Glossary of Terms

Abatement (Rental) - A reduction or elimination of rent payments for a specific period of time, usually granted by the landlord as an inducement to the tenant to enter into or renew a lease.

Abatement (Tax) - A reduction in real property tax granted by a taxing authority as a result of an appeal. In some jurisdictions, tax abatements may also be granted as a inducement for development or to attract or retain job-providing industries.

Abstract of Title – A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an opinion as to the condition of title.

Absorption Rate - The rate at which vacant space is either leased or sold to users in the market place. Absorption rate is usually expressed in square feet per year or in the case of multifamily housing, number of units per year.  

Accelerated Depreciation - Higher amounts of depreciation are taken in the early years of an asset's life but are offset by lower amounts taken in later years.

Acceleration Clause – Clause in an installment note and mortgage (or deed of trust), which gives the lender the right to demand payment in full upon the happening of a certain event, such as failure to pay an installment by a certain date, change of ownership without the lender’s consent, destruction of the property, or other event which endangers the security of the loan.

Acceptance – Voluntarily agreeing to the price and terms of an offer. Offer and acceptance create a contract.

Accommodation Party – Person who lends his name to help secure credit for another, by signing a note or other obligation without receiving consideration.

Accrual Accounting – An accounting method under which income and expenses are charged to the periods for which they are applicable, rather than when payment is received or made. The method calling for income and expenses to be based on payment being received or made in cash accounting.

Accrue – To grow or mature.

Accrued Depreciation – (1) The amount reserved each year in the accounting system for replacement of a building or other asset. (2) The useful life of a property at any given time.

Accrued Interest – Interest on a note, bond, etc. which has been earned but not yet paid. Since interest is usually paid in arrears, accrued interest does not necessarily indicate a delinquency in payment.

Accumulated Interest – Unpaid interest that is past due.

Acknowledgement – A written declaration by a person executing an instrument, given before an officer authorized to give an oath (usually a notary public), stating that the execution is of his own volition.

Acquisition Appraisal – An appraisal to determine market value of a property to be taken by eminent domain, in order to justly compensate the owner.

Acre – A measure, usually of land, equal to 160 sq. rods (43,560 sq. ft.) in any shape.

Acreage – Any parcel of land which may be measured in terms of acres. Usually qualified by its zoning or usage, such as residential acreage, industrial acreage, etc.  

Ad Valorem Tax - A real estate tax levied in proportion to the value of the property.

Adjusted Gross Income (AGI) - The income after all of the allowable deductions are made to the gross income.

Adjustable Mortgage Loans (AML’s) – Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amount and times of adjustment are agreed to at the inception of the loan. Also called Adjustable Rate Loans, Adjustable Rate Mortgages (ARM’s), Flexible Rate Loans, Variable Rate Loans.  

Adjustable Rate Mortgages (ARM’s) - See 'Adjustable Mortgage Loans'

ADA Compliance - Compliance with the provisions of the Americans with Disabilities Act which establishes minimum requirements for facilities with public access to accommodate physically handicapped persons.

Advance Fee – A fee charged by a broker to a seller to cover all or a portion of the broker’s costs of promoting the property. The fee is generally credited against commissions but is not refunded if no commissions are received. Most frequently used in connection with large offerings, which require a substantial outlay of funds for promotion.

Adverse Possession – A method of acquiring title by possession under certain conditions. Generally, possession must be actual, under claim of right, open, continuous, notorious, exclusive, and hostile (knowingly against the rights of the owner). Exact time (years) of possession and specific requirements (such as payment of property taxes) vary with the statutes of each state.

Affidavit – A written statement or declaration, sworn before an officer who has authority to administer an oath.

Affinity – (1) Relationship not of the blood. Related by marriage. (2) Any group for a specific purpose is called an affinity group, such as clubs, people in the same school, etc.

Affirmation – A substitution for an oath when a person objects to taking an oath (Quakers, atheists, etc.). A lie after an affirmation is still perjury.

Agent – One who is authorized to act for or represent another (principal), usually in business matters. Authority may be expressed or implied.  

AGI - See "Adjusted Gross Income".

Agreement – A general term usually describing a common view of two or more people regarding the rights and obligations of each in regard to a given subject. Not necessarily a contract, although all contracts are agreements.

Alias – Latin for “otherwise”. Commonly means that a person is known by more than one name. In some states, indicated by the letters AKA (also known as).

A.L.T.A. - See 'American Land Title Association'.

American Institution of Real Estate Appraisers – A professional institute to promote the quality of the appraisal industry through education of its members. The institute is associated with the National Association of Realtors.  

American Land Title Association (A.L.T.A.) – An organization, composed of title insurance companies, which has adopted certain insurance policy forms to standardize coverage on a national basis.  

Amortization – Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

Amortization Schedule – A schedule showing each payment of a loan to be amortized (see Amortization) and breaking down the payment into the amount applied to principal and then the amount applied to interest.

Amortize – To reduce a debt by regular payments of both principal and interest, as opposed to interest only payments.

Anchor Tenant - A prime tenant in a shopping center, such as an established department store, which attracts the bulk of customers to the center.  

Annual Percentage Rate (APR) - A term used in the Truth-in-Lending Act to represent the percentage relationship of the total finance charge to the amount of the loan. The APR may be higher than the rate stated in the mortgage note because it includes, in addition to interest, loan discount points, origination fees and other credit costs.

Annuity – (1) A payment of money yearly for life or a given period of years. (2) A fixed amount given or left by a will, paid periodically, not necessarily yearly.

Appraisal – An opinion of value based upon a factual analysis. Legally, an estimation of value by two disinterested persons of suitable qualifications.  

Appraised Value - An opinion of value reached by an appraiser based upon knowledge, experience and a study of pertinent data.

Appraisal Report – A written report by an appraiser containing his opinion as to the value of a property and the reasoning leading to this opinion. The factual data supporting the opinion, such as comparables, appraisal formulas, and qualifications of the appraiser, will also be set forth.  

Approaches to Value - Valuation methods used in the determination of property value. The three common approaches for real property are the cost approach, income approach and market (comparable sales) approach.

Arbitrage – The buying and selling of money or securities in different markets at a profit. For example: The value of 1 pound sterling is selling in New York for $2.00 and in London for $1.98. If one buys in London for dollars and sells in New York, there is a profit of $.02 per pound sterling. The term has come to be used with regard to the interest rate spread between wrap-around and underlying financing.  

ARM - Adjustable Rate Mortgage. See 'Adjustable Mortgage Loans'

Arm's Length Transaction - A transaction in which the parties involved are entirely independent of each other, deal with each other as strangers, and have no reason for collusion.

Articles of Incorporation – Documentation filed with the state, which sets forth general information about a corporation. More specific rules of the corporation would be contained in the by-laws.  

Assessed Value - That value set on the land and its improvements by tax authorities for purposes of determining real estate taxes.

Assessment - A value factor assigned to real property and used to determine real property taxes. The process of reaching the assessed valuation. Also, an add-on tax to raise money for a special purpose.

Assessment Period – Taxable period. The period during which the tax assessment must be completed.  

Assessment Roll or "Roll" - A listing of all property and its assessed value.

Assessor - The elected official whose legal responsibility is to discover, list and value all property in his jurisdiction.

Assignee – One who receives an assignment.

Assignment – A transfer to another of any property, real or personal, or of any rights or estates in said property. Common assignments are of leases, mortgages, deeds of trust, but the general term encompasses all transfers of title.  

Assumable Mortgage - A mortgage loan that can be taken over (assumed) by the buyer when a home is sold. An assumption of a mortgage is a transaction in which the buyer of real property takes over the seller's existing mortgage; the seller remains liable unless released by the lender from the obligation. If the mortgage contains a due-on-sale clause, the loan may not be assumed without the lender's consent.

Assumption - A buyer's acceptance of primary liability for payment of the existing note secured by a mortgage or deed of trust.

Assumption Agreement - A written agreement by one party to pay an obligation originally incurred by another.

Assumption Fee - A fee a lender charges a buyer who will assume the seller's existing mortgage.

Attornment Agreement - A letter acknowledging a new owner as a landlord or a new organization as a loan servicer.

Attorney at Law – An advocate, counsel, or official agent employed in preparing, managing, and trying cases in court. Must be licensed by the state.

Balance Sheet – A statement of the assets and liabilities of a company to determine its net worth (equity).

Balloon – (1) The final payment of a balloon note (see which). (2) Final payment on a debt that is substantially larger than the preceding payments.  Loans or mortgages are structured with balloon payments when some projected event is expected to provide extra cash flow or when refinancing is anticipated.   Balloon loans are sometimes called partially amortized loans.  

Balloon Mortgage - A mortgage in which the periodic payments of amortization do not fully repay the indebtedness within the term of the loan, resulting in a lump sum payment of principal due at maturity.

Balloon Note – A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a “balloon” is due at maturity.

Bankrupt – One who is adjudicated a bankrupt by a court having proper jurisdiction. The bankruptcy may be voluntary (petitioned by the bankrupt) or involuntary (petitioned by the creditors of the bankrupt).

Bankruptcy – Proceedings under federal bankruptcy statutes to relieve a debtor (bankrupt) from insurmountable debt. The bankrupt’s property is distributed by the court to the creditors as full satisfaction of the debts, in accordance with certain priorities and exemptions. Voluntary bankruptcy is petitioned by the debtor; involuntary by the creditors.

Base Rent - The minimum fixed guaranteed rent in a commercial property lease.  

Base Stop -The maximum amount of building operating expenses which will be borne by the landlord prior to passing additional amounts through to the tenant. The base stop is expressed as a absolute dollar amount or dollar per square foot amount. 

Base Year - Similar to 'base stop," except that rather being specified as an absolute amount, the landlord's expenses are limited to the amount incurred is a specified calendar or fiscal year, usually (but not always) the calendar year in which the lease commences. 

Basis Point - One one-hundredth of one percent. Used primarily to describe changes in yield or price on debt instruments, including mortgages and mortgage-backed securities.

Beneficiary’s Demand – Written instructions by a beneficiary under a deed of trust stating and demanding the amount necessary for issuance of a re-conveyance, whether a full or partial amount.

Binder – (1) A report issued by a title insurance company setting forth the condition of title to certain property as of a certain date, and also setting forth conditions which, if satisfied, will cause a policy of title insurance to be issues. Also called a commitment. (2) A policy of title insurance (used primarily by investors) calling for a reduced rate for a future policy if the property is sold within a specified period.

Biweekly Payment Mortgage - A mortgage with payments due every two weeks (instead of monthly).

Blanket Mortgage – (1) A mortgage covering more than one property of the mortgagor, such as a mortgage covering all the lots of a builder in a subdivision. (2) A mortgage covering all real property of the mortgagor, both present and future. When used in this meaning, it is also called a “general mortgage”.  

Blind Pool - A commingled real estate fund accepting investor capital without prior specification of property assets.

Block Busting – An illegal method of obtaining houses at below fair market value by telling the inhabitants that people of a different race or religion, moving into the area, will cause property values to fall.

Blue Sky Laws – Laws to regulate the sale of securities to avoid investment in fraudulent companies or high-risk investments without disclosure of the risks to the investor.  

Board of Equalization (BOE) - A nonjudicial, appointed body (the county commission) which attempts to ensure that property under its jurisdiction is appraised equitably and at market value.

Bona Fide – A legal term which refers to any actions, situations, or persons that are honest, in good faith, and without fraud.

Bona Fide Purchaser – A purchaser in good faith, for valuable consideration, without notice or knowledge of adverse claims of others.

Bond – (1) An insurance agreement by which one is insured against loss by acts or defaults of a third party. In construction, a performance bond insures that the builder will finish his project. The insured could be a lender, purchaser, or other interested party. (2) A method of financing long-term debt, issued by a government or private corporation, which bears interest and has priority over stocks in term of security.  

Book Value - The net value of a company's assets less its liabilities, as reflected on its balance sheet pursuant to GAAP (Generally Accepted Accounting Principles). Book value will reflect depreciation and amortization, which are expenses for accounting purposes.

Boot - What the IRS identifies as the taxable proceeds of a 1031 taw deferred exchange when (1) the property being acquired is of lesser value than the property being sold or (2) when the amount of mortgage on the acquired property is greater than the mortgage that was on the property being sold.

Breach of Contract – Failure to perform a contract, in whole or in part, without legal excuse.

Breach of Warranty – In real property, the failure of the seller to pass title as either expressed or implied (by law) in the conveyancing document.  

Breakpoint - In a retail lease, the point specified in absolute sale dollars per square foot, above which the tenant has agreed to pay percentage rent in addition to base rent. For example, in addition to base rent, a tenant may agree to pay 2% of annual gross sales above 2 million. In this case, $2 million is the breakpoint.

Bridge Financing – A form of interim loan, generally made between a short term and a permanent (long term) loan, when the borrower needs to have more time before taking the long term financing.  

Bridge Loan - A short-term loan secured by the borrower's current home (which is usually for sale) that allows the proceeds to be used for building or closing on a new house before the current home is sold.

Broker, Mortgage – A person who is in the profession of making or negotiating the origination, placement or sale of a lien secured by real property.

Broker, Real Estate – One who is licensed by the state to carry on the business of dealing in real estate. A broker may receive a commission for his or her part in bringing together a buyer and a seller, landlord and tenant, or parties to an exchange.

Building Code – A comprehensive set of laws which control the construction of buildings, including design, materials used, construction, use, repair, remodeling, and other similar factors.

Building Permit – A permit given by a local government to construct a building, or make improvements.

Bundle of Rights – The rights (interests) of ownership of real estate. Considering all the rights of ownership (possession, quiet enjoyment, etc.) as being separate but bundle together. The alienation of any of these rights (giving up possession by leasing, for example) is simply taking one from the bundle and retaining the rest.  

Buy-and-Bail - The term used to describe the situation where a borrower closes on the purchase of  a new property without selling their current residence with the intent of defaulting on their old mortgage as soon as they move into their new home.

