refinance – Paying off a loan by obtaining a new loan.

REO – Real Estate Owned. A real estate owned by the lender through foreclosure.

Reserves – Funds set aside to meet future repairs and expenses for the property.

RESPA – Real Estate Settlement Procedures Act. It requires that all lenders (except private parties) give you an estimate of lending fees.

Right of First Refusal – Right given to a party to buy a property on priority basis.

Right of Redemption – Right granted, in some states, to the owner to recover property sold after a foreclosure within a certain period of time after the foreclosure sale.

R Value – A measurement of resistance of insulation material to temperature.

Secondary Market – The mortgage buying-selling market where large investors, including Fannie Mae and Freddie Mac play the largest role.

Self-Liquidating Loan – A loan with decreasing interest portion and increasing principal repayments.

Sheriff’s Deed – A deed issued by a court authorizing the Sheriff’s office to conduct the sale in satisfaction of a judgment.

Soldier’s And Sailor’s Relief Act – Protection for certain military people to keep their homes free from foreclosure during their duty periods.

Special Assessment – A charge imposed on a property by the government to recover the cost of improvements (sewerage systems, pavements, etc.) in the area where the property is located.

Statute of Fraud – Laws stating that all real estate-related contracts must be in writing and properly signed to have a legal effect.

Statute of Limitations – Period of time during which certain actions must be brought to court.

Subcontractor – A contractor hired by another contractor.

Sublease – Leasing the property fully or partially to another party.

Subordinate Loan – A second mortgage subordinated to a first mortgage.

Survey – Physical examination of a property with all measurements.

Tax-Deferred Exchange – Exchanging real estate properties to defer payment (sometimes indefinitely) capital gains tax (IRS Tax Code 1031).

Tenancy by the Entirety – The joint ownership by husband and wife where surviving spouse becomes the sole owner.

Tenancy in Common – Both owners hold a sole ownership without the right of survivorship but right of inheritance.

Tenant – Person renting or leasing the property.

Time of the Essence – Automatic termination of an agreement or a contract after a pre-determined date.

Title – A deed evidencing ownership to a property.

Title Insurance – It is used to ensure ownership where abstracts are not used. It insures against any defects.

Title Search – An examination of recorded information to determine the legal ownership to the property.

Trust Account – A separate account kept by a third party (real estate broker, attorney, or a settlement agency) to disburse expenses upon closing.

Underwriter – Another party approving a loan. FHA underwrites a loan extended by a lender.

Underwriter is a direct endorsement underwriter that is pre-approved by the underwriter.

Unlawful Detainer Action – Eviction of a tenant maintaining illegal possession of the real estate property.

Usury – Charging interest at a rate higher than what is allowed by state law.

Vacancy Allowance – A deduction made from future gross rental revenues for loss of income that may occur due to vacancies.

Vendee – Buyer

Vendor – Seller

Veterans Administration (VA) – Federal agency handling VA guarantee programs.

Waiver – Giving up any right.

Warranty Deed – A deed protecting a buyer against any defects.

Wraparound Mortgage – A mortgage covering all current mortgages (first and second) under one large loan, also called inclusive deed of trust.

Yield – The total revenue from a property expressed in an annual percentage.

Zoning Ordinance – Regulating the use of property by public agency.