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AAA tenant: A rating given to a prime tenant with the highest credit rating. The term is often used to describe the credit rating of a retail store. For example, a developer who plans to build a shopping center will seek a "triple A" tenant to help secure financing.

Absorption rate: A rate that is a forecast of how quickly properties can be sold or leased in a given area. For example, if a developer can lease 20% of the units available to the market in a given area for a given time, the absorption rate is 20 percent.

Abstract of title: A condensed history of the title of a property. An abstract of title should be a chronological history of recorded instruments that affect the title of the subject property. In some states, an attorney does a title search using an abstract. After a title search, the attorney issues an opinion that can be used to obtain title insurance.

Abstract of title: A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Abut: Connect or join. If two pieces of property touch each other, they abut each other.

Abutment: A load-bearing vertical member of a structure. A wall or a column are examples of abutments.

Acceleration clause: A clause in a note, bond, mortgage or deed of trust giving the lender the right to demand the remaining balance due and payable before its original date because regular mortgage payments are not made or for breach of other conditions of the mortgage.

Accessory building: A building or structure detached from but on the same property as a main building. Examples of accessory buildings are garages, storage buildings and guest houses.

Accident and health premium: A premium paid by a mortgagor for an insurance policy to ensure the continuance of mortgage payments if the borrower is disabled or ill.

Accommodation party: One who accommodates another by signing a note or a bill without receiving compensation (a note being a negotiable instrument such as a promissory note).

Accrued interest: Interest earned but not paid since the last due date.

Acoustical tile: Tile that absorbs sound. Acoustical tile is often used in the ceilings of apartment units and offices.

Acre (AC): Land that measures 43,560 square feet. A lot 208.71' x 208.71' is 4,840 square yards, 4,047 square meters, 160 square rods, 0.4047 hectare or 43,560 square feet.

Act of God: An event that causes damage by nature such as a flood, earthquake or winds; an occurrence not caused by man.

Action to quiet title: A court action to establish ownership of real property. This court action usually removes any interest or claim to title of real estate. The action results in removing any cloud on the title. Normally a lender will not commit to a mortgage with a cloud on the title. If the complainant is successful in the court action, the title is made quiet, or is clean.

Ad valorem: A method of taxation using a fixed proportion of property value; for example, real estate taxes collected at the rate of a specific dollar amount of appraised value or assessment. People use the ad valorem method as a formula to decide how much tax to pay the government. A commonly used formula for computing taxes is as follows (assumptions: properties are assessed at 25% of valuation, appraisal is $100,000 and the tax rate is $7.50 per $100): $100,000 x 25% = $25,000 1Ú2 $100 = 250 ($100 units), 250 x $7.50 = $1,875 1Ú2 12 (12 months) = $156.25 per month

Adaptive reuse: Providing a new use for an older, but sound, structure. An example would be an abandoned warehouse converted into business or residential condominiums.

Add-on interest: Interest added to the amount of the loan on the front end, or beginning of the loan repayment period. The balance is then paid by installments. This form of interest is much more expensive than simple interest paid on the entire amount for the entire term of the loan.

Adjoin: Connect or join. If two pieces of property touch each other, they adjoin or abut each other.

Adjustable living expenses: Expenses you can change, such as costs of groceries, utilities, telephone.

Adjustable Mortgage Loans (AML): See Adjustable Rate Mortgage

Adjustable-Rate Mortgage (ARM): A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. The rate is usually based on indexes tied to the nation's economy. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages)

Adjusted basis: The original cost of the property plus improvements (including what it cost to sell the property), less depreciation. Calculate the gain on the sale by subtracting the adjusted basis from the sale price.

Advance: To give someone a draw or payment by making them a loan.

Affordable Housing Program (AHP): A program of the Federal Home Loan Bank system which allows the Regional Banks of the System to make subsidized funds available through member institutions for the production of affordable housing to serve families below 80 % of their area median income (AMI).

Agrarian: Something that relates to land or to a distribution or division of land.

Agreement of sale: Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Air rights: The right to use the space or air above the ground but not the ground itself. Air rights can be sold or leased. Ownership of land includes air rights above the property. Some use of air rights, such as traveling through airspace by airplane no longer require the approval of the property owner.

Alcove: A recessed room connected to a main or larger room.

Alienation clause: A clause closely associated in meaning with Due-On-Sale Clause and Acceleration Clause. An alienation clause in a mortgage can give the lender the option to call the loan (declare the entire balance due) when the property owner transfers ownership, title or interest without the lender' s consent.

Alienation: A transfer or conveyance of property. Alienation is voluntary when it is with the consent of the owner. Involuntary alienation is a transfer of property without the consent of the owner, as in a foreclosure, adverse possession and eminent domain.

All Inclusive Trust Deed (AITD): Also known as a Wraparound Mortgage. A junior lien on a property which encompasses the senior financing. Enables the borrower to increase the amount of borrowing without paying off the original loan or paying the higher interest rates associated with other types of secondary financing. The borrower makes one payment (usually to the seller) from which the senior financing is paid with the balance going to ward the holder of the Note. May be advantageous to the seller in that he can experience an additional return on money (the senior financing) which he never loaned.

All-Inclusive Trust Deed (AITD): A new deed of trust securing a balance due on an existing note plus new funds advanced. This technique is similar to a wraparound mortgage.

Allodial system: Ownership of land with the owner having full and absolute dominion over the property. This system is the basis for our property rights in the United States. A contrasting system is the feudal system, which gives ownership to a king or sovereign who gives rights to the citizenry to occupy the land for a period of time.

Allowance for vacancy and income loss: An allowance used on pro-forma or profit-and-loss projections for income properties. You subtract an allowance for vacancy from gross income to decide net effective income (income before expenses). An investor cannot use rental property that is 100% occupied. Depending on the market area, the vacancy allowance for income properties such as apartments is usually from 5% to 10% of the gross rental.

Alluvion: The gradual building up of soil deposited by water against a shore.