Buydown – A payment to the lender from the seller, buyer, third party or some combination of these, causing the lender to reduce the interest rate during the early years of a loan. The buydown is usually for the first 1 to 5 years of the loan.  

Bylaws - A statement of corporate internal government that sets forth the rights and duties of stockholders with respect to the corporation and among themselves. Bylaws also control the internal government of other forms of ownership such as condominiums and cooperatives.

C-Corporation - A typical corporation organized under the provisions of "Subchapter C" of the Internal Revenue Code which may be publicly or privately held. It is required to pay taxes on its net taxable income, at the prescribed corporate tax rates in effect, and its shareholders also are required to pay income tax on any dividends they receive.

Call Date – Originally a term used when a bond is redeemed prior to maturity, it is now also used in describing mortgages.

Call Loan – A loan payable on demand.  

Call Option - A provision of a note that allows the lender the right to demand or "call in" the balance of the obligation. The call can be exercised due to a breach of specified terms or conditions, or at the discretion of the lender (such as when the note rate is lower than the current market rate).

CAMA - Computer-Assisted Mass Appraisal is the process by which property is appraised utilizing computers, computer models and analytical programs.

Cancellation Clause – A clause used in a lease or other contract, setting forth the conditions under which each party may cancel or terminate the agreement. The conditions may be as simple as giving notice or complex and require payment by the party deemed to cancel.  

Cap - Maximum and minimum parameters applicable to adjustments on some adjustable rate mortgages. A cap can apply to either the interest rate or monthly payment or both. Caps are usually established, limiting the interest rate or payment for each adjustment period and/or over the life of the loan.

Capital – Money used to create income, either as investment in a business or income property.

Capital Assets – Assets of a permanent nature used to produce income, such as machinery, buildings, equipment, land, etc. Must be distinguished from inventory. A machine that makes pencils, for example, would be a capital asset to a pencil manufacturer, but inventory to the company that sells such machines.

Capital Gains – Gains realized from the sale of capital assets. Generally the difference between cost and selling price, less certain deductible expenses. Used mainly for income tax purposes.  

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

Capital Markets - Public and/or private markets where businesses or individuals attempt to obtain debt  or equity capital.

Capitalization – Determining a present value of income property by taking the annual net income (either known or estimated) and discounting by using a rate of return commonly acceptable to buyers of similar properties. For example: Net Income of a property is $10,000 per year. Capitalizing at a rate of 10%, the property would be worth $100,000.  

Capitalization Analysis - The analysis based on the conversion of a future net income stream into present value by using a specific desired rate of earnings as a discount rate.

Capitalization Rate - The rate of return on net operating income considered acceptable for an investor and used to determine the capitalized value. This rate should provide a return on, as well as a return of, capital. Also known as "cap rate."

Capitalized Value – The value of the property after use of the capitalization approach of appraisal.

Cash Assets – Money that is available to meet the requirements of operating a business.  

Cash for Keys – A policy by which a lender will offer a homeowner, that is in the process of being foreclosed, money to vacate their homes peacefully and in good shape. If the homeowner hands over the keys and vacate the home without inflicting any property damage, they get a check.

Cash Flow – With reference to a property (or group of properties), the owner's rental revenues from the property less all property related operating expenses. The term ignores depreciation and amortization expenses, as well as interest on loans incurred to finance the property. Cash flow sometimes is referred to as "earnings before interest, taxes, depreciation and amortization" or EBITDA.

Cash Out – To take out an amount of a seller’s equity in cash rather than to retain some interest in the property, such as a purchase money mortgage or deed of trust. Also loosely used when paying off anyone having an interest in the property, thereby ending the interest.

Cash Sale – A sale for full payment in cash, as opposed to a credit sale. A payment by check is considered cash. May be qualified, as “cash to new loan”, “cash to existing loan”, etc.  

Cashier’s Check – A check drawn by a bank on itself rather than on an account of a depositor. A cashier’s check is generally acceptable to close a sale without waiting for the check to clear.  

Category/Description - Categories of property established by the State Tax Commissioner, for purposes of assessment, equalization and taxation.

CDO - See 'Collateralized Debt Obligation'.

Certificate – A writing, either from a court or other public body, giving assurances of existing conditions or facts, and giving rights or creating obligations.

Certificate Backed Mortgage – A variation of the buydown. The seller purchases a savings certificate (usually with the proceeds of the sale) from the lender. The lender sets the buyer’s interest rate below market (generally 2 percent above the certificate rate). Should the seller withdraw the certificate funds, the buyer’s rate goes to market rate.

Certificate of Eligibility – A certificate obtained by a veteran from a Veteran’s Administration office, which states that the veteran is eligible for a V.A. insured loan. There is a list of requirements (when and how long the veteran served, type of discharge, etc.) which also may be obtained from the V.A. office.

Certificate of Occupancy – A certificate issued by a local building department to a builder or renovator, stating that the building is in proper condition to be occupied. A statement of intent to occupy, by buyer.

Certified Check – A personal check drawn by an individual, which is certified (guaranteed) to be good. The bank holds the funds to pay the certified check and will not pay any other checks drawn on the account if such payment would impede payment of the certified check. The bank will also not honor a stop payment on a certified check.

Certified Copy – A true copy, attested to be true by the officer holding the original.

Chain of Title - The history of all of the documents that have transferred title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Chattel Mortgage – A lien on personal property. Also called a security interest or financing statement.

Class Action – An action brought on behalf of a group of people having a similar claim. Has become increasingly popular in the consumer movement, and is a strong weapon against unfair practices.

Clear Title – See 'Free and Clear'.

Closed Mortgage – See 'Lock-in'.

Closed Period - The interval of time under a mortgage during which the loan cannot be prepaid.

Closing – (1) In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed. (2) A selling term meaning the point at which the client or customer is asked to agree to the sale or purchase and sign the contract. (3) The final call in a metes and bounds legal description which “closes” the boundaries of the property.

Closing Costs – Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fees, etc.

Closing Statement – The statement which lists the financial settlement between buyer and seller and also the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

Cloud on Title – An invalid encumbrance on real property, which, if valid, would affect the rights of the owner. For example: A sells lot 1, tract 1, to B. The deed is mistakenly drawn to read lot 2, track 1. A cloud is created on lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action.

Code of Ethics – See 'Ethics'.

COFI - See 'Cost of Funds Index'

Collapsible Corporation – A corporation which is sold instead of its product, in order to create a capital gain rather than ordinary income for tax purposes. For example: A and B (persons) are real estate developers who want to build an office building to sell. They form a corporation, which builds the building. Then, rather than selling the building, A and B sell the corporation, claiming capital gain on the stock profit. Federal tax laws regulate such transactions.

Collateral - Property pledged as security for a debt, for example, mortgaged real estate.

Collateral Assignment – An assignment of property as collateral security, and not with the intent to transfer ownership from assignor to assignee.

Collateral Note – A promissory note secured by specific property.

Collateralized Debt Obligation (CDO) - An investment-grade security backed by a pool of  loans and other assets.

Collateralized Mortgage Obligation (CMO) - A securitization structure whereby real estate mortgages are pooled and re-sold in the form of two or more participating interests.

Co-Maker – A surety (see which) under a loan. The co-maker is equally responsible for repayment as the borrower (maker).

Commercial Bank – An institution for savings, loans, checking, accounts, and other services not all of which are found in savings and loan institutions. Banks are generally more active in construction loans rather than long term real estate financing.

Commercial Mortgage Backed Securities (CMBS) - Securities collateralized by mortgage loans on commercial real estate.

Commingling – To mix funds held in trust with other funds. For example: A broker or builder mixes deposits (should be in a trust account) with his funds by putting the deposits in his general account. Although commingling is in itself a violation for which a broker may lose his license, it does not mean that, by commingling, the broker or builder intended to misappropriate the funds.

Commission – An amount, usually as a percentage, paid to an agent (or mortgage broker) as compensation for his services. The amount to a real estate broker is generally a percentage of the sale price or total rental.

Commitment – (1) Title insurance term for the preliminary report issued before the actual policy. Said report shows the condition of title and the steps necessary to complete the transfer of title as contemplated by buyer and seller. (2) A written promise to make or insure a loan for a specific amount and on specific terms.

Common Area - An area owned by the owners or tenants of a complex or subdivision, for the common use of residents.

Common Equity Market Capitalization - The market value of a company's common stock. Obtained by multiplying the number of common shares outstanding by the market value of the shares.

Community Property - Property acquired by a husband and wife during their marriage, individually or jointly, that is considered by some states to be commonly owned by both. (New York, New Jersey and Connecticut are not community property states).

Co-Mortgagor – One who signs a mortgage with another as borrower. The term is often applied to one who intends to guaranty the loan even though co-mortgagors have equal liability.

Comparables - An abbreviation of "comparable properties"  used for comparative purposes in the appraisal process. Facilities of reasonably the same size and location with similar amenities. Properties that have been sold recently and have characteristics similar to the property under consideration, thereby indicating the approximate fair market value of the subject property. Also called "comps."

Compensation – Indemnification; payment of damages; making amends; giving an equivalent or substitute of equal value. Equivalent in money for a loss sustained.  Remuneration for services rendered, whether in salary, fees, or commissions.

Concession – A granting of a right, by government or privately, usually to use land or area in a building to carry on a business.

Condemnation – The taking of private property for public use without the consent of the owner, but only upon payment of just compensation.

Condition – In real property law, some limiting restriction to a grant or conveyance of property, stating that upon the happening or not happening of a stated event, the estate shall be changed in some manner.

Conditional Commitment – A loan commitment given before a borrower (buyer) is obtained and subject to approval of the buyer by the lender.

Conditional Sales Contract – A sale in which the title to property or goods remain with the seller until the purchaser has fulfilled the terms of the contract, usually payment in full.

Condominium – A structure of two or more units, the interior space of which are individually owned; the balance of the property (both land and building) is owned in common by the owners of the individual units. The size of each unit is measured from the interior surfaces (exclusive of paint and other finishes) of the exterior walls, floors and ceilings. The balance of the property is called the common areas.

Conduit – A natural channel for the flow of water, or artificial channel, such as a pipe, used for the conveying and protecting water, wires, a source of funds or other materials.

Confession of The written, voluntary, submission of a debtor to a judgment by a creditor for a specified amount.

Consideration - Something of value offered and accepted in exchange for a promise, without which an agreement is unenforceable.

Conservator – A guardian, court appointed.

Consolidation – (1) The coming together, either through merger or partial ownership, of two or more companies. (2) The solidification of loose material or liquid, usually under pressure.

Constant - Percentage of the original loan paid in equal annual payments that provides principal reduction and interest payments over the life of the loan. For example, a $1 million loan with a 10.8% constant requires a $108,000 annual payment.

Construction Loan – Short term financing of real estate construction. Generally followed by long term financing called a “take out” loan, issued upon completion of improvements.

Construction Loan Draw - A partial disbursement of the construction loan based on the schedule of payments in the loan agreement. Also called "takedown."

Constructive Receipt - The condition when you have indirect control of the proceeds of sale through a third party that is acting as your agent.

Contingency – Commonly, the dependence upon a stated event which must occur before a contract is binding. For example: The sale of a house, contingent upon the buyer obtaining financing.

Contingent Fees – Fees to be paid only in the event of a future occurrence. A broker’s commission is paid only if the property is sold or leased (unless otherwise agreed upon). Attorneys (especially in negligence cases) may be paid based on winning the suit and collection of damages.

Contract – An agreement between two or more persons or entities, which creates or modifies a legal relationship. Generally based upon offer and acceptance.

Contract of Sale – In some areas of the country, synonymous with land contract. In other areas synonymous with purchase agreement.

Contractual Lien – A voluntary lien such as a mortgage or deed of trust.

Conventional Mortgage – A mortgage or deed of trust not obtained under a government-insured program, (such as FHA or VA)

Conversion – (1) A legal term referring to the “legal” change from real to personal property (or vice versa), although there is no actual change in the property. (2) A taking of something for one’s own use which was originally in his possession only to hold for the owner. (3) The changing of an apartment to a condominium. (4) conversion of a loan product to another.

Conversion Option - A provision of some adjustable-rate mortgage (ARM) loans that allows the borrower to change the ARM to a fixed-rate mortgage at specified times after loan origination.

Convertible ARM - An adjustable-rate mortgage (ARM) that allows the borrower to convert the loan to a fixed-rate mortgage under specified conditions.

Conveyance – Transfer of title to land. Includes most instruments by which an interest in real estate is created, mortgaged, or assigned.

Cooperative Apartment – Also called a stock cooperative or a co-op. A structure of two or more units in which the right to occupy a unit is obtained by the purchaser of stock in the corporation that owns the building. Difficult to obtain financing because there is not individual ownership of each unit. A forerunner of the condominium.

Copyright - An exclusive right granted by the federal government giving the owner protection against the illegal reproduction by others of the owner's written works, designs, and literary production.

Corporate Resolution – An action taken by vote of the directors of a corporation. A title insurance company may require a corporate resolution before insuring a sale or loan made by a corporation.

Corporation – A general term encompassing any group of people “incorporating” by following certain statutory procedures. Most common type of corporation is a private one formed to carry on a business.

Co-signer - One who agrees to assume the debt obligation if the principal borrower should default on mortgage payments. A co-signer assumes only personal liability and has no ownership interest in the property. His or her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower, but they are not given equal weight with those of the principal borrower. They serve as compensating factors only.

Cost Approach to Value - A valuation approach in which the value of a property is determined by computing the replacement value of improvements, depreciation, and the value of land.

Cost of Capital - The cost to the company of raising capital in the form of equity or debt.

Cost of Funds Index (COFI) - An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the weighted monthly average cost of deposits, advances, and other borrowings of members of the Federal Home Loan Bank of San Francisco.

Covenant - A legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default as defined by the mortgage, and can be the basis for foreclosure. 

Credit – (1) The financial worthiness of a borrower. The history of whether this borrower has met financial obligation on time in the past. (2) An accounting term designating money received or receivable, as opposed to debit which is money paid or payable.

Credit Life Insurance - A type of insurance that pays off a specific amount of debt or a specified credit account if the borrower dies while the policy is in force.

Credit Report – A report on the past ability of a loan applicant to pay installment payments. Several national and local companies make such reports.

Credit Score - A numerical value that ranks a borrower's credit risk at a given point in time based on a statistical evaluation of information in the individual's credit file that has been proven to be predictive of loan performance.

Creditor - A person or entity for which money is owed to.

Cross-Defaulting Clause - A clause in some mortgage agreements that states a default by the borrower on one mortgage loan also triggers a default on the other loan stated in the clause. 

Curable Depreciation - Items of physical deterioration or functional obsolescence that are economically feasible to cure. Economic feasibility is indicated if the cost to cure is equal to or less than the anticipated increase in the value of the property.

Current Assets – An accounting term meaning cash or those things which can be readily converted to cash, such as short term accounts receivable, within twelve (12) months or less.

Current Liabilities – Short-term debts.

Custodian – One who is entrusted with the care and keeping of real or personal property.

Damages – (1) Money recoverable by one suffering a loss or injury. (2) The loss of value to property adjoining a property taken in condemnation proceedings, rather than the value of the property taken.

Dealer – One who buys and sells real estate as a business, as opposed to an investor. The importance of the term is for tax purposes. If IRS determines that a taxpayer is a dealer, said taxpayer will not be allowed the capital gains benefit of an investor, but will be taxed at ordinary income rates. The term applies to the transactions more than the person. One may be a dealer in certain transactions and an investor in others.

Debit – An accounting term used to designate a payment or owing, as opposed to a credit which is a receiving or being owed.

Debt – Money owing to one person from another.

Debtor – Ones who owes a debt.

Debt\Equity Ratio - The proportion of capital borrowed to the amount of capital invested out-of-pocket or obtained through the sale of common stock. Also called "leverage ratio." 

Debt Service – A borrower's periodic mortgage payments comprised of principal and/or interest on the unpaid mortgage balance.

Debt Service Coverage Ratio - A ratio of effective annual net operating income to annual principal and\or interest payments. Also called :debt service coverage." 

Debt-to-Income Ratio - The relationship between a borrower's total monthly debt payments (including proposed housing expenses) and his or her gross monthly income; this calculation is used in determining the mortgage amount that a borrower qualifies for.

Declaration of Trust – A written acknowledgement by one holding legal title to property that the property is held in trust for the benefit of another.

Deed – Actually, any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale.

Deed in Lieu of Foreclosure – A deed given by an owner/borrower to a lender which may prevent the lender from bringing foreclosure proceedings. The validity of the deed depends on some degree of “fairness” under the circumstances, and adequacy of consideration will be considered.

Deed of Trust – An Instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and re-conveyed upon payment in full.

Deed Restriction – Limitations on the use of the property placed in the conveyancing deed by the grantor, which binds all future owners.

Default - A breach or nonperformance of the terms of a note, the covenants of a mortgage, or the terms of other loan documents.

Default Interest Rate - The interest rate stipulated by certain mortgage documents which is triggered by a breach or nonperformance of the terms of a note, the covenants of a mortgage, or the terms of other loan documents.

Default A judgment entered against a party who fails to appear in court at the scheduled time.

Defeasible Title – Title that is not absolute and may possibly be annulled or voided at a later date. For example: Title conveyed to A with condition that if A marries before age 30, title will go to B. A’s title may be good (doesn’t marry) or may be defeated (marries before 30).

Delinquency - Failure of a borrower to make timely payments specified under a loan agreement.

Delivery – In conveyancing, the placing of the property in the actual or constructive possession of the grantee. Usually accomplished by delivery of a deed to the buyer or agent of the buyer, or by recording said deed.

Demand – (1) The quantity of goods which can be sold at a specified price, in a given market, at a particular time. (2) A letter from a lender showing the amount due in order pay off a mortgage or trust deed.

Demand Note – A note having no date for repayment, but due on demand of the lender.

Demography - The study of the characteristics of human population such as size, growth, density, distribution, and vital statistics.

Density - The ratio between total land area and the number of residential or commercial structures placed upon it. Local ordinances usually regulate density.

Depletion - The depreciation (using up) of a natural resource. For example, mineral deposits, oil reserves, gas deposits, timber.

Depreciation - A decline in value of a building or other real estate improvement, resulting from age, physical wear, and economic or functional obsolescence. This figure is deducted annually from net income.

Deterioration - Impairment of condition; a cause of depreciation that reflects the loss in value due to wear and tear, disintegration, use in service, and the action of the elements.

Developer – (1) A builder. (2) One who prepares the raw land for construction and then sells lots to a builder.

Direct Reduction Mortgage – An amortized mortgage. One on which principal and interest payments are paid at the same time (usually monthly) with interest being computed on the remaining balance.

Disclaimer – (1) Statement on a publication attempting to limit liability in the event the information is inaccurate. (2) Renunciation of a claim or right of another.

Discount - In loan originations, a discount refers to an amount withheld from loan proceeds by a lender. In secondary market sales, a discount is the amount by which the sale price of a note is less than its face value. In both instances, the purpose of a discount is to adjust the yield upward, either in lieu of interest or in addition to interest. The rate or amount of discount depends on money market conditions, the credit of the borrower, and the rate or terms of the note.

Discount Points - A one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.

Discount Rate - The rate of return used to convert expected future cash flows into present value equivalent. 

Discounted Cash-Flow Analysis (DCF) - Method of applying an appropriate discount to cash to be received in the future to arrive at the present value of those future earnings.

Disposition of Real Estate Statement – A statement that the buyer will occupy the property being purchased even though the buyer owns other property. The buyer states that the other property will be sold or rented. Particulars must be given as to loan on the property and the equity or rent to payment amounts.

Disbursements – Payments made during the course of an escrow or at a closing.

Distress Sale – A sale of property when the seller is under extreme pressure to sell. Generally the property is sold for less than market value.

Divest - To release an interest one has in property.

Dividend Yield - The annual current dividend rate for a security expressed as a percent of its market price.

Down Payment – Cash portion paid by a buyer from his own funds, as opposed to that portion of the purchase price that is financed.

DownREIT - Structured much like an UPREIT, except in a DownREIT, the operating partnership is subordinate to the REIT itself.

Draw – (1) Portions of a construction loan, given after certain stages of completion. (2) An advance against future income.

Dry Mortgage – A lien, which places no personal liability on the mortgagor, looking only to the property for security.

Dual Agency – The representation of opposing principals (buyer and seller) at the same time. In brokerage many states get around this by saying that the agent aids the buyer but is the agent of the seller only. A problem arises if both the buyer and the seller pay the broker. Then full disclosure must be made. An escrow agent is the agent of the buyer and seller and usually paid by both. This is why an escrow agent must be neutral.

Due Date - Date which the borrower must pay the interest and/or the principal due on his or her mortgage, as stated in the note, as well as any escrow payment. 

Due Diligence Review - An examination by a purchaser of a servicing portfolio. Generally the reviewer will look at credit quality and underwriting of the loan collateral underlying the servicing rights; correctness and completeness of the loan documents; the seller's servicing practices and methodologies; and the accuracy of the portfolio offering document. As used here, a re-underwriting of the loan in line with borrower's request to determine the feasibility of the request by lender.

Due-on-Encumbrance - A provision appearing in a mortgage providing for the acceleration of a loan upon the placement of additional mortgage liens on collateral already pledged/mortgaged to a lender.

Due-on-Sale - A clause in a mortgage stating that if the mortgagor sells, transfers, or in any way encumbers the property, then the mortgagee has the right to implement an acceleration clause making the balance of the obligation due.

Earnest Money Deposit - A deposit submitted with a purchase offer to show that the buyer's offer is being made in "good faith."

Easement - A right to the limited use or enjoyment of land held by another, including, for example, an interest in land to enable sewer or other utility lines to be laid, or to allow access to a property.

EBITDA - Earnings before Interest, Taxes, Depreciation and Amortization.

Economic Life - The time period a property will yield a return on the investment over and above the ground rent due on the land.

Economic Value - The condition of the property based on its earning potential.

Effective Gross Income - Stabilized income after vacancy and bad debt allowances that a property is expected to generate.

Egress - A way out; and exit or outlet.

Eminent Domain – A governmental right to acquire private property for public use by condemnation, and payment of just compensation.

Encroachment - An improvement that illegally violates another's property or right to use that property.

Encumbrance, Incumbrance – A claim, lien, charge or liability attached to and binding real property. Any rights to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

Entity – A separate existence or being, most commonly referring to a corporation or other form of business, rather than an individual.

Environmental Impact Report – A report of the probable effect of a development on the surrounding area (environment). The report is prepared by an independent company to federal, state, or local guidelines.

Equal Credit Opportunity Act – Federal law granting a group independent status, and preventing lenders from considering such negative credit aspects as the possibility of a woman having children and dropping out of the labor market.

Equalization - The process by which an appropriate governmental body attempts to ensure that all property under its jurisdiction is assessed equitably at market value or at a ratio or ratios as required by law.

Equitable Mortgage – (1) A lien against real property (mortgage) which is enforceable in a court of equity but does not legally constitute a mortgage. (2) A deed given as security for a debt will be held to be a mortgage rather than a transfer of title. Also called a constructive mortgage.

Equity - A person's ownership interest in a particular piece of property. For a homeowner, the market value of the property, less what is owned on the mortgage, results in a net figure that is the owner's equity in the house.

Equity Line of Credit – A combination of a line of credit and an equity loan. A loan amount is established based on credit and equity. A mortgage (deed of trust) is recorded against the potential borrower’s property for said loan amount. The potential borrower may have the right to borrow, as needed, up to the amount of the mortgage.

Equity Loan – A loan based upon the equity in a property. The credit of the borrower is not a major factor.

Equity REIT - A REIT that primarily owns, or has an equity interest in, income-producing commercial real estate.

Equity Stripping – The act of refinancing your property with the largest mortgage or mortgages available. This maximizing of the leverage on the property leaves the property owner at the risk of being “upside down” in the event property values begin to drop.

Equitization - The process by which the economic benefits of ownership of a tangible asset, such as real estate, are divided among numerous investors and represented in the form of publicly traded securities.

Escalation Clause – A clause in a lease providing for an increased rental at a future time. May be accomplished by several types of clauses, such as (1) Fixed increase – A clause that calls for a definite, periodic rental increase. (2) Cost of living – A clause that ties the rent to a government cost of living index, with periodic adjustments as the index changes. (3) Direct expense – The rent is adjusted according to changes in the expense of the property paid by the lessor, such as tax increases, increased maintenance costs, etc.

Escheat - The right of government that gives the state titular ownership of a property when its owner dies without a will or any ascertainable heirs.

Escrow – Delivery of a deed by a grantor to a third party for delivery to the grantee upon the happening of a contingent event. Modernly, in some states, all instruments necessary to the sale (including funds) are delivered to a third (neutral) party, with instructions as to their use.

Escrow Account - The segregated trust account in which escrow funds are held. The term in also used to describe the accounting for such funds.

Escrow Analysis - The accounting that a mortgage servicer performs to determine the appropriate balances for the escrow account, compute the borrower's monthly escrow payments, and determine whether any shortages, surpluses or deficiencies exist in the account.

Escrow Officer – An escrow agent. In some states, one who has, through experience and education, gained a certain degree of expertise in escrow matters.

Escrow Payment - That portion of a mortgagor's monthly payment held by the lender to pay taxes, insurance premiums, lease payments, and other items as they come due. Also known as "impounds".

Estoppel Certificate - A written statement setting forth certain facts which cannot later be repudiated (frequently given by a lender or a tenant relative to a loan or lease, respectively).

Ethics – With regard to professions, a code of professional standards, containing aspects of fairness and duty to the profession and the general public.

Eviction - The legal act of removing someone from real property.

Exclusive Listing - A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time.

Executor - A person named in a will and approved by a probate court to administer the deposition of an estate in accordance with the instructions of the will.

Expenses of Sale - The costs that are attributed to the sale of real estate. They would include commissions, loan points, title and escrow fees, documentary transfer tax, etc.

Exposure - The total amount a lender has tied up in a loan. Usually the outstanding principal balance of the loan plus accrued interest, and any capitalized costs including legal fees and expenses, appraisal and environmental fees, and all other costs associated with securing the lender's interest in the property.

Externally Advised REIT - A REIT that uses an advisor for services relating  to administration or screening markets or potential properties. Fees are paid to the advisor, usually based on cash flows or assets managed.

FACTA - See 'Fair and Accurate Credit Transactions Act'

Fair and Accurate Credit Transactions Act (FACTA) - Passed in 2003 by Congress. FACTA amended the Fair Credit Reporting Act charging the Federal Trade Commission with promulgating rules regarding identity theft.

Fair Credit Reporting Act – A federal law giving one the right to see his or her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the buyer which company issued the report. The buyer may see the report without charge if refused credit, or for a charge if just curious.

Fair Market Value - The price at which property is transferred between a willing buyer and a willing seller, each of whom has a reasonable knowledge of all pertinent facts and neither being under any compulsion to buy or sell.

Fannie Mae (Federal National Mortgage Association) - The nation's largest mortgage investor created in 1968 by an amendment to Title III of the National Housing Act (12 USC 1716 et seq.) this stockholder-owned corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs. On September 7, 2008 the Federal Housing Finance Agency (FHFA) placed Fannie Mae in conservatorship.

Fannie Mae DUS Lender - A lender designated by Fannie Mae who originates, underwrites, closes, and services Fannie Mae approved multifamily mortgage loans. 

Farmer Home Administration (FmHA) – The federal agency which makes, participates, and insures loans for rural housing and farms.