Alluvium: Soil deposited by accretion along the shore or bank of a river.

Amenity: A natural or man-made feature that increases the value of property. Examples would be a view of a golf course or the ocean, or a beautifully landscaped yard.

American Bankers Association (ABA): A professional organization of banks based in Washington, D.C., that lobbies the federal government and monitors federal and state laws and regulations on issues pertinent to the banking industry.

American Institute Of Architects (AIA): A professional organization of architects. All registered architects subscribe to AIA' s standards of ethical practice.

American Institute Of Certified Public Accountants (AICPA): A professional organization of certified public accountants. AICPA is responsible for developing "GAAP" accounting -- generally accepted accounting principles. AICPA awards the CPA designation.

American Institute Of Real Estate Appraisers (AIREA): Formerly,.a member organization of the National Association of REALTORS (NAR). AIREA severed its affiliation with NAR in 1990 and merged with the Society of Real Estate Appraisers to form The Appraisal Institute. The Appraisal Institute officially began operation on January 1, 1991.

American Land Title Association (ALTA): An organization comprising title insurance companies, abstractors and attorneys specializing in real property law. ALTA has adopted many title insurance policy forms that standardize coverage nationally for property owners and lenders. Many states require ALTA standardized title insurance policies.

Amortization schedule: A list showing the payment number, interest payment, principal payment, total payment and unpaid principal balance. People sometimes call an amortization schedule a curtail schedule.

Amortization schedule: A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Amortization: A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal. Fully amortized loans are paid in full at the end of the loan term.

Amortization: Loan amortization is paying off a debt or mortgage, usually by monthly payments. Regardless of whether a loan is a level payment mortgage, graduated payment mortgage, adjustable graduated mortgage or variable-rate mortgage, if it is an amortized loan there will be a portion for interest and a portion for principal reduction in every payment of the loan.

Amortization: The repayment of loan principal through equal payments over a designated period of time.

Amount financed: The base loan amount without regard to closing costs, discount points or mortgage insurance premiums. This dollar amount is associated with a disclosure statement used in compliance with the Truth-in-Lending Act.

Ampere: Measure of electrical current equal to the current produced by the force of one volt through the resistance of one ohm.

Anaconda mortgage: A mortgage that uses the subject property as collateral for all debts from various loans owed to the lender. Courts may disagree with what an anaconda mortgage intends since they may require a direct relationship between each loan and the collateral acquired by the loan proceeds.

Anchor bolt: A bolt that attaches the sill of a house to the foundation wall.

Anchor tenant: A retail store in a shopping center used as a major draw to the center. The presence of an anchor tenant helps secure financing for the center and enhances the chance of success for other tenants as it draws the public to its store. The store is normally part of a major chain and is a name easily recognized by the public. Depending on the size of the shopping center, there can be several anchor tenants.

Ancillary income: Income that is secondary in nature and not the main reason for being in the business; income that an investor would not receive if they were not in a particular business.

Annex: To attach or add; to add to something else.

Annual Debt Service (ADS): The total amount of principal and interest to be paid each year to satisfy the obligations of a loan contract.

Annual Percentage Rate (APR): A measure of the cost of credit, expressed as a yearly rate. It includes interest and points as well as other charges. It provides consumers with a good basis for comparing the cost of any loan, including a proposed mortgage loan.

Annual Percentage Rate (APR): A method for calculating an interest rate to the interest collected, discount points charged to either purchaser or seller or both, certain costs related to closing and mortgage insurance premiums.

Annual percentage rate or APR: The cost of a borrower's credit as a yearly rate. Defined by the federal Truth in Lending Act, it includes finance charges as well as the contractual interest rate.

Annuity: An assured income for life or for a given time. This term normally relates to the insurance industry, but is sometimes used in comparison with certain kinds of high-quality income from real estate investments.

Appointments: Decorative items such as furnishings and equipment in a building.

Apportionment: A division of expenses, liabilities, responsibilities or property among individuals.

Appraisal institute: An organization that officially began operation on January 1, 1991. The Appraisal Institute is the result of a merger of the former American Institute of Real Estate Appraisers (AIREA) and the Society of Real Estate Appraisers. The surviving designations are the MAI (Member of the Appraisal Institute) and SRA (Senior Residential Appraiser).

Appraisal report: A written opinion of value. The report contains the estimate of value; date of valuation; certification and signature of the appraiser; the purpose, qualifying conditions and description of the subject property and its ownership; a neighborhood description; the approaches to value; and the final determination of value. An appraiser shall report the present market value for existing properties and proposed developments. The appraiser may report a value as of the conclusion of construction and as of the projected date when stabilized occupancy is achieved.

Appraisal: An estimate of a property's fair market value by a licensed professional. Lenders take the appraisal into account when deciding whether or not to make loans.

Appraisal: An expert judgment or estimate of the quality or value of real estate as of a given date. Relies upon one or more of three different types of valuation approach depending upon the property type and current or anticipated usage: The Market Approach, Cost Approach or Income Approach.

Appraisal: An opinion of estimated value for a specific purpose of a described property on a given date. An appraisal can be either written or verbal.

Appraised value: The dollar amount of value given to the property appraised. There are three major approaches to estimating value of real estate. The market approach bases value on the sales of other comparable properties. The cost approach bases value on what it will cost to replace the property. The income approach bases value on the income produced by owning the property. In most appraisals all three approaches will be used, with the appraiser stating what approach was most influential in making the final determination of value.

Appraiser: One who estimates value on a professional level. Many appraisers have designations such as MAI (Member of the Appraisal Institute), SRA (Senior Residential Appraiser), SREA (Senior Real Estate Analyst) and SRPA (Senior Real Property Appraiser).

Appreciation: An increase in the value of a house due to changes in market conditions or other causes.

Appreciation: An increase in the value of property. The opposite of depreciation.

Appropriation: The private taking of property and dedicating it to public use. It is also the dedication of public land for a private use.