Federal Deposit Insurance Corporation (FDIC) - Originally established by the Banking Act of 1933 to protect depositors from loss. As a result of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), the FDIC administers the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF).

Federal Fair Housing Law – Title VIII of the Civil Rights Act which forbids discrimination in the sale or rental of residential property because of race, color, sex, religion or natural origin.

Federal Home Loan Bank Board – The board that charters and regulates federal savings and loan associations, as well as controlling the system of Federal Home Loan Banks.

Federal Home Loan Banks – Banks created under the Federal Home Loan Bank Act of 1932, in order to keep a permanent supply of money available for home financing. The banks are controlled by the Federal Home Loan Bank Board. Savings and loans, insurance companies, and other similar companies making long term mortgage loans may become members of the Federal Home Loan Bank System, and thus may borrow from one of the regional banks throughout the country.

Federal Home Loan Mortgage Corporation – See 'Freddie Mac'.

Federal Housing Administration (FHA) – A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sales price.

Federal Housing Finance Agency (FHFA) - A federal agency established July 30, 2008 to ensure that Fannie Mae, Freddie Mac and the Federal Home Loan Banks operate in a safe and sound manner. It integrated the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board and the HUD mission and affordable housing programs under one supervisory agency.

Federal National Mortgage Association - See 'Fannie Mae'.

Federal Savings and Loan Association – A federally chartered institution for savings and home mortgages, under the regulation of the Federal Home Loan Bank Board.

Federal Savings and Loan Insurance Corporation – A federal corporation insuring against loss by depositors in a saving and loan association, in much the same way that the Federal Deposit Insurance Corporation insures against loss by depositors in banks.

Federal Tax Lien – A lien attaching to property for non-payment of a federal tax (estate, income, etc.). A federal tax lien differs from all other liens in that it is not automatically wiped out by foreclosing on a mortgage or deed of trust recorded before the tax lien (except by judicial foreclosure)

Fee – (1) Modernly, and not in strict legal terms, synonymous with fee simple or “ownership”. (2) A charge made by a landlord to a tenant, which is not refundable. For example: A cleaning deposit would be refunded if the tenant left the rental property reasonably clean. A cleaning fee would be charged by the landlord for cleaning the rented property and would not be refunded regardless of the condition of the property.

Fee Appraiser - An appraiser who is paid a fee for the appraisal assignments he or she performs.

Fee Simple – An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

FHA - See 'Federal Housing Administration'.

FHA Mortgage - A mortgage loan in which the lender is insured against loss by the Federal Housing Administration for a fee or charge paid by the borrower.

FHFA - See 'Federal Housing Finance Agency'.

FHLB - See 'Federal Home Loan Banks'

FHLMC ( Federal Home Loan Mortgage Corp.) – See 'Freddie Mac'.

Fidelity Bond – Insurance covering an employer for loss caused by dishonest acts of specific employees.

Fiduciary – One acting in a relationship of trust, regarding financial transactions.

Financial Statement - A financial report including a balance sheet and a income statement.

Financing Costs – The cost of interest and other charges involved in borrowing money to build or purchase real estate.

Financing Statement – A recorded instrument, taking the place of personal property liens in some states. Used instead of chattel mortgages, inventory liens, pledges, etc., (see Uniform Commercial Code).

Financial Statement Analysis - Evaluation of the existing and potential income stream of the real estate to determine prospective cash flow and debt service capacity.

Finder’s Fee – A fee paid to someone who finds a buyer or property for a broker, buyer, etc. The term is sometimes used to attempt to pay a commission to an unlicensed person. Generally, a finder’s fee is considered a commission and may only be paid to one who holds a real estate license.

First Mortgage - A mortgage that gives the mortgagee a security right over all other mortgages of the mortgage property.

Fixed Rate Mortgage  - A mortgage loan in which the interest rate does not change during the entire term.

Fixture - Personal property that becomes real property upon being attached to real estate.

Flood Insurance - Insurance that reimburses the policyholder for damage to property caused by the peril of flood.

Floodplain - The flat surface along the courses of rivers, streams, and other bodies of water that are subject to overflow and flooding.

FNMA (Federal National Mortgage Association) – See 'Fannie Mae'.

Forbearance - The act of refraining from taking legal action despite the fact that the mortgage is in arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to pay the amount owed at a future date.

Force Majeure Insurance - A specialized form of coverage for owners and contractors to protect against damage or delays caused by unpredictable events such as war, strikes, or those perils not normally insured under "all risks" policies.

Forced Placed Coverage - Hazard coverage obtained by a lender to protect its security interest in a property where the borrower has failed to renew existing coverage. Premiums for this coverage are usually above market rates and most mortgage instruments allow for this premium to be charged to the borrower.

Foreclosure – A proceeding in or out of court, to extinguish all rights, title, and interest of the owner(s) of property in order to sell the property to satisfy a lien against it.

Foreclosure Sale – A sale of property used as security for a debt, to satisfy said debt.

Forfeiture – The taking of an individual’s property by a government, because the individual has committed a crime. In the United States, private property cannot be taken, except by eminent domain upon payment of just compensation, or for non-payment of taxes.

Forgery – A false signature or material alteration with intent to defraud. The forged signature of the grantor will not pass title regardless of recording or lack of knowledge by the grantee or future grantees. Title Insurance will insure against forgery. The word may extend beyond signatures (forged paintings, documents, etc.)

Fraud – A deception, intended to wrongfully obtain money or property from the reliance of another on the deceptive statements or acts, believing them to be true.

Freddie Mac (Federal Home Loan Mortgage Corporation) - Created by Congress in Title III of the Emergency Home Finance Act of 1970 (12 USC 1451 et seq.). This stockholder-owned corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential and multifamily properties with mortgage purchase and securitization programs. On September 7, 2008 the Federal Housing Finance Agency (FHFA) placed Freddie Mac in conservatorship.

Free and Clear – Property against which there are no liens, especially voluntary liens (mortgages).

Friable - A condition, most frequently utilized in the context of asbestos, where environmental contaminants (usually asbestos fibers) have the potential to become dislodged or disturbed and airborne, thus becoming a threat to one's health.

Full Disclosure – In real estate, revealing all the known facts that may affect the decision of a buyer or tenant. A broker must disclose known defects in the property for sale of lease. A builder must give to a potential buyer the facts of his new development (are there adequate school facilities; sewer facilities; an airport nearby? etc.). A broker cannot charge a commission to a buyer and seller unless both know (disclose) and agree.

Fully Amortized Loan - A loan on which regular repayments of principal are made so that the loan is fully repaid at the end of the loan term.

Funds – Money available for a qualified purpose, such as loan funds for F.H.A. insured loans, conventional loan funds, etc.

Funds From Operations (FFO) - The most commonly accepted and reported measure of a REIT's operating performance. It is equal to a REIT's net income, excluding gains or losses from sales of property, and adding back real estate depreciation.

Gap Financing – Loans secured as interim financing until more permanent financing can be obtained.

General Contractor - A person who oversees a home improvement or construction project and handles various aspects such as scheduling workers and ordering supplies.

General Partner – A member of a partnership who has the authority to bind the partnership and shares in the profits and losses. A partnership must have a least one general partner and may have more, as well as limited partners.

Generally Accepted Accounting Principles (GAAP) - Rules for reporting financial transactions and performance and overseen by the Financial Accounting Standards Board (FASB).

GFE - 'See Good Faith Estimate'.

Ginnie Mae (Government National Mortgage Association) - A federal association, working with F.H.A., which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

GNMA - See 'Ginnie Mae'.

Good Faith – Something done with good intentions, without knowledge of fraudulent circumstances, or reason to inquire further.

Good Faith Estimate (GFE) - A form required by the Real Estate Settlement and Procedures Act (RESPA) that discloses an estimate of the amount or range of charges, for specific settlement services the borrower is likely to incur in connection with the mortgage transaction.

Goodwill - An intangible value attached to a company resulting mainly from the company's management skill or know-how and a favorable reputation with customers.

Graduated Payment Mortgage – A mortgage of deed of trust calling for increasingly higher payments over the term of the loan. This allows the buyer low beginning payments. The payments then increase as (theoretically) the buyer’s income increase.

Grantee - Party receiving an interest in real property.

Grantor - Party transferring or creating an interest in real estate.

Gross Rate - Interest rate on a mortgage including servicing fees.

Ground Lease - A contract for the rental of land, usually on a long term basis. Improvements on land that is leased are said to be subject to a ground lease or ground rent.

Ground Rent - The earnings of improved property allocated to the ground itself after allowance is made for earnings of the improvement. Also, payment for the use of the land in accordance with the terms of a ground lease.

Growing Equity Mortgage (G.E.M.) – A fixed rate, graduated payment loan allowing low beginning payments and a shorter term because of higher payments as the loan progresses. Based on the theory of increasing income by the buyer and, therefore, ability to make higher future payments. When state law applies, usury laws in some states may not presently allow such loans when less than the interest only payments create interest on interest.

Guarantee - An individual's or entity's promise to pay in the event of an operational shortfall. 

Guarantor - A party who is secondarily liable for another's debt or performance (in contrast to a surety who is primarily liable with the principal debtor).

Guaranty - A promise by one party to pay a debt or perform an obligation contracted for or by another in the event that the obligor fails to pay or perform as contracted.

Hard Money Loan – A mortgage given based solely on the borrowers equity and not proven payment history.  Cash loan to a borrower.

Hazard Insurance - Insurance coverage which provides compensation to the insured in case of property loss or damage.

HECM - See 'Home Equity Conversion Mortgage'.

Hedging - Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

HELOC - See 'Home Equity Line of Credit'.

Highest and Best Use - The use of land which will bring the greatest return.

Historical Cost - The total amount of equity and debt used to acquire real estate investments, including the gross purchase price, all acquisition fees and costs, plus subsequent capital improvements, less proceeds from sales and partial sales.

HOEPA (Home Ownership and Equity Protection Act) – A bill enacted by Congress in 1994 in response to abusive lending practices in home equity loans.

Holdback – Portions of a loan held back by the lender until a contingency is met. In the sale of a home insured by V.A. or F.H.A., funds may be held back to make certain necessary improvements to bring the property to V.A. or F.H.A. standards. The money to make “these” repairs may not be available until closing. One and one-half to double the estimated amount necessary is held back. If repairs are not made in the time allowed, these funds are used to make the repairs. In construction financing, funds are held back until, for example, a certain percentage of a sub-division has been sold, or a certain portion of a building has been completed.

Home Equity Conversion Mortgage (HECM) - A special type of mortgage developed and insured by the Federal Housing Administration (FHA) 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. Sometimes called a reverse mortgage.

Home Equity Line of Credit (HELOC) - A type of revolving loan, that enables a home owner to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower's equity in the property.

Home Inspection - An examination of the construction, condition and internal systems of a home prior to purchase; satisfactory home inspection may be a condition of purchase.

Home Owners’ Association – (1) An association of people who own houses in a given area, formed for the purpose of improving or maintaining the quality of the area. (2) An association formed by the builder of condominiums or planned developments, and required by statute in some states. The builder’s participation as well as the duties of the association, are controlled by statute.

Homeowner's Insurance - A broad form of insurance coverage that combines hazard insurance with personal liability protection and other coverage.

Housing and Urban Development (HUD), Department of – The federal department responsible for the major lending programs in the United States, such as F.H.A.

HUD-1 Settlement Statement - A document that lists all closing costs on a real estate purchase or refinance transaction. Also known as the "closing statement" or "settlement sheet."

HVAC - The heating, ventilating, and air-conditioning system.

Hybrid Adjustable Rate Mortgage - An adjustable rate mortgage (ARM) that offers a fixed rate for an initial period, typically three to ten years, and then adjusts every six months, annually, or at another specified period, for the remainder of the term.

Hybrid REIT - A REIT that both owns commercial real estate and holds mortgages secured by commercial real estate, combining the investment strategies of both Equity and Mortgage REITS.

Hypothecation – The pledge of real estate as security without surrendering possession of the property.  Hypothecation does not transfer title, but it does transfer the right to sell the hypothecated property in the event of default.

IAAO - International Association of Assessing Officers.

Impound Account – Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

Improvements - Those additions to raw land that normally increase its value, such as buildings, streets and sewers.

Income and Expense Statement - The actual or estimated schedule of income and expense items reflecting net gain or loss during a specified period.

Income Approach to Value - The appraisal technique used to estimate real property value by capitalizing net income.

Income Property - Real estate owned or operated to produce revenue.

Incurable Depreciation - An element of accrued depreciation; a defect caused by a deficiency or super adequacy in the structure, materials, or design, which cannot be practically or economically corrected.

Indemnify - To protect against damage, loss, or injury or to make compensation to for damage, loss, or injury. 

Indemnity - Security against or compensation for damage, loss, or injury. Also a legal exemption form liability for damages.

Independent Contractor – The term is most important as used to describe the relationship of broker and salesperson. The salesperson is either an employee or independent contractor. If an employee, the broker must withhold income tax and pay social security, provide workman’s compensation where applicable, and may be liable for negligent acts of the salesperson while on the job, such as automobile accidents. The broker avoids all of these responsibilities if the salesperson is an independent contractor. The greater the control over the salesperson, the more likely the salesperson will be considered an employee. Some examples of this control would be required office hours or attendance at regularly scheduled meetings, as well as payment or reimbursement by the broker for license fees, auto expenses, etc.

Index - A published interest rate, such a the prime rate, LIBOR, T-Bill rate, or the 11th District COFI. Lenders use indexes to establish interest rates charges on mortgages or to compare investment returns. On ARMs, a predetermined margin is added to the index to compute the interest rate adjustment.

Industrial Property - Land and/or improvements that can be adapted for industrial use; a combination of land, improvements, and machinery integrated into a functioning unit to assemble, process, and manufacture products from raw materials or fabricated parts.

Inflation – The expanse or increase in an economy over its natural growth. Usually caused by over printing money and over-extending credit. Marked by a rapid increase in the cost of goods.