Appurtenance: An item attributable to the land, such as improvements or an easement. Something that comes from outside the property but is considered part of the property and transfers with the property upon sale or other transfer. A utility easement is an example of an appurtenance.

Apron: An area such as the entrance to a driveway or the concrete portion around a swimming pool.

Arm's-length transaction: A transaction between individuals who do not have a conflict of interest or reason for collusion. The parties are as strangers to each other. The value of property should be questioned for fairness or accuracy if there is not an arm's-length transaction between the seller and buyer. An appraiser should not use comparable sales not closed by an arm's-length transaction in the market approach to value.

Arrears: At the end of a period. You pay interest on home mortgages in arrears. You pay rent in advance. For example, a mortgage payment due May 1 is for the interest for April; rent due May 1 is for the month of May. The term can pertain to delinquent mortgage payments. A mortgage loan that is three months delinquent can be said to be three months in arrears.

Artesian well: A deep well where water rises to the surface by natural pressure.

As is: Property sold in its present condition with no warranties made about the plumbing, heating, electrical system or infestation of termites is said to be sold "as is."

Assemblage: Combining pieces of property to make one large, attractive property. The added value is plottage. People often use option contracts with the practice of assemblage.

Assessed valuation: The dollar amount or value on what real estate tax is levied. If a property worth $100,000 is assessed for tax purposes at 50% of value, the assessed valuation is $50,000. County or township tax assessors normally make appraisals for tax reasons. Many state laws require properties to be reappraised periodically. If the taxpayer disagrees with the appraisal, he or she can appeal to a board of appeal or board of equalization.

Assessed value: Dollar amount assigned to taxable property for tax purposes by the county tax assessor. It is usually a statutory percentage of market value. (Not to be confused with appraised value.)

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

Assessed value: The value of real property established by the tax assessor for the purpose of levying real estate taxes.

Assessment: (1) The fair market value of property for tax purposes. (2) An expense appropriated to a unit of a whole such as a condominium assessment for common grounds, maintenance or an additional charge for improvement. (3) A levy for adding a product or service to a neighborhood, such as curbs or sewers. (4) A value given to a property owner for the taking of the property by the process of condemnation.

Assessor: Commonly called a tax assessor, an assessor is the individual charged with determining the fair market value for tax purposes. Tax assessors do not set the tax rate; they merely set the value for tax purposes.

Asset: Something of value that you own. An asset could be a car, a retirement fund, stocks or bonds, or even a valuable piece of furniture.

Assign: The act of transferring rights or property to another.

Assignee: One who receives rights or property. An assignee stands in the place of the assignor for rights, liabilities and interest in the property.

Assignment of Mortgage (A/M): A transfer of a mortgage from one mortgagee to another. Sometimes, FHA will accept an assignment of a mortgage to help a qualified, distressed mortgagor.

Assignment of servicing: A process of assigning the servicing rights from one lender to another.

Assignment: Transfer of one person's rights under a contract to another.

Assignor: One who assigns rights or property.

Assumability: When a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and usually charge a fee for the assumption. Most mortgages now contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may insist that the entire balance is paid in full when the home is sold. Assumability may benefit the seller especially during periods of higher interest rates or after periods of property depreciation.

Assumable mortgage: A mortgage that can be taken over ("assumed") by the buyer when a home is sold.

Assumption of mortgage: An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In a full assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. (Not to be confused with a subject-to purchase.)

Assumption: The transfer of the seller's existing mortgage to the buyer.

Atrium: Usually a space in the center of a building with a translucent ceiling and sometimes decorated with such amenities as a water fountain and tropical plants.

Attachment: The actual taking of property into the custody of a court to serve as collateral for a judgment sought in an impending suit. Law, not private consent, creates the lien. This form of legal action is not available for obligations secured by collateral, as in the case of a mortgage.

Attestation: The act of witnessing a signature on an instrument.

Attic: The portion of a house between the ceiling of the top floor and the underside of the roof. There must be access to an attic. By inspecting an attic you can check for signs of structural problems in the rafters and joists and assure that there is adequate ventilation.

Attornment: A tenant's formal recognition of a new landlord. A mortgagee, who becomes an owner by foreclosure, with the tenant recognizing the mortgagee as the new landlord, has a defense against claims for rent by the defaulting mortgagor. Attornment starts a new tenancy between the new owner and the tenant.

Attractive nuisance doctrine: A legal doctrine holding that a property owner must protect children from injuring themselves by an attractive danger such as a swimming pool. As an example of adhering to this doctrine, a property owner should build a fence around a swimming pool.

Average life of a mortgage: The average number of years one dollar of principal investment remains outstanding in a mortgage loan. The average life is used in deciding the true yield of a mortgage. A 30-year mortgage is said to have an average life of 12 years; a 10- to 15-year mortgage has an average life of 7 years. Investors base the yield of a mortgage on the average life as opposed to the original term.

Avulsion: The sudden removal of land by action of a body of water, such as a river.

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Backfilling: The act of putting back dirt removed for construction. You backfill by filling the gap between the foundation wall and the yard so that water will drain away from the building.

Backup contract: A term often used with contracts to buy real estate. A backup contract is a contract that will replace a prior contract in the event of failure to perform or close by the parties of the prior contract. The seller should get a release from the buyer on the first contract before canceling the contract and proceeding with the second, or backup, contract.

Balloon mortgage: A mortgage loan with periodic payments of principal and interest that do not completely amortize the loan. The balance of this type of mortgage loan is due and payable in a lump sum at a specified time in the future. The borrower pays interest regularly, but may or may not make small principal repayments during the loan period. The unpaid balance is due at a specific time in the future as stated in the mortgage or deed of trust. For example, if you borrow $30,000 for 5 years, or 60 months, and the interest rate is 15%, your monthly payments will be only $375. But the payments cover interest only, with the entire principal due at maturity in five years. Thus, the borrower must make 59 equal monthly payments of $375 and a final balloon payment of $30,375 (the principal plus the last interest payment). If the borrower cannot make the final payment, the borrower must refinance (if refinancing is available) or sell the property. Some lenders guarantee refinancing when the balloon payment is due, although they do not commit to a specified interest rate. The rate at refinancing could be much higher than the borrower's current rate. Other lenders do not offer automatic refinancing. Without such a guarantee, the borrower could be forced to start the whole business of shopping for mortgage funds again, besides paying closing costs and front-end charges a second time. A balloon mortgage can be a senior or junior mortgage; i.e., a first or second mortgage.