Inflation Guard - An endorsement to an insurance policy that increases coverage to offset the effects of inflation.

Infrastructure - Basic public improvements such as roads, sewers, water, drainage, and other utilities which are necessary to prepare raw land for buildings and future development.

Ingress - A means of entering; an entrance.

Initial Interest Rate - The original interest rate for an adjustable-rate mortgage (ARM). Sometimes known as the "start rate."

Innocent Landowner Defense - A term used by an owner of property, including a mortgagee who has taken title to property by judicial proceeding or by deed in lieu of foreclosure, in the context of avoiding liability for environmental contamination where the owner has taken certain precautions to ascertain the environmental condition of property prior to acquiring the property.

Installment - The periodic payment that a borrower agrees to pay a mortgage lender.

Installment Note – A note calling for payment of both principal and interest in specific amounts, or specified minimum amounts, at specific intervals.

Insurance Vacancy Clause - A provision is a hazard insurance policy protecting the insured upon the occurrence of property loss or damage even if the insured property is vacant (for an extended period of time).

Insured - The term preferred over other terms such as "policy holder" or "policy owner," to describe the party protected under an insurance contract to whom the insurer reimburses losses, pays benefits, or provides services.

Insured Mortgage – A mortgage insured against loss to the mortgagee in the event of default and a failure of mortgaged property to satisfy the balance owning plus costs of foreclosure. May be insured by F.H.A., V.A., or by independent mortgage insurance companies.

Intangible Property - Generally, property that has no intrinsic or marketable value in and of itself, but is merely the evidence of value, such as promissory notes, stock certificates, or certificates of deposit (as distinguished from land, furniture, and equipment).

Interest - Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share, or title in property.

Interest Accrual Rate - The percentage rate at which interest accumulates or increases on a mortgage loan.

Interest Coverage Ratio - A measure to gauge a company's ability to meet its debt interest obligations. Usually computed as the ratio of EDITA to interest expense.

Interest Only Mortgage – A mortgage under which the principal amount borrowed is repaid in one payment. Periodic interest payments are made.

Interest Rate – The amount of the cost of using money, expressed as a rate per period of time, usually one year, in which case it is called an annual rate of interest.

Interest Rate Cap – The maximum interest rate increase of an Adjustable Mortgage Loan. For example: a 12% loan with a 5% interest rate cap would have a maximum interest for the life of the loan that would not exceed 17%.

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

Interest Rate Floor -For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Interest Reserve - A holdback of loan proceeds by a lender to be utilized to pay interest as it accrues on a loan.

Interim Financing – Temporary financing, usually for construction.

Investment Property – Generally, any property purchased for the primary purpose of profit. The profit may be from income or resale.

Investment Quality - A mortgage loan that is of a type and class that would be generally meet the standards imposed by investors which purchase loans.

Involuntary Lien – A lien, such as a tax lien, judgment lien, etc., that is attached to property without the consent of the owner, rather than a mortgage lien, to which the owner agrees.

Jingle Mail – Slang for the technical term, “Deed in Lieu of Foreclosure” where a homeowner voluntarily surrenders ownership of his property to the lender to avoid a foreclosure action. The lender agrees to this to save the expense in time and money to execute the foreclosure action and the homeowner benefits through the lender agreeing not to take legal action against the homeowner for any remaining mortgage balance in excess of the value of the property surrendered. “Jingle Mail” comes from the sound keys make when sealed in an envelope and mailed back to the lender.

Joint and Several – A liability which allows the creditor to sue any one of the debtors (sever one from the others) or sue all together (jointly).

Joint Tenancy - A form of concurrent ownership such that, on the death of any joint owner, his/her interest passes by operations of law to the surviving joint owners.

Judgment – The decision of a court of law. Money judgments, when recorded, become a lien on real property of the defendant.

Judgment Lien - A lien on the property of a debtor resulting from the decree of a court.

Judicial Foreclosure – Foreclosure through court action rather than by a power of sale. Judicial foreclosure is sometimes necessary to remove certain tax liens.

Judicial Sale – A sale made under court order, by one court appointed, rather than a voluntary sale by the owner, or one appointed by the owner.

Jumbo Loan - A loan which exceeds the maximum loan amount purchased by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). 

Junior Lien – A lien which is subordinate to a prior lien.

Keogh Plan - A tax-deductible retirement program for self-employed individuals.

Land Contract – An installment contract for the sale of land. The seller (vendor) has legal title until paid in full. The buyer (vendee) has equitable title during the contract term.

Late Charge – A penalty for failure to pay an installment payment on time. Usually not allowed as interest for tax deductions. May or may not be included in usury. If not, the amount of late charge is either set by statute or must be “reasonable”.

Lease – An agreement by which an owner of real property (lessor) gives the right of possession to another (lessee), for a specified period of time (term) and for as specified consideration (rent).

Lease Analysis - The formal review of a lease which is usually memorialized in writing on a form which provides details of the business terms and legal issues.

Lease Concession - A grant/concession given by a landlord to a tenant to induce the tenant to execute a lease. An example - a period of free or reduced rent or improving the leased premises at the landlord's expense.

Lease Expiration - The date a lease is scheduled to terminate.

Lease Guaranty - An instrument by which an individual or entity guaranties payment and/or performance of the tenant's obligations under the tenant's lease.

Lease Modification - An instrument modifying the original lease and its terms and conditions.

Lease-Purchase Option - An option sometimes used by sellers to rent a property to a consumer, who has the option to buy the home within a specified period of time. Typically, part of each rental payment is put aside for the purpose of accumulating funds to pay the down payment and closing costs.

Leasehold - An estate or interest in an estate in real property held by virtue of a lease.

Leasehold Mortgage - A loan to a lessee secured by a leasehold interest in the property. Where a ground lease exists, any mortgage on the property in which title is subject to the ground lease is a leasehold mortgage.

Legal Description – A method of geographically identifying a parcel of land, which is acceptable in a court of law.

Legal Owner – The term has come to be used as a technical difference from the equitable owner, and not as opposed to an illegal owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than a lien.

Legal Title – Usually title without ownership rights, such as the title placed in a trustee under a deed of trust, or the title is a vendor under a land contract.

Lender – Any person or entity advancing funds which are to be repaid. A general term encompassing all mortgagees, and beneficiaries under deeds of trust.

Lender Liability - An area of legal findings which would hold the lender financially responsible for damages and costs based upon the lender's activities (especially in the management of real estate securing any of the lender's mortgage loans as this relates to environmental clean-up liability).

Letter of Credit - A letter authorizing a person or company to draw on a bank, or stating that the bank will honor their credit up to the stated amount. 

Letter of Intent – A formal method of stating that a prospective developer, buyer, or lessee, is interested in property. Not an offer and creates no obligation. However, a builder who wants to build an office building, for example, may influence a lender by showing letters of intent from major prospective tenants.

Leverage - The practice of using borrowed funds or debt capital to increase the book value of assets above the book value of equity and to boost the rate of return on the amount of invested equity capital.

Liability - An accounting term signifying money owed or expected to be owed to another party. In law, a legal term signifying a legal obligation. 

Liability Insurance - Insurance covering the risks related to the property and personal liability claims of other parties against the insured party. 

Liberalization Clause - A clause in policies which states that if policies or endorsements currently in force are broadened by the passage of legislation or rulings from rating bodies, such policies or endorsements will be construed to include the broadening features.

LIBOR - See 'London Inter-Bank Offered Rate'. 

License - Generally, permission by a lawful authority to do an act which, without such permission, would be illegal. In real property, a privilege to enter for a specified purpose (e.g., to collect rents), but does not confer on or vest in the licensee any title or estate in the property.

Lien - A legal hold or claim of a creditor on the property of another as security for a debt. Liens may be against real or personal property.

Lien Waiver (Waiver of Liens) – For our purposes, a waiver of mechanic’s lien rights, signed by subcontractors so that the owner or general contractor can receive a draw on a construction loan.

Lifetime Cap - For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate or monthly payment can increase or decrease over the life of the loan.

Limited Partnership – Used in many real estate syndications; a partnership composed of a general partner who manages the investment and limited partners whose liability is limited to the total of their investments.

Liquid Assets – Cash, or assets immediately convertible to cash.

Liquidation Value - The value of an asset upon its sale or disposition.

Liquidity - The ability to convert assets into cash without appreciable loss in value. Higher liquidity implies greater ease of transferability, whereas lower liquidity indicates greater difficulty.

Listing - A written authorization for an agent to sell or lease real estate.

Loan Origination Fee – A one time set up fee charged by the lender.

Loan Package – The file of all items necessary for the lender to decide to give or not to give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.), and information on the property (appraisal, survey, etc.). There may be a charge for “packaging” the loan.

Loan-to-Value Ratio (LTV) – The ratio, expressed as a percentage, of the amount of the loan to the value or selling price of real property. Usually, the higher the percentage, the greater the interest charges. Maximum percentages for banks, savings and loans, or government-insured loans, is set by statute.

Lockbox - A postal address, maintained by the firm's bank, that is used solely for the purpose of collecting checks. A major goal of a lockbox is to reduce collection float, since the receipts are immediately credited to the firm's bank account.

Lock-in – The prohibition of prepayment of a loan secured by a mortgage or deed of trust, so that the borrower is “locked in” to the loan for a specified period.  Borrower may chose to guarantee an interest rate by “locking-in” that interest rate at any time during the mortgage application process.

London Inter-Bank Offered Rate (LIBOR) - A rate set by the British Bankers' Association based on daily data supplied to the association from their contributing banks. This rate is used as an index value for mortgages and other loans that carry a variable rate of interest.

Long Term Financing – A mortgage or deed of trust for a term of ten years or more, as distinguished from construction loans or interim loans.

Loss Draft - Insurance payments in settlement of a claim for damage to mortgaged property. Drafts are generally made out to both the mortgagee and mortgagor.

Loss Mitigation - The process of trying to stop a home foreclosure before it occurs. Loss mitigation was introduced as a collaborative effort between the federal government and the mortgage industry. It is an attempt to set up a loan modification plan or a repayment plan that is realistic for the home owner as well as agreeable to the lending institution. Loan modification may include a partial payment of amounts in arrears and then an extension of the loan terms to compensate for the remainder of the amount of the loan in default. 

Loss Payable Clause – A clause in a fire insurance policy, listing the priority of claims in the event of destruction of the property insured. Generally, a mortgagee, or beneficiary under a deed of trust, is the party appearing in the clause, being paid the amount owing under the mortgage or deed of trust before the owner is paid.

Loss Payee - The party named in a loss payable clause to whom insurance proceeds are to be paid in the event of damage to property in which the loss payee has an insurable interest. Loss payees include automobile lienholders and property mortgagees.

Lot - 1. A distinct piece of land; a piece of land that forms a part of a district, community, city block, etc.; 2. A smaller portion into which a city block or subdivision is divided; described by reference to a recorded plat or by definite boundaries; a piece of land in one ownership, whether platted or unplatted.

LTV - See 'Loan-to-Value Ratio'.

M.A.I. (Member Appraisal Institute) – The designation given to a member of the American Institute of Real Estate Appraisers. A designation earned through experience, education, and examination.

Maintenance Fee – As applied to condominiums and planned developments, the amount charged each unit owner to maintain the common area. Usually a monthly fee paid as part of the budget.

Major Tenants - In commercial property, firms which are key lessees/tenants because of their high credit standing, the amount of space they occupy, and/or the percentage of gross rent they pay.

Manufactured Housing - Homes that are built entirely in a factory in accordance with a federal building code administered by the U.S. Department of Housing and Urban Development (HUD). Manufactured homes may be single- or multi-section and are transported from the factory to a site and installed. Homes that are permanently affixed to a foundation often may be classified as real property under applicable state law, and may be financed with a mortgage. Homes that are not permanently affixed to a foundation generally are classified as personal property, and are financed with a retail installment sales agreement.

Mapping - The process of creating maps from recorded documents such as deeds and subdivision plats.

Margin - For an adjustable rate mortgage (ARM) this represents the number of percentage points added to the index each time the loan adjusts, that is, every year, every three years, etc. This number is set at closing and remains constant for the life of the loan subject only to the caps, if any, on the mortgage. Also known as the "spread".

Market - Current supply and demand characteristics of a commodity in a given geographic/economic setting.

Market Approach to Value - In an appraisal, a market value estimate of the property based on actual prices paid in similar market transactions. It is a process of correlation and analysis of similar, recently sold properties. The reliability of this technique is dependent upon (a) the degree of comparability of each property with the subject property, (b) the time of sale, (c) the verification of the sales dates, (d) the absence of unusual conditions affecting the sale, and (e) the terms of the sale. Where the validity of an appraiser's estimate of the value of property is questioned, the burden is generally on the questioning party (usually the lender) to identify properties that more closely match the subject property in each of these areas in support of their position.

Market Rent - The price a tenant pays a landlord for the use and occupancy of real property based on current rent for comparable property.

Market Value - The highest price that a buyer and the lowest price that a seller would accept, neither one being compelled to buy or sell. Also called "fair market value."

Marketable Title – Title that can be readily marketed (sold) to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.

Mass Appraisal - The process of valuing a universe of properties as of a given date utilizing standard methodology, employing common data, and allowing for statistical testing.

Master Lease - A lease under which the leasehold is further subleased by the tenant to one or more subtenants.

Maturity – (1) Termination period of a note. For example: A 30-year mortgage has a maturity of 30 years. (2) In sales law, the date the note becomes due.

Mechanic’s Lien – A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

Metes and Bounds - A method of legally describing real property by its exterior boundaries with references to courses, distances and monuments.

Metropolitan Statistical Area - See 'MSA'.

MIP - See 'Mortgage Insurance Premium'.

Modification - Any change to the terms of a mortgage loan, including changes to the interest rate, loan balance, or loan term.

Modified Pass-Through Security - Security that represents an undivided interest in pools of mortgages, backed by federally guaranteed loans of the same maturity and coupon date. When a mortgage banker has collected at least $2 million in mortgages, the loans are deposited in a custodian bank and a certificate is issued against the mortgages. Payments of principal and interest are made monthly to certificate holders, and are guaranteed by the Government National Mortgage Association (Ginnie Mae) regardless of whether payments are received, as borrowers pay down the loans. There is no holding back of interest payments as with collateralized mortgage obligations and mortgage backed bonds.

Monetary Default - A breach or nonperformance of the terms of the note due to the nonpayment of debt service or escrow payments.

Moratorium - Legal authorization to delay the enforcement of liability for debt or to suspend an activity. 

Mortgage – (1) To hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property. (2) The instrument by which real estate is hypothecated as security for the repayment of a loan.

Mortgage Assignment - A written transfer of ownership of a mortgage loan contract from one lender to another.

Mortgage Assumption - Agreement by the grantee (usually a buyer) of real estate to accept responsibility and become liable for payment of an existing mortgage against the property.

Mortgage Backed Securities – Securities (certificates) which represent an interest in a pool of mortgages. The principal and interest is collected by the securities seller and distributed to the holders of the securities, minus a fee for administering the pool. Since the distributed funds simply pass through the hands of the administrator to the investors, the term “pass-through certificates” is also used.

Mortgage Banker – A company providing mortgage financing with its own funds rather than simply bringing together lender and borrower, as does a mortgage broker. Although the mortgage banker uses its own funds, these funds are generally borrowed and the financing is either short term or, if long term, the mortgages are sold to investors (many times insurance companies) within a short time.

Mortgage Bankers of America (MBA)- A national not-for-profit trade association representing over 3,000 member firms involved in all aspects of real estate finance. MBA’s members are the nation’s leading providers of home mortgage credit.

Mortgage Broker – One who, for a fee, brings together a borrower and a lender, and handles the necessary applications for the borrower to obtain a loan against real property by giving a mortgage or deed of trust as security.

Mortgage Clause - A clause that may be attached to an insurance policy stipulating that the lender will receive a portion of the insurance proceeds sufficient to satisfy the unpaid amount of a loan in the event of a loss.

Mortgage Company – A company authorized to service real estate loans, charging a fee for this service.

Mortgage Consolidation Agreement - A contract whereby two or more mortgages are consolidated into a single mortgage lien.

Mortgage  in Possession - A mortgagee who, due to default under the terms of a mortgage, has obtained possession but not ownership of the property. 

Mortgage Insurance – Insurance written by an independent mortgage insurance company (referred to as an “MIC”) protecting the mortgage lenders loans with values over 80%, against loss incurred by a mortgage default, thus enabling the lender to lend at a higher percentage of the sale price. The Federal Government writes this form of insurance through the FHA and the VA.

Mortgage Insurance Premium (MIP) - The cost of the insurance provided to lenders by the Federal Housing Administration (FHA), which is paid by the individual home buyer. MIP is made up of two parts: an up-front cost of 1.5% of the mortgage amount, plus an annual premium of 0.5% of the loan amount to be paid on a monthly basis.

Mortgage Life Insurance - A type of insurance that will pay off a mortgage if the borrower dies while the loan is outstanding; a form of credit life insurance.

Mortgage Note - A written promise to pay a sum of money at a stated interest rate during a specified term. It is secured by a mortgage. See also "Deed of Trust".

Mortgage Pass-Through Security - Fixed-income securities that represent an undivided interest in a pool of federally insured mortgages put together by the Government National Mortgage Association (Ginnie Mae). All payments of principal and interest are passed through to investors each month. Also called Pass-Through.

Mortgage Pool – A group or “pool” of mortgages, an interest that can be purchased through a securities dealer. Because of market changes in interest rates and points (discount), early payoffs, and foreclosures, pools have different returns and, therefore, different investment values. The rate of payoffs and foreclosures is called the “speed” of the pool.

Mortgage REIT - A REIT that originates or acquires mortgage loans and other debt obligations that are secured by real property.

Mortgage Release - The release of part of mortgaged realty from the mortgage lien; that is, part of the mortgaged premises are no longer pledged as security for the loan.

Mortgage Satisfaction - Receipt acknowledging payment to be recorded and thereby terminating the mortgage lien against the property, also known as Lien Release.

Mortgage Servicing – Controlling the necessary duties of a mortgagee, such as collecting payments, releasing the lien upon payment in full, foreclosing if in default, and making sure the taxes are paid, insurance is in force, etc. Servicing may be done by the lender or a company acting for the lender, for a servicing fee.

Mortgage Warehousing – A system whereby a mortgage company will hold loans, which would ordinarily be sold, in order to sell later at a lower discount. These mortgages are used as collateral security with a bank to borrow new money to loan.

Mortgagee – The party lending the money and receiving the mortgage. Some states treat the mortgagee as the “legal” owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, mortgagor being the owner. The latter is the more modern and accepted view.

Mortgagor – The party who borrows the money and gives the mortgage.

Mutual Saving Bank – An institution owned by its depositors, as evidenced by certificates of deposit rather than stock. These institutions are active in long term real estate financing, as opposed to commercial banks, which concentrate more on short-term loans.

MSA (Metropolitan Statistical Area) - A geographic area designated by the U.S. Census Bureau for purposes of collecting and disseminating demographic information. 

Named Insured - An individual, business, or organization that is specified in the declarations by name as the insured(s) under a policy.

Named Perils - A policy will specifically list the perils insured against as opposed to an "all risks" policy which covers all perils other than those specifically excluded.

National Association of Insurance Commissioners (NAIC) - An organization whose membership consists of state insurance regulators. NAIC's objectives are to promote uniformity in regulation by drafting model laws and regulations for adoption by the states and to provide support services to insurance departments such as examination and statistical information.

National Association of Mortgage Brokers (NAMB) – A national not-for-profit association of individuals engaging in the profession of making or negotiating the origination of a lien secured by real property. It's purpose is to promote the highest degree of professionalism and maintain ethical and professional standards against which mortgage brokers can be measured.

National Association of Realtors (NAR) – An association of people engaged in the real estate business. Organized in 1908, it currently lists over half a million members. With headquarters in Chicago, it is dedicated to the betterment of the real estate industry through education, legislation, and high ethical standards for its members.

National Association of Real Estate Brokers – An organization dedicated to the betterment of the real estate industry and specifically to the roll of blacks in the real estate industry. It is composed primarily of black real estate brokers who have adopted the term “Realists”. Originally founded in Miami in 1947, the association is now based in Washington, D.C.

Negative Amortization – A condition created when a loan payment is less than the interest alone. Even though payments are made on time, the amount owing is increasing.

Negative Cash Flow - The deficit that is created when expenditures required to maintain an investment exceeds income received on the property.

Negative Equity - The value of the property is less than the outstanding balance on the mortgage or mortgages. A person holding negative equity is said to be "upside down."

Negotiable – Capable of being negotiated. Commonly used to mean assignable or transferable in the ordinary course of business, such as negotiable bonds, securities, notes, etc.

Negotiable Instrument - Written order to pay, such as a check or promissory note, that may be transferred from one person to another provided certain conditions are met.

Net Asset Value (NAV) - The net "market value" of a company's assets, including but not limited to its properties, after subtracting all of its liabilities and obligations. Total net asset value often is divided by the total number of common shares outstanding to compute basic net asset value per share.

Net Effective Rent - The rental income generated by a lease computed over the life of the lease after deduction of total rent concessions and expressed as an annual dollar amount per square foot.

Net Operating Income (NOI) - The amount remaining after total operating expenses (excluding interest payments) are deducted from effective gross income.

Net Rate - The rate of interest remitted to an investor after servicing fees have been deducted from the gross rate.

Net Realized Value - An amount or figure resulting from the sale or disposition of property or an asset after all expenses associated with such sale or disposition are paid.

Net Rentable Area - The actual square footage of a building that can be rented (common areas such as hallways, lobbies, elevator shafts, etc. are not generally included).

Net Worth – The difference between total assets and liabilities of an individual, corporation, etc.

Non-Disturbance Agreement - An agreement that permits a tenant under a lease to remain in possession despite any foreclosure. 

Nonliquid Asset  - An asset that cannot easily be converted into cash.

Non-Monetary Default - A breach or nonperformance on any of the terms or covenants of the loan documents other than debt service or escrow payments.

Non-Performing Loan - A loan which has not fulfilled one or more of the terms, covenants, conditions, or obligations required under the mortgage.

Nonrecourse Loan – A loan not allowing for a deficiency judgment. The lender’s only recourse in the event of default is the security (property) and the borrower is not personally liable.

Non-Waiver Provision - A provision reserving to a lender every right under a document or at law not previously waived.

Note – A unilateral agreement containing an express and absolute promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or deed of trust.

Note Rate - The interest rate stated on a mortgage note, or other loan agreement.

Notice of Default – A notice filed to show that the borrower under a mortgage or deed of trust is in default (behind on the payments).

Notice of Recession – A recorded notice to cancel a mortgage within three days of signing the closing documents.

Obsolescence - One cause of depreciation; an impairment of desirability and usefulness caused by new inventions, changes in design, improved processes for production, or other external factors that make a property less desirable and valuable for a continued use; may be either functional or external.

Occupancy Rate - The percentage of space or units that are leased or occupied.

Odd Days Interest - An interest payment which covers the period between the date of closing and the first calendar day of the following month. This payment is made at closing.

Offering Plan - Written offering booklet usually approved by the state's Attorney General, provided to the prospective purchasers detailing the terms and conditions of the condominium or cooperative project. Also known as the "Prospectus".

Office of Federal Housing Enterprise Oversight (OFHEO) - A federal agency whose mission is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). Integrated into a newly created federal agency, The Federal Housing Finance Agency (FHFA) effective July 30, 2008.

OFHEO - See 'Office of Federal Housing Enterprise Oversight'.

Open End Mortgage – A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually as to the assets of the mortgage.

Open Mortgage – A mortgage that can be prepaid without penalty.

Open Period - The interval of time under a mortgage during which the loan can be prepaid.

Option ARM - An adjustable rate mortgage where the borrower has the option of several payment scenarios each month. The borrower can chose to make a principal and interest payment, an interest only payment or a payment that will create negative amortization.

Original Principal Balance - The total amount of principal owed on a mortgage before any payments are made.

Origination Fee – A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

Originator – The individual who is designated as the accountable person by the entity (mortgage banker, mortgage broker, saving and loan, credit union, etc.) as the primary contact with the consumer for the purpose of assisting with the mortgage application process.

Owner Financing - A transaction in which the property seller provides all or part of the financing for the buyer's purchase of the property.

Owner of Record – The owner of the property according to the records of the county recorder.

Owner-Occupant - An individual who resides in the mortgaged premises, using it as a primary residence or a second/vacation home, is listed as an owner of record (by deed) and has executed the mortgage or deed of trust.

Owner’s Policy – Title insurance for the owner of the property, rather than a lien holder.

Parcel - A piece of land of any size in one ownership.

Parcel Number - A code number that serves as an abbreviation of, or replacement for, a parcel's legal description; used to facilitate the storage and use of land data in an information system; may be based on geocodes, government surveys, or tax maps.

Partial Payment - Payment of only a portion of the required amount due, including payments received without the late charge.

Partial Release – A release of a portion of property covered by a mortgage. A sub-divider will obtain a partial release as each lot is sold, upon payment of an agreed upon amount. In areas where the sub-divider is not usually the builder, it may be necessary to sell groups of lots to obtain a partial release. In areas where deeds of trust are used instead of mortgages, a “partial re-conveyance” is the document used.

Participation Certificate - Financing in which an individual buys a share of the lease revenues of an agreement made by a municipal or governmental entity, rather than the bond being secured by those revenues. This form of financing can be used by the municipal or government entity to circumvent restrictions that might exist on the amount of debt they might be able to take on. As of now, the only agencies to issue or guarantee such certificates are Freddie Mac, Fannie Mae and Ginnie Mae.

Participation Mortgage - A mortgage loan in which two or more persons or institutions are lenders.

Partnership – As defined by the Uniform Partnership Act, “An association of two or more persons to carry on as co-owners, a business for profit”. The business must be lawful and the partners must agree to share in the profit or loss (but not necessarily equally).

Pass-Through - See Mortgage Pass-Through.

Patent - A right granted by the federal government giving the owner the exclusive right to manufacture, sell, lease, or otherwise benefit from an invention.

Payment and Performance Bonds - A bond to guarantee payment/performance of certain specified acts, such as the completion of construction of a property or the payment/cost thereof.

Payment Change Date - The date on which a new monthly payment amount takes effect, for example, on an adjustable-rate mortgage (ARM) loan.

Payment Cap - For an adjustable-rate mortgage (ARM) or other variable rate loan, a limit on the amount that payments can increase or decrease during any one adjustment period.

Payoff Letter - A statement detailing the unpaid principal balance, accrued interest, outstanding late charges, legal fees, and all other amounts necessary to pay off the lender in full.

Payout Ratio - The ratio of a REIT's current annual dividend rate per share divided by its annual FFO per share.

Percentage Rent - Rent, computed as a percentage of retail sales above a breakpoint, paid by tenants under typical retail leases. Usually paid instead of or in addition to a specified minimum base rent.

Perfection - Perfection is frequently used in the context of a security interest, and means those steps legally required to give a secured party an interest in property against a debtor's creditors.

Personal Property - Any property that is not real property. also called "chattel."

Piggyback Loan – A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. A 90% loan, for example, may have one lender loaning 80% and another (subordinate) lender loaning the top 10% (high risk portion).

Piggybacking – The act of becoming an "authorized user" of someone's credit card with the intention of improving your credit score. As the authorized user on the card the payment history would then be added to your credit profile. The credit bureaus have become wise to this and no longer consider an ‘authorized user’s” payment history when calculating credit scores.