Balloon note: A Promissory Note which requires only partial or no amortization (principal reduction.) Balloon Notes result in an eventual Balloon Payment. A Balloon Note may be coupled with an Extendible Rider which allows for the extension of the loan term as long as certain conditions are met. (Such as on 5/25 and 7/23 loans.)

Balloon payment: Amount of loan principal remaining unamortized and outstanding at the end of the mortgage term.

Balloon payment: The final payment in a balloon mortgage. The balloon payment ends the mortgage; the mortgage is paid in full. This final payment is called the balloon or bullet.

Balloon payment: The final payment of the balance due on a partially amortized loan.

Baluster: The support for the rail in a staircase; one of a series of upright posts.

Bank Holding Company (BHC): A corporation that owns interests in one or more banks.

Bankrupt: A corporation, firm or person who files for relief from the courts and surrenders all assets. Bankruptcy is a condition in which liabilities exceed assets and the person or business is unable to pay the creditors. Bankruptcy may be voluntary or involuntary. Involuntary bankruptcy is when a creditor forces payment of a debt of $1,000 or more and the debtor cannot pay. There are several chapters of bankruptcy. A lender will most likely encounter the following chapters:

• Chapter 7 covers liquidation of the debtor's assets.
  
• Chapter 11 covers reorganization of a bankrupt business.
  
• Chapter 13 covers repayment of debts by individuals (commonly called wage-earner). Som e plans may provide for full payment of debts, while others arrange for payment of reduced debts.
  

Under Chapters 7 and 11, dismissal of bankruptcy means that the debts, but not the liens, are dismissed. The courts must close the bankruptcy to release the liens. Under Chapter 13, dismissal means that the court has thrown a person or business out of bankruptcy. That person or business is no longer under the court's protection and is subject to the action of creditors. In reviewing a loan application from a person who has taken bankruptcy, lenders look at three important points: (1) the reason for bankruptcy, e.g., an inability to work due to bad health, an accident, etc., (2) the type of bankruptcy taken (the chapter) and (3) compensating factors.

Bankruptcy: When a person is declared by a court to be unable to pay her or his debts, that person is in bankruptcy. That person must then turn over any money or properties to a trustee, a person whom the court appoints, for management.

Base line: A surveyor' s term used to show an east-west line.

Base rent: The minimum monthly rent due to the landlord. Typically, it is a fixed amount.

Baseboard: A board that runs along the base of the wall where it meets the floor.

Basement: The space that is below the first floor. Basements are usually wholly or partly below the exterior grade. Basements should be checked for signs of water leakage. Dampness in comers is a sign of moisture problems, and water marks along the base of walls or any cabinets suggest that there is or has been some serious water leakage.

Basis points: A term used in relationship to interest rates. One basis point is equal to 1/100 of 1 percent. Basis points are used to describe the yield of a debt instrument, including mortgages. The difference between 9% and 9.5% is 50 basis points.

Basis: An unadjusted basis is the cost of the property minus the land value. Cost plus capital spent to modify the improvements minus the land value is the adjusted basis. For the purposes of determining capital gain or loss, it is the total cost of the property compared to the sales price minus the costs of the sale.

Basis: The total amount paid for a property, including equity capital and the amount of debt incurred. For a LIHTC project, the initial value that is eligible for tax credits.

Batten: A narrow board normally used to cover a joint or space between boards, often called a batten board.

Baty: The strip of insulation placed between the studs of a wall or joists of a ceiling or floor.

Beam: A load-bearing support that can be made of wood, iron, stone or other strong material.

Bearer bond: A coupon bond payable to the individual who has possession of the bond.

Bedrock: Solid rock for a foundation of a large building.

Bedroom community or suburb: Residential area for commuters who work at a nearby large city or employment center.

Before-tax income: Income used to decide yield from an investment before it becomes taxable to the investor. It is income used in an offering of an investment without regard to the investor's taxable income bracket used in filing income tax returns.

Belly-up: A project, business or venture that has failed is said to have gone belly-up.

Beneficiary: See Deed of Trust.

Billing cycle: The date a bill is sent out and the payment due. Some bills are sent out on the first of the month, some on the fifteenth, some on other dates.

Binder: A preliminary agreement, secured by the payment of earnest money, under which a buyer offers to purchase real estate.

Biweekly mortgages: Mortgage where payments are made every two weeks as opposed to more conventional monthly payments. Biweekly mortgages can be offered in any mortgage amount and term, at a given interest rate. Shorter payment intervals accelerate equity through faster amortization that will shorten the loan maturity.

Blacktop: A paving surface usually made of asphalt.

Blanket mortgage: A single mortgage used to secure a debt for money loaned on several properties such as the lots a builder owns in a subdivision. It is important for the borrower (mortgagor) to ask for a partial release clause in the blanket mortgage. A partial release clause will release each lot that is sold for a stated amount that is a portion of the entire debt. Without a partial release clause, the entire debt
l have to be paid before the mortgage is released.

Blanket mortgage: Mortgage lien secured by two or more property parcels.

Blended rate: (1) A first-mortgage lender can use a blended rate in an advertisement to induce mortgagors to refinance and pay off their old low-interest-rate first mortgage. The first-mortgage lender could offer a 10% interest loan as compared to the going rate of 12% if the mortgagor will refinance the existing mortgage that is at 8 percent. (2) A second-mortgage lender or a wraparound lender will advertise not to pay off the old mortgage with the low rate and short term remaining, but instead, to place a second mortgage or wraparound loan behind the first and have a blended rate below market interest rates for first-mortgage loans.