PITI - An acronym for principal, interest, tax and insurance, the four components of housing costs or "carry costs".

PITI Reserves - A cash amount that a borrower has available after making a down payment and paying closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Development (PUD) – A subdivision of 5 or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more of the other parcels. The lots are generally small, being the exact size of the improvements, or slightly larger.

Plans and Specifications - Architectural and engineering drawings and specifications for construction of a building or project. They include a description of materials to be used and the manner in which they are to be applied.

Plat - 1. A plan, map, or chart of a city, town, section, or subdivision indicating the location and boundaries of individual properties; 2. A map or sketch of an individual property that shows property lines and may include features such as soils, building locations, vegetation, and topography.

Pledge Agreement - An instrument pursuant to which a borrower will assign/pledge as collateral for a loan a security interest in certain types of properties (e.g., stock, accounts, etc.)

Plot Plan - A layout of improvements on a site, including their location, dimensions, and landscapes. The plot plan is generally a part of the architectural plan. 

PMI Pass-Through Certificates – Mortgage-backed securities of conventional mortgages insured by private mortgage insurance (PMI) companies.

Point - An amount equal to 1 percent of the loan amount.

Pool - A group of related financial instruments, such as mortgages, combined for resale to investors on a secondary market.

Power of Attorney – An authority by which one person (principal) enables another (attorney in fact) to act for him/her. (1) General power – Authorizes sale, mortgaging, etc. of all property of the principal. Invalid in some jurisdictions. (2) Special power – Specifies property, buyers, price and terms. How specific it must be varies in each state.

Power of Sale -  A provision in a deed of trust or mortgage that empowers a trustee, without court order, to sell property in the event of default by the mortgagor and to apply the proceeds of the sale to satisfy the obligation, the costs if invoking the procedure, and the expense of the sale.

Premium Loan - Amount borrowed against the cash value of a life insurance policy to pay the premium due.

Prepaid Items – Those expenses of property which are paid in advance and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment - Any amount paid to reduce the principal balance of a loan before the scheduled due date.

Prepayment Penalty – A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.

Present Value - The current value of cash received at a definite point or points in the future.

Price Return - In reference to investing performance, the price return is that portion of the total return that measures the change in share price.

Primary Mortgage Market - The market consisting of institutions which originate mortgages. It consists of savings and loans, thrifts, commercial banks, mortgage bankers, mortgage brokers, pension funds, etc.

Prime Lending Rate – The most favorable interest rate charged by a commercial bank on short-term loans, (not mortgages).

Principal - The original  balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest.

Priority - The order of precedence of liens against property or assets. Priority is usually established by filing or recordation of liens, but may be established by statute or agreement. 

Private Mortgage Insurance (PMI) – Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a governmental agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Promissory Note – A promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or on order, or to bearer.

Proprietary Lease - A written lease agreement between landlord-corporation and tenant-stockholder; it differs from the ordinary landlord-tenant lease in that the tenants own the corporation, trust, or partnership that owns the real property.

Prospectus - Written offering booklet usually approved by the state's Attorney General, provided to the prospective purchasers detailing the terms and conditions of the condominium or cooperative project.

PUD - See 'Planned Unit Development'.

Purchase Money Mortgage - A mortgage given by the purchaser of real property to the seller as part of the consideration in the sales transaction. Also used to describe a mortgage given to any party as security for a loan to finance the purchase of real property.

Qualified Intermediary - The entity which take possession of the funds or property during the execution of a section 1031 tax deferred exchange.

Qualifying Ratios - Calculations that are used in determining the loan amount that a borrower qualifies for, typically a comparison of the borrower's total monthly income to monthly debt payments and other recurring monthly obligations.

Quit Claim Deed - A deed that transfers only such interest, title or right a grantor may have at the time the conveyance is executed.

Rate Caps - For an adjustable-rate mortgage loan, the maximum interest rate that may be charged, either at the time of each adjustment date or over the life of the loan.

Ratification – Affirming a prior act which was not legally binding; the affirmation gives the act legal effect. Occurs when an unauthorized agent acts, and the principal later affirms the action, giving authority retroactively.

Rating Agencies - Independent firms which rate the financial creditworthiness of securities for the benefit of investors. The major rating agencies are Fitch IBCA Duff & Phelps, Moody's Investor Services and Standard & Poor's.

Real Estate Investment Trust (REIT) - A REIT is a corporation or business trust that combines the capital of many investors to acquire or provide financing for all forms of income-producing real estate. A REIT generally is not required to pay corporate income tax if it distributes at least 90 percent of its taxable income to shareholders each year.

Real Estate Investment Trust Act of 1960 - The federal law that authorized REITS. Its purpose was to allow small investors to pool their investments in commercial real estate in order to obtain the same economic benefits as might be obtained by direct ownership, while also diversifying their risks and obtaining professional management.

Real Estate Mortgage Investment Conduit (REMIC) - A product of the Tax Reform Act of 1986, REMICs are intended to hold a pool of mortgages for the exclusive purpose of issuing multiple classes of mortgage-backed securities in a way that avoids a corporate double tax. Most CMBS transactions are structured as REMICs.

Real Estate Operating Company (REOC) - A company whose primary business is the ownership and/or operation of commercial real estate properties, but which has not elected to be taxed as a REIT.

Real Estate Owned – The real estate owned by a lending institution. Handled by its R.E.O. department.

Real Estate Settlement Procedures Act (RESPA) - A federal statute effective June 20, 1975, requiring disclosure of certain costs in the sale of residential (one to four family) improved property which is to be financed by a federally insured lender.

Real Property - Land and improvements permanently attached to it, such as buildings. In some states, this term is synonymous with the term "real estate." 

Reappraisal - The mass appraisal of all property within an assessment jurisdiction normally accomplished within a given time period.

Receiver - An impartial person appointed by the court to administer properties involved in foreclosure or other litigation, to receive its rents and profits, and apply or dispose of them at the direction of the court.

Reconveyance – An instrument used to transfer title from a trustee to the equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a trust deed. Also called a deed of reconveyance or release.

Recording – Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors, or other interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to be recorded.

Recourse Loan - A type of mortgage loan in which the lender's remedies in the event of borrower default are unlimited, extending beyond the property to the borrower's personal assets. In secondary marketing, a loan that the lender must repurchase in the case of loan default or other defect.

Redemption Period - The time allowed by law in some states during which mortgagors may buy back their foreclosed properties by paying the balance owed on their delinquent mortgages, plus interest and fees.

Redlining - The alleged identification by some lenders of specific geographic areas for the purpose of denying real estate loans or varying lending terms in a discriminatory pattern. It is illegal.

Refinance – (1) The renewing of an existing loan with the same borrower and lender. (2) A loan on the same property by either the same lender or borrower. (3) The selling of loans by the original lender.

Regulation Z – Federal Reserve regulation issues under the Truth-in-Lending Law which requires that a credit purchaser be advised in writing of all cost connected with the credit portion of the purchase.

Rehabilitation Mortgage - A mortgage loan made to cover the costs of repairing, improving, and sometimes acquiring an existing property.

Release – An instrument releasing property from the lien of the mortgage, judgment, etc. When a trust deed is used, the instrument is called a reconveyance. In some areas, a “discharge” is used instead of a release.

Relinquished Property - In a 1031 tax deferred exchange, the property that is being trader in order to acquire the replacement property or properties.

Remaining Term - The original number of payments due on the loan minus the number of payments that have been applied.

Remedy - The means by which a right is enforced or the violation of a right is prevented, redressed, or compensated.

Remittance Report - A report detailing the respective funds sent to the lender.

Renegotiable Rate Mortgage – A real property loan calling for an adjustment in the interest rate at a given time. Example: A loan with a 15-year amortization is adjusted to current interest rates after 2 years. The lender agrees to make the adjusted loan at the new rate as long as the old loan is not in default. The federal Reserve Board allows the original loan to be treated either as a balloon loan or a variable rate loan. However, points must be figured into the A.P.R. based on the time of re-negotiation (2 years rather than 15).

Rent Roll - A list of tenants leasing a property which details terms of the lease, area leased, and amount of rent being paid. 

Rentable Area - The area of a property, measured in square feet, upon which rent can be collected.

Rental Concession - A landlord's agreement to forgo part of the advertised rent in an effort to attract tenants.

Replacement Cost - The cost to replace a structure with one of equivalent valve and function, but not necessarily identical in design or material.

Replacement Property - In a 1031 tax deferred exchange, the property or properties that the investor is acquiring in exchange for the relinquished property.

Repayment Plan - An arrangement by which a borrower agrees to make additional payments to pay down past due amounts while still making regularly scheduled payments.

Rescind – To void or cancel in such a way as to treat the contract or other object of the recession as if it never existed.

Rescission - The cancellation or annulment of a transaction or contract by operation of law or by mutual consent. Borrowers may have a right to cancel certain mortgage refinance transactions within three business days after closing, or for up to three years in certain instances.

Reserve – A setting aside of funds, usually for indefinite contingencies, such as future maintenance of a structure, or to pay future claims, such as insurance claims.

RESPA - See 'Real Estate Settlement Procedure Act'.

Restrictive Covenants- Private restrictions limiting the use of real property. Restrictive covenants are usually created by deed and may "run with the land" binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties and the law in the state where the land is situated. Restrictive covenants that run with the land are encumbrances and may effect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, style or price range of building to be erected or prevent particular businesses from operating.

Restructure - A loan for which the basic terms, such as interest rate, maturity date, collateral, or guaranty have been modified as a result of actual or anticipated delinquency. Also known as a "workout."

Retainage (Retention) - The amount of payments withheld from contractors or subcontractors per contractual agreement to insure final and satisfactory completion of job.

Reverse Mortgage - A type of mortgage designed for senior citizens that allows them to borrower money from their home without being required to make monthly mortgage payments.

Revolving Debt - Credit that is extended by a creditor under a plan in which (1) the creditor contemplates repeated transactions; (2) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (3) the amount of credit that may be extended to the consumer during the term of the plan is generally made available to the extent that any outstanding balance is repaid.

Right of First Refusal - A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Rural Housing Service (RHS) - An agency within the U.S. Department of Agriculture (USDA), which operates a range of programs to help rural communities and individuals by providing loan and grants for housing and community facilities. The agency also works with private lenders to guarantee loans for the purchase or construction of single-family housing.

Sale-Leaseback - A transaction in which the buyer leases the property back to the seller for a specified period of time.

Sales Comparison Approach – The approach appraisers most commonly use to determine the market value of single-family residential properties, based on the assumption that a home buyer will not pay more for a property than it would cost to buy a comparable property in the same neighborhood or in a similar neighborhood.

Satisfaction – Discharge of an obligation by payment of the amount due, as on a mortgage, trust deed, or contract; or payment of a debt awarded, such as satisfaction of a judgment. Also the recorded instrument stating said payment has been made.

Savings and Loan Association – Originally an association chartered to hold savings and make real estate loans. Federally insured and regulated. Active in long term financing rather than construction loans. Recent changes in federal controls have enabled these associations to offer checking accounts, consumer loans, and other services traditionally offered by banks.

SBA (Small Business Administration) – A federal agency authorized to make loans to small businesses, including loans for land purchase and construction.

Scope of Work - A description of the nature of service, activities, studies, jobs, or work to be undertaken bay a party.

Second Home (Vacation Home) - A one-family (not 2 to 4 family properties), condominium or co-op owned by an individual, occupied by the borrower for some portion of the year, and not subject to any timesharing ownership arrangement or agreement. The property must also be suitable for year-round occupancy, must be available for the borrower's exclusive use and enjoyment, and not be subject to any rental pools or agreements that may require the borrower to subject the property for rental or under a management firm controls the occupant of the property. 

Second Mortgage - Legally, a real estate mortgage junior to another mortgage. It is also used to describe a home equity mortgage, that is, a mortgage securing a note for funds to be used in a non-purchase transaction. Properties may have one, two, three or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, second, third, etc. lien.

Secondary Financing – A loan secured by a mortgage or trust deed, which lien is junior (secondary) to another mortgage or trust deed.

Secondary Mortgage Market – The buying and selling of first mortgages or trust deed by banks, insurance companies, governmental agencies, and other mortgagees. This enables lenders to keep an adequate supple of money for new loans. The mortgages may be sold at full value (par) or above, but are usually sold at a discount. The secondary mortgage market should not be confused with second mortgages.

Section 1031 Tax Deferred Exchange - The section of the tax code that details the requirements of a tax deferred sale of certain businesses or investments.

Secured Loan - A loan that is backed by property such as a house, car, jewelry, etc.

Securitization - The process of financing a pool of similar but unrelated financial assets (usually loans or other debt instruments) by issuing to investors security interests representing claims against the cash flow and other economic benefits generated by the pool of assets.

Security - Property which is pledged as collateral for a loan.

Security Deposit - A deposit of money by a tenant to a landlord to secure performance of a written or oral rental agreement (lease).

Security Instrument - The mortgage or deed of trust evidencing the pledge of real estate security as distinguished from the note or other credit instrument.

Security Interest - The interest of a creditor in the security collateralizing an investment.

Self-Liquidating Mortgage - A mortgage in which the principal amount of the loan is fully repaid within the term of the loan.

Seller-Servicers - The secondary market term for approved institutions that sell and service mortgages for investors.

Sellers Concession - A negotiating tool used by a seller in which the seller agrees to pay for a fixed amount of the purchaser’s closing costs. The lender that is providing financing for the transaction will limit the magnitude of the concession or may consider the concession a price reduction; impacting the amount of financing available to the purchaser or the terms of the financing.

Sequester of Rents - A court-related action by which rental income derived from property is ordered by the court to be deposited with and held by the clerk of the court or other government/court official.

Servicer - A firm that performs servicing functions, including collecting mortgage payments, paying the borrower's taxes and insurance and generally managing borrower escrow accounts.

Servicing - The tasks a lender performs to protect the mortgage investment, including the collection of mortgage payments, escrow administration, and delinquency management.

Servicing Fee/Servicing Rate - The fee earned by a servicer for administering a loan for an investor usually expressed as a percentage of the unpaid principal balance of the loan and deducted from the monthly mortgage payment.

Servicing Spread - That portion of the interest added by the lender to cover the cost of administering the mortgage asset.

Setback Lines - Lines that define the required distances for the location of a structure in relation to the perimeter of the property. They are in accordance with building codes, deed restrictions, and zoning requirements.

Settlement Statement – A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale. A separate statement is prepared for the seller and buyer.

Short Sale - A bank or mortgage lender agrees to discount a loan balance. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender as full satisfaction of the debt. This negotiation is all done through communication with a bank's Loss mitigation department, who would have the right to approve or disapprove a proposed sale.

Simple Interest – Interest computed on principal alone, as opposed to compound interest.

Site Plan - A drawing which shows all improvements to a site, such as clearing, grading, and the installation of public utilities, before the actual construction of a building.

Soft Second Loan - A second mortgage whose payment is forgiven or is deferred until resale of the property.

Soldiers and Sailors Civil Relief Act - A federal law that restricts the enforcement of civilian debts against military personnel who may not be able to pay because of active military service.

Spread - For an adjustable rate mortgage (ARM) this represents the number of percentage points added to the index each time the loan adjusts, that is, every year, every three years, etc. This number is set at closing and remains constant for the life of the loan subject only to the caps, if any, on the mortgage.

Stabilization - Measurement over a period of time to establish an average or expected outcome.

Stamp Tax - Required on deeds and mortgages where real estate title passes from one owner to another. The amount of stamps required varies with each state. Also referred to as Documentary Stamps.

Standby Commitment – A commitment to issue a loan, usually for a term of one to five years, after completion of construction, in the event a permanent loan cannot be obtained. The standby loan is usually at a higher interest rate than a permanent loan, and a standby fee is charged.

Standing Mortgage - A nonamortizing mortgage, interest payments only.

Stock Certificate - Represents the number of shares associated with a cooperative apartment unit. The stock certificate is pledged to a lender as security for the granting of co-op loans.

Straight Line Depreciation - An equal amount of depreciation is taken each year over the economic life of an asset.

Straight-Term Mortgage – A mortgage calling for principal to be paid in a lump sum at maturity.

Straw Buyer – An individual whose name is used, with or without their permission, to purchase a property for some other person or entity. This is done for the purpose of encouraging a lender to finance a property which does not meet the lender’s quality standards. The straw buyer is a tool used to commit mortgage fraud.

Subcontractor - A person or company contracted to perform work for a developer or general contractor.

Subject to a Mortgage - A buyer taking title to a property on which a mortgage loan exists, but not taking over legal responsibility for the mortgage or its debt service; in case of default, the lender has no recourse against the buyer-owner for satisfaction.

Subdivision - Improved or unimproved land divided into a number of parcels for sale, lease financing, or development.

Sublease - A lease executed by a lessee to a third person for a term no longer than the remaining portion of the original lease.

Subordinate Lien - A lien or other encumbrance (for example a second mortgage or mechanic's lien) on real estate whose priority is inferior to another's recorded interest in the same property. 

Subordination Agreement - A document by which parties acknowledge, by written record, that the debt of one is inferior to the debt or interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights, and any other types of debt interests.

Subrogation – The substitution of one person for another, so that the former may exercise certain rights or claims of the latter. Used primarily when a surety relationship exists, as in insurance.

Subscription Agreement - For apartments that are in the process of being converted to cooperative ownership, this represents the a sales agreement between the purchaser and the cooperative corporation.

Superior Lien - A lien or encumbrance (for example a mortgage or mechanic's lien) on real estate whose priority is greater (or superior) to the interest of another's interest in the same property.

Survey - A measurement of land, prepared by a registered land surveyor, showing the location of the land with references to know points, its dimensions, and the location and dimensions of any improvements.

Sweat Equity - A borrower's contribution to the down payment for the purchase of a property in the form of labor or services rather than cash.

Take Out Commitment – Agreement by a lender to place a long-term (take out) loan on real property after completion of construction.

Taking the Inside of the House with You - The situation where an irate borrower abandons his home, taking whatever he can with him and trashing anything he can’t remove on the way out. This is often a homeowner’s response to a foreclosure and why some lenders have developed a "Cash for Keys" policy.  

TALF - See "Term Asset-Backed Securities Loan Facility".

TARP - See "Troubled Asset Relief Program".

Tax Base - Total assessed value in a given tax district.

Tax Code - Indicates which taxing entities will receive revenues generated from property taxes levied against this property.

Tax Exempt Income - Income received from or municipal bonds that is not subject to federal taxation.

Tax Exempt Parcels - All property owned by federal, state and local governments are exempt from taxation. This includes property for schools, parks, libraries, government buildings, roads, airports, military installations and other public areas as well as churches and some other charitable organizations.

Tax Exemptions - Those qualified individuals entitled to an exemption of a specified amount of Assessed Value. Those who are veterans, senior citizens or disabled may be eligible.

Tax Lien – (1) A lien for nonpayment of property taxes. Attaches only to the property upon which the taxes are unpaid. (2) A federal income tax lien. May attach to all property of the one owing the taxes.

Tax Reform Act of 1986 - Federal law that substantially altered the real estate investment economy by permitting REITs not only to own, but also to operate and manage, most types of income-producing commercial properties. It also stopped real estate "tax shelters" that had attracted capital from investors based on the amount of losses that could be created.

Tax Roll - A listing of real property parcels. This file includes information about parcel ownership and mailing address, property location, land use and valuation.

Tenant Improvement - Constructed improvements to the base building, such as interior partitions, drop ceilings, and other finishes which prepare a space for occupancy and use by a tenant.

Tenants by the Entirety - A form of concurrent ownership in some states applicable only to a husband and wife, whereby on the death of either spouse, his or her interest passes by operation of law to the survivor.

Tenants in Common - A form of concurrent ownership in some states whereby each individual owner is treated as if he/she owned an undivided fractional interest in the whole and can dispose of his/her interest by will.

Term - The period of time between the commencement date ant termination date of a note, mortgage, legal document, or other contract.

Term Asset-Backed Securities Loan Facility (TALF) - A program designed by the Treasury and the Federal Reserve Board, which was implemented on November 25, 2008. The TALF was designed to increase origination of consumer and small business loans by providing liquidity to securities backed by credit card debt, student loans, auto loans and small business loans guaranteed by the Small Business Administration. 

Third Party - One not a party to an agreement or a transaction, but who may have rights therein.

Title - The evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the tile deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, gift, or through foreclosure of a mortgage.

Title Company - The entity that ensures the title for the owner of the property.

Title Exceptions - An exclusion appearing in a title insurance policy against which the insurance company does not insure.

Title Insurance Policy - A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise. There are usually two different policies: a fee policy, which protects the purchaser as to his ownership of the property, and the mortgagee policy which protects the priority of the lien of the mortgage lender.

Title Report - The results of a title search which includes the name of the owner and the legal description of a property plus, the status of taxes and other liens and encumbrances affecting the property. Results of a property survey may also be included.

Title Search - An examination of public records, laws, and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property.

Total Market Capitalization - The total value of a company's capital, including the market value equity and all debt.

Total Return - In reference to investment performance, a stock's dividend income plus capital appreciation over a specified period as a percent of the stock price at the beginning of the period, before taxes and commissions.

Tranche - An issue of bonds derived from a pooling of like obligations (as securitized mortgage debt) that is differentiated from other issues especially by maturity or rate of return.

Trade Equity - Real estate or assets given to the seller as part of the down payment for the property.

Transfer Fees - Fees charged by an investor or servicer to process a transfer of ownership request.

Transfer Tax - State or local tax payable when title to property passes from one owner to another.

Treasury Bills – Interest bearing U.S. Government obligation sold at a weekly sale. The change in interest rates paid on these obligations is frequently used as the Rate Index of Adjustable Rate Mortgage Loans.

Treasury Index - An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions by the U.S. Treasury of Treasury bills and securities.

Troubled Asset Relief Program (TARP) - is a program of the United States Government to purchase assets and equity from financial institutions in order to strengthen its financial sector. It is the largest component of the government's measures passed October 14, 2008 in response to the financial crisis.

Trust – A fiduciary relationship under which one holds property (real or personal) for the benefit of another. The party creating the trust is called the settlor, the party holding the property is the trustee, and the party for whose benefit the property is held is called the beneficiary.

Truth-in-Lending Act - Legislation stipulating that lenders must disclose to borrowers the true cost of loans and make the interest rate and terms of the loan simple to understand.

UCC-1 Financing Statement - A recorded lien on the shares pledged to a lender as security for a co-op loan.

UCC-3 Financing Statement - The release of the recorded lien against the shares of a co-op.

Umbrella Insurance - A type of policy obtained by an insured to cover loss or damage for a number of properties or other assets, or a number of companies (such as subsidiaries of a parent company). 

Umbrella Partnership REIT (UPREIT) - In the typical UPREIT, the partners of one or more existing partnerships and a newly formed REIT become partners in a new partnership termed the Operating Partnership. For their respective interests in the Operating Partnership ("OP Units"), the partners contribute the properties from the existing partnerships and the REIT contributes the cash proceeds from its public offering. The REIT typically is the general partner and the majority owner of the Operating Partnership.

Underwater – The total dollar amount of the outstanding mortgages on a property is greater than the resale value of the property. The property owner now has negative equity in the property and is now "underwater."

Underwriting Criteria - In mortgage banking, the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and of the borrower's ability and willingness to repay the loan.

Uniform Commercial Code (UCC) – The national code putting creditors on notice of searches and for liens on property other than real estate.

Uniform Standards of Professional Appraisal Practice (USPAP) - Current standards of the appraisal profession, developed for appraisers and the users of appraisal services by the Appraisal Standard Board of the Appraisal Foundation. The Uniform Standards set forth the procedures to be followed in developing an appraisal, analysis, or opinion and the manner in which an appraisal, analysis, or opinion is communicated. They are endorsed by the Appraisal Institute and by other professional appraisal organizations. 

Unrecorded Instrument – A deed, mortgage, etc., which is not recorded in the county recorder’s office and, therefore, not protected under recording statutes. Valid between the parties involved, but not against innocent third parties.

Unsecured Loan - A loan that is not backed by collateral.

Unsecured Property - Taxable property which does not attach to the real estate, such as business equipment and fixtures, mobile/manufactured homes and airplanes.

Upside Down – A condition where a mortgagor has an outstanding balance on his mortgage that is greater than the resale value of the property. This property owner is "upside down. "

Usable Area - The actual number of square feet contained within a tenant's demised space.

Usury - The act of charging borrowers a rate of interest greater than that permitted by law. 

Utilities - Basic services associated with developed areas that include provisions for electricity, telephone, gas, water, and garbage collection.

Valuation - The process of estimating the market value, insurable value, investment value, or some other property defined value of an identified interest or interests in a specific parcel or parcels of real estate as of a given date. Valuation is a term used interchangeably with appraisal.

Value - 1. The monetary worth of a property, good, or service to buyers and sellers at a given time; 2. The present worth of the future benefits that accrue to real property ownership.

Variable Interest Rate – An interest rate that fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to the frequency and the amount of fluctuation. Also called “flexible interest rate”.

Verification - Confirmation of truth, correctness, or authenticity. Done by affidavit, oath, or deposition, all of which require sworn statements.

Veteran’s Administration (V.A.) Loans – Housing loans to veterans by banks, savings and loans, or other lenders which are insured by the Veteran’s Administration, enabling veterans to buy a residence with little or no down payment.

Veterans Affairs (U.S. Department of Veterans Affairs) - A federal government agency that provides benefits to veterans and their dependents, including health care, educational assistance, financial assistance, and guaranteed home loans.

Voluntary Lien – A lien placed against real property by the voluntary act of the owner. Most commonly, a mortgage or deed of trust.

Waiver – The relinquishment of a right. In construction, most commonly the waiver by subcontractors of their mechanic’s lien rights in order for the owner to obtain draws under a construction loan.

Walkaway Borrower - A borrower who can afford his mortgage payments but voluntarily defaults on his mortgage in response to negative market conditions.

Walkthrough - A common clause in a sales contract that allows the buyer to examine the property being purchased at a specified time immediately before the closing, for example, within the 24 hours before closing.

Warehousing – The depositing of loans by a lender such as a mortgage company, in a bank, for sale at a later date. The mortgage company then borrows against these loans. This is done when the mortgage company wishes to assemble a block of loans for sale, or when the company believes that the discount rate is dropping and the loans may be sold at a higher price in the future.

Warranty Deed - A deed in which the grantor or seller warrants or guarantees that good title is being conveyed, as opposed to a Quit Claim Deed that contains no representation or warranty as to the quality of title being conveyed.

Waste - An abuse or destructive use of property by one in rightful possession (such as an owner or tenant).

Without Recourse – A finance term. A mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower.

Workout - An alternative action to foreclosure for the benefit of the lender and the borrower. Includes loan modification, short sales and various forms of forbearance. Also called "restructure." 

Wrap-Around Mortgage – A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgagee under the wrap-around collects a payment based on its face value and then pays the first mortgagee. It is most effective when the first mortgage has a lower interest rate than the second, since the mortgagee under the wrap-around gains the difference between the interest rates, or, the mortgagor under the wrap-around may obtain a lower rate than if refinancing.

Yield Maintenance - The prepayment premium which will equal the present value of any costs to the lender resulting from the difference in interest rate between the date of the note and the date on which the prepayment is made.

Zoning - The creation of districts by local governments in which specific types of property uses are authorized.

 © Shelter Rock Mortgage Corporation, 2001 - 2008

One Hollow Lane (Suite 104) Lake Success, New York 11042

info@shelter-rock.com

Phone: (516) 627 - 0800

Fax: (516) 627 - 1056