Blighted area: Usually an inner city area where property values are falling and buildings are deteriorating.

Blockbusting: An illegal practice of promoting panic-selling in an all-white neighborhood because someone of a minority or ethnic background has moved into or is said to be moving into the neighborhood. The blockbuster will try to gain illegally from depressed prices either by buying or listing the properties at far below market values.

Blueprint: An architect's or designer's detailed plan for a building. If you remodel your house, you will probably need a blueprint.

Board and batten: Siding with batten boards nailed over cracks between wider boards.

Board foot: A piece of wood that is one foot square by one inch thick; 144 cubic inches = l'x l'x 1".

Board of adjustment: A government body that hears appeals concerning zoning matters. A Board of Adjustment can grant zoning variances.

Board of equalization: A government body that hears appeals concerning real estate tax assessments. If a property owner thinks the assessment is too high, they can appeal to the Board of Equalization. This board can lower assessments, causing a lower real estate tax.

Board of realtors®: The local association of REALTORS® who belong to the State and National Association of Realtors.®

Board of review: See Board Of Equalization.

Boilerplating: Standard language found in contracts, deeds or deeds of trust, and in covenants, conditions and restrictions (CC&Rs).

Bona fide: Genuine; sincere; in good faith. The term can be used in a sentence such as, "this is a bona fide offer to purchase your real estate."

Bond value: The mortgage bond's cash flow (or underlying collateral) that upholds the value of the bond. The mortgage bond's value is restricted to the mortgage loan's unpaid balance.

Bond: A formal certificate that evidences a debt and outlines the terms. It is a formal promise to pay a lender a specified sum of money at a future date -- with or without collateral. The promise must be in writing and signed and sealed by the maker (borrower). The balance owed is paid on a future date with a series of interest payments in the interval.

Bond-type security: An investment security, especially a mortgage-based one, that has the characteristics of a typical corporate bond, including a long-term, fixed rate of return and repayment of principal at maturity.

Book value: An accounting term used to show the value of a business as a whole or particular asset, such as real estate. You show the value by accounting records that give the cost of the assets plus any improvement minus depreciation. It is the value of an asset. Depending on the reason for valuation, book value may be marked down for a distress sale, but it is normally never marked up to reflect an increase in value.

Boot: Cash or other non-real-estate assets exchanged for real property.

Boot: Something of value given to even the exchange of like properties. For example, if parcel A is worth $100,000 and is exchanged for parcel B (worth $80,000) and $20,000 in cash, the boot is the $20,000 in cash.

Boring test: Using samples obtained by boring deep holes in the ground to decide the strength of the subsoil for construction purposes.

Borough: A section of a city, similar to an incorporated village, that has control over local matters. New York City has five boroughs.

Boti'om land: Low land situated near a body of water.

Bottom line: A phrase that means the net result, such as after-tax cash flow, or the final consequence.

Bracing: Placing boards between floor or ceiling joists to prevent them from twisting.

Breach of contract: Failure to perform according to the terms of a contract. The party who has not breached the contract can rescind the agreement and sue for damages or for performance.

Breach of trust: Abuse of the responsibilities or authority as set forth in a trust agreement.

Break-even cash ratio: Equalization of the ratio of operating expense plus debt service to gross income (1:1.) Interpreted as the occupancy level that must be achieved to break even.

Break-even point: A point when gross income will cover operating expenses and the debt service.

Breakpoint: The Sales threshold over which percentage rent is due.

Bridge financing or bridge loan: Short-term mortgage financing between the end of one loan or financing instrument and the beginning of another.

British Thermal Unit (BTU): A unit used to measure the efficiency or capacity of heating or cooling systems. A unit of heat required to raise one pound of water One degree Fahrenheit at sea level.

BTU: See British Thermal Unit.

Buffer strip or zone: Land between two areas of different use, such as commercial and residential.

Builder's risk insurance: Insurance used to protect builders against fire and special risks while they have buildings under construction.

Building code: Local and State Laws that set minimum construction standards.

Building line or setback: Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Building permit: A written permit that must be purchased from the local government by anyone doing remodeling or rehabbing work on a property.

Buydown: With a buydown, the seller or borrower pays an amount to the lender so that the lender can offer a lower rate and lower payments, during the earlier portion of the loan term. If the seller pays, he may increase the sales price to cover the cost of the buydown. Buydowns can occur in all types of mortgages; fixed rate, interim fixed and adjustables.

Buyer's agent: A real estate agent who works for the buyer of a house, not the seller.

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C

Cadastral map: A map with legal boundaries and ownership of real property used for title recording.

Candle power: Luminous intensity of a light expressed in candles.

Candle: A measure of light intensity that is approximately equal; to the intensity of light for a 7/8" sperm candle burning at the rate of 120 grains per hour.

Cap: A limit on how much the interest rate or the monthly payment can change, either at each adjustment or during the life of the mortgage. Payment caps don't limit the amount of interest the lender is earning, so they may cause negative amortization.

Cap: A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

CAP: The limit on how much an interest rate or the monthly payment of an adjustable rate mortgage can change, at each adjustment or during the life of the mortgage.

Cape cod: A Colonial-style house, usually 1 _ stories in height. The house is small with a single centered front entrance. The entrance usually has one or windows on each side of the front door and is symmetrical. The chimney is often in center of the house, and the roof is a steep gable made of shingles.

Capital asset: As defined by the IRS, an asset that can receive favorable treatment upon sale. Assets excluded would be inventory, property held for resale property used in a trade or business.

Capital gain: The taxable profit from the sale of a capital asset. The gain is the difference from the basis for the capital asset and the value received less adjustments the cost of the sale, e.g., sales commissions, discount points, and closing costs.

Capital gains tax: A tax owed for selling something at a price that is more than the price the owner bought it for.

Capital improvement: A permanent improvement that increases the value of real property and extends the useful life of the property. It is expenditure different from a necessary repair expense. Painting a house is a maintenance repair expense, whereas the installation of vinyl or aluminum siding is a improvement.

Capital loss: What a homeowner has if he sells his home for less money than he paid for it.

Capital: The net worth of a business or an individual; accumulated wealth used produce goods or more wealth.

Capitalization rate: Commonly called the cap rate, the capitalization rate can be used as a division factor to decide the capital value. The net income from an investment divided by the cap rate will equal the capital value, or value. The cap rate is a combination of a return or recapture of the investment and a return on the investment.

Capitalization: Process of estimating value by discounting stabilized net operating income by an appropriate rate.

Capitalization: Rate a percentage that relates the value of an income-producing property to its future income, expressed as net operating income divided by price.

Capitalization: The process of converting the future net operating income of an income-producing property into a single present vaue, given a capitalization rate.

Carryback financing: When the seller helps to finances the sale of property.

Cash basis: The method of reporting income and expenditures as they are received. A way of deciding the net profit or loss of a business based solely on income received minus expenses paid.

Cash flow model: The framework used to determine the cash flow from operations and the cash proceeds from sale.

Cash flow: Income from an investment after deducting expenses and debt service from gross income and before depreciation and income taxes. Net income minus debt service equals cash flow.

Cash flow: Investment returns generated by one of two methods: current income (rents, dividends, etc.) minus expenses and debt service or cash proceeds received upon the sale of an investment (reversion).

Cash reserve: A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

Cash-on-cash return: Rate of return based on cash returned to the investor on his or her cash investment. The cash-on-cash return is the relationship of the cash returned to the cash invested.

Certificate Of Occupancy (CO): An official document by a governing authority stating that a structure complies with the building code and may be occupied legally.

Certificate of occupancy: Official document issued by a local government body stating that a structure meets local zoning and building codes and is ready for use.

Certificate of title: A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Cession deed: A deed used to transfer rights to a government authority. Developers may use a Cession Deed to transfer control of streets in a subdivision.

Change order: A form used by a builder to specify changes from the approved original plans or blueprints used to construct a building.

Chattel mortgage: A lien on personal property that is not permanently attached; something other than real estate.

Clear title: A title that is free of liens and legal questions as to ownership of the property.

Closing costs: Money paid by borrowers and sellers to close a mortgage loan. This normally includes origination fees, points, title insurance, survey and attorneys' fees, and prepaid items such as insurance and taxes. Also called settlement costs.

Closing costs: The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to price of the property and are items prepaid at or before the closing day. Non-Recurring Closing Costs are items such as appraisal, credit report, processing fees, origination fees, transfer taxes, points, etc., which are paid on a one-time basis. Recurring Closing Costs (also known as pre-paids) include such items as property taxes, hazard insurance and may include pre-paid interest or Private Mortgage Insurance premiums. Total costs and the method by which they are split between the buyer and seller depend upon local custom, jurisdiction and agreements stipulated in the purchase contract.

Closing day: The day on which the formalities of a real estate sale are concluded and at which time title passes from seller to buyer. The final closing merely confirms the original agreement reached in the agreement of sale.

Closing: The meeting during which all the papers are signed (the loan is "closed") and the house keys are turned over to the new homebuyer. Also called settlement.

Cloud (On Title): An outstanding claim or encumbrance which adversely affects the marketability of title.

Codes: Standards for constructing buildings that are established by city, state or municipal governments. In most areas these codes are modeled after national codes establish many minimum requirements for construction buildings. Points covered by the codes are design, quality of construction, use and occupancy of the building on the site, safety and health.

Collateral or security: Property that backs up a loan. If the borrower does not pay back the loan as agreed, the lender can take the collateral. A house is collateral for a mortgage loan. A house gives security to a mortgage loan.

Collateral: Assets that are pledged to secure the discharge of an obligation.

Collateral: Property that serves as security for a loan.

Collection agencies: Private businesses, hired by creditors, that try to get borrowers to make payments that are overdue.

Collusion: Two or more parties agree to perform an illegal act.

Commission: Money paid to a real estate agent or broker by the seller (or infrequently the buyer) as compensation for finding a buyer and completing the sale. Usually it is a percentage of the sale price -- Commonly, 6 to 7 percent on houses, 10 percent on land and mobile homes. The commission rate is negotiable.

Commission: The compensation for the sale of an asset. Leasing Commission is compensation for the lease of an asset.

Commission: The fee a real estate agent is paid for helping to sell a house. Usually it is based on the purchase price of the home.

Commitment letter: A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Common Area Maintenance: Charges paid by the tenant for the upkeep of areas designated for the use (CAM) and benefit of all tenants.

Common areas and elements: Arease of property used or available for use by multiple parties. Common Arease in office building often include stairways, hallways, restrooms, courtyards, etc.

Community Development Block Grant Program (CDBG): Provides eligible metropolitan cities, urban counties (called "entitlement communities"), and state governments for rural areas with annual direct grants that they can use to revitalize neighborhoods, expand affordable housing and economic opportunities, and/or improve community facilities and services, principally to benefit low- and moderate-income persons.

Community home buyer's program: An alternative financing option that allows households of modest means to qualify for mortgages using nontraditional credit histories, 33 percent housing-to-income and 38 percent debt to-income ratios, and the waiver of the usual two payment cash reserve at closing.

Community home improvement mortgage loan: An alternative financing option that allows low- and moderate-income home buyers to obtain 95 percent financing for the purchase and improvement of a home in need of modest repairs.

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

Comparable properties: See Direct Sales Comparison.

Comparables: Properties that are similar or comparable to the subject project.

Completion bonds: Bonds provided by contractors to lenders to guarantee completion of construction in accordance plans and specifications.

Compoinent depreciation: An accounting method used to depreciate components or individual parts of a structure or improvement.

Compounding: A type of calculation in which interest earned is reinvested and earns additional interest.

Condemnation: The process of taking property by utilizing the power of eminent domain.

Condemnation: The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium: A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in common areas of a multi-unit project.

Condominium: Individual ownership of a dwelling unit and an individual interest in the common areas and facilities which serve the multi-unit project.

Consumer credit counseling services: Nonprofit local agencies that provide credit counseling services to people for free or a small fee.

Consumer credit counselor: A counselor who helps people develop and stick to a plan for getting out of debt.

Contiguous: Properties that touch each other.

Contingency:An item in a real estate sales contract stating that the contract is good only in certain cases-for instance, only if the buyer obtains financing at a certain rate or only if the seller replaces the shingles on the roof. The contingencies must be written in the contract.

Contract of purchase or contract of sale: See Agreement of Sale.

Contractor: In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Conventional mortgage: A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes.

Conventional mortgage: Any mortgage that is not insured or guaranteed by the federal government.

Conversion clause: A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. The conversion feature may be available at extra cost.

Conversion provision: A feature of an adjustable-rate mortgage loan that allows the borrow-er to change to a fixed-rate loan, with an interest rate and monthly payment that stay the same.

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

Cooperative housing: An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cooperative: A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property.

Co-signer: A person who signs loan documents, such as a mortgage note with another person. The co-signer is responsible for making payments, if the borrower does not.

Cost approach: A way to determine the market value of a property by evaluating the costs of creating a property exactly like the subject.

Cotenancy: A form of co-ownership of property. Examples include: tenancy in common, tenancy-by-the-entirety, joint tenancy.

Counter-offer: If a seller does not like a buyer's offer, the seller can reject the offer or make a counter-offer.

Covenant: A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

Covenant: A promise written into a deed or contract to perform or not perform certain acts.

Credit bureau: Also called credit reporting agency. A company that keeps track of people's debts and how they repay them. The three main credit bureaus are TRW, Equifax, and Trans Union.

Credit history: The record of a person's payment of debt, over years' time. That record is kept by three national credit bureaus, which send it to businesses, lenders, and creditors-as well as to the credit-holder upon request.

Credit rating: A credit bureau's ranking of the way a person has repaid her debts. A lender uses a loan applicant's credit rating to decide whether or not to make the loan.

Credit report: A report of an individual's credit history prepared by a credit bureau and used by a lender in determining an applicant's creditworthiness.

Credit union: A financial institution that is a cooperative, or co-op. It offers savings and checking accounts and other financial services for members.

Creditor: Any person or company that lends money (extends credit).

Creditworthy: A person with good credit, whom a lender judges will repay a loan, is credit worthy.

Cross-default clause: A provision in a junior mortgage making the mortgagor in default on all mortgages if a default occurs on just one mortgage. The cross-default clause allows a lender to foreclose if the borrower is in default on just one mortgage.

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D

Daily interest: The amount of interest the borrower pays the lender calculated on a daily basis. It equals the annual interest rate divided by 360 or 365 and multiplied by the amount of the loan. Also called per diem interest.

De facto: Latin for in fact.

Debenture: A broad term for any unsecured, long-term debt instrument. Corporations use debenture bonds to raise capital. Municipal bonds are debenture bonds.

Debt Coverage Ratio (DCR): Ratio of net operating income(NOI) to annual debt service (ADS). DCR = NOI / ADS.

Debt management plan: A bill payment plan for a borrower in a credit emergency. The plan is agreed to by the borrower and creditors.

Debt service coverage: Amount of money left over after other expenses such as taxes, insurance, maintenance and utilities, including an assumption of a reasonable vacancy factor, which can be utilized to service mortgage debt. Lenders usually require that the resulting earnings be a certain percentage above the proposed mortgage payments. (Applicable to Apartments and Commercial Properties.)

Debt service: Mortgage Payment.

Debt-to-income ratio: Percentages lenders use to decide whether a loan applicant can afford to make payments on a certain mortgage loan. Lenders may allow first-time home-buyers to use 33% of monthly income for housing costs, and a total of 38% for housing costs and all other debt.

Declaration of trust: An instrument that identifies property held by a master for another individual.

Decree: An order or judgment of a court.

Deduct: To subtract an amount from income that is being taxed. Homeowners can deduct interest they pay on their mortgage loans; points they pay at settlement; home improve-ments; and related items.

Deed of trust: A document used in some localities in place of a mortgage agreement. The deed of trust places the title to the subject property into trust for the lender during the term of the loan.

Deed of trust: Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower (or trustor), the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. (California is a Trust Deed State)

Deed restrictions: Restrictions or limitations to the use of property as noted in a deed.

Deed: A formal written instrument by which title to real property is transferred from one owner to another. The deed must contain an accurate description of the property being conveyed, be signed and witnessed according to the laws of the State where the property is located, and be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust, general warranty deed, quitclaim deed, and special warranty deed.)

Deed: An instrument used to transfer ownership of property.

Deed: The legal document conveying title to a property.

Default: Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.

Default: Failure to perform a legal obligation.

Default: The failure of a borrower to make payments on a loan or in some other way fail to fulfill the terms of a note, mortgage, or loan agreement.

Defective title: Title that is not clear.

Defendant: Party who is defending or denying in a legal action.

Deferred interest: Interest due but unpaid. Mortgages that permit negative amortization (GPMs, and ARMs without a rate cap) will allow deferred interest.

Deferred maintenance: Depreciation caused by failure to maintain properly; sometimes called curable physical depreciation.

Deficiency: In the event of a foreclosure, there is a deficiency when the highest bid in a foreclosure sale is less than the outstanding balance plus foreclosure-related costs.

Delinquency: A loan in which a payment is overdue but not yet in default.

Demand note: A debt instrument that allows the lender to call the balance due at any time without prior notice.

Demographics: Statistical information regarding population growth and trends.

Density: A measure of the number of dwelling units per component size of land, such as an acre.

Deposit: Cash paid to the seller when a formal sales contract is signed.

Depreciation: A decline in the value of property; the opposite of "appreciation."

Depreciation: Decline in value of a property due to wear and tear, adverse changes in the neighborhood, or any other reason.

Depreciation: The loss of utility and value of a property over time.

Direct deposit: A method of having an organization that issues you checks-such as your employer-send the checks straight into your bank account.

Direct sales comparison: Property value estimation using the sales prices of similar properties (comparables) and making value adjustments according to such things as square footage, room count, lot size, condition and amenities in order to obtain a realistic fair market value of the property being appraised.

Discount points: Charges made by a lender to adjust the effective interest rate (yield) on loans. One point is equal to 1% of the loan amount. On a $100,000 loans, one point would be equal to $1,000. In practice, on most 30 year fixed rate loans, the payment of an additional discount point can lower the actual note rate by approximately 1/4%.

Discount points: See Points.

Discounting: The process of reducing the value of money received in the future to reflect the opportunity cost of waiting to receive the money.

Discretionary spending: Spending you choose to do, that you do not have to do to live.

Down payment: The difference between the sales price and actual mortgage amount which the buyer must put down in cash or cash equivalents.

Down payment: Usually 5% to 20% of the amount of a loan, money the borrower has to pay "up front."

Due-on-sale clause: A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

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E

Earnest money (Good Faith Deposit): The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money may be forfeited or lost unless the offer to purchase expressly provides that it is refundable. Most purchase contracts require that certain contingencies (such as the availability of financing and acceptance of property condition) be removed prior to the deposit being forfeited

Earnest money: Money a person puts down to show that he/she is serious about buying a certain house. Also called good-faith deposit.

Earnest money: Money given by a purchaser to show intent to perform the terms of the contract.

Easement appurtenant: An easement that burdens one parcel of land (the servient estate) for the benefit of another parcel ( the dominant estate).

Easement by necessity: An easement that is created by operation of law when a grantor conveys a portion of a larger parcel of land and in doing so landlocks either the portion that is transferred or the part that is retained.

Easement rights: A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Easement: A legal interest that one person has in land belonging to of in possession of another person entitling the owner of the easement to use the other person's land.

Easement: A right of way giving persons other than the owner limited access to or over a property.

Economic life: Length of time that improvements (buildings) will produce a competitive return or will be properly habitable. Land usually has an infinite economic life.

Economic life: The period of time over which the property is estimated to be profitable utilized.

Economic obsolence: oss in property value caused by conditions external to the property.

Economic rent: The rent that a property could generate if it were available today; market rent.

Effective age: The apparent age of a property based on its appearance; may be more than, the same as, or less than the actual or chronological age.

Egress: A means of exit from a parcel of land.

Eminent domain: Right of a government agency to take private property for a public purpose. Fair compensation must be paid to the owner whose property is taken.

Encroachment: An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance: A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive convenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Encumbrance: Anything that imposes a legal burden on title to land such as liens for security purposes, easements, and restrictive covenants.

EOY: End of Year.

Equal credit opportunity act: A federal law that says creditors cannot discriminate against borrowers because of race, color, religion, national origin, sex, marital status, age, and receipt of public assistance.

Equity financing: Use of buyer's or owner's funds to finance property.

Equity loan: A loan based on the borrower's equity in his or her home.

Equity participation mortgage: A mortgage whereby the lender obtains an equity in the pledged property in addition to the interest.

Equity: Equity is the difference between the house's market value and the amount the homeowner owes on the mortgage loan. A home equity loan uses a house's equity as collateral.

Equity: The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting borrowed funds and other liens from the property's fair market value. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.

Equity: The value of a property owner's interest above the amount of the outstanding mortgage debt.

Erosion: The loss of land by wearing action of water or wind.

Escalator clause: A contract clause that provides for an upward or downward adjustment in interest, rent, or other factors to cover specified contingencies.

Escrow agent (escrowee): A person or corporation employed by parties to a real estate transaction to receive documents and money and deliver them in accordance with their instructions.

Escrow agreement (escrow instructions): A contract between the parties to a real estate transaction to effect a settlement of the transaction in escrow.

Escrow: Funds held in a separate bank account for a specific purpose. Lenders often hold a borrower's money in escrow and then pay the borrower's property taxes and insurance when they come due.

Escrow: Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. - - In Real Estate sales transactions, the escrow agent is delivered the Deed by the seller and the down payment funds and access to mortgage funds by the buyer. Release to the opposite parties by the escrow agent is dependent upon performance of certain conditions, usually that the title to the property is made clear to the buyer. - - In mortgage transactions, an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly anticipated expenditures for such items as mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments. (Also called impound accounts.)

Estate sale: A sale held to sell the property of someone who has died. Sometimes houses are sold at estate sales.

Estopped certificate: Document in which the borrower verifies the remaining balance and interest rate of a loan.

Estoppel: A doctrine of law that prevents a person from asserting rights inconsistent with his prior words or conduct.

Eviction: The physical dispossession by a landlord of a tenant from leased premises.

Exchange: When ownership of like-kind properties are transferred between two or more owners; can result in postponement of part or all of the tax for one or more of the parties to the exchange.

Exclusive agency listing: A listing agreement between a seller and a broker in which either has a right to sell the property; if sold by the broker a commission will be due

Exclusive listing: Agreement between the seller of property and a Real Estate broker in which the seller agrees to pay a commission to the broker if the seller's property is sold by anyone other than the seller.

Exclusive right to sell: A listing agreement between a seller and a broker whereby the broker receives a commission, regardless of who sells the property.

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F

Fair credit billing act: A federal law that gives a borrower the right to question credit card bills from companies other than banks. The law lays out a process for a borrower to follow if a credit-card bill is wrong, or appears to be wrong.

Fair credit reporting act: A federal law that protects a borrower's right to know what is in her or his credit report and the right to correct errors. The law lays out a process for disputing a credit report.

Fair debt collection practices act: A federal law that protects consumers from abuse or threats from collection agencies trying to get overdue payments.

Fair housing act: A federal law that states what housing and real estate practices are discriminatory. The law also states in what ways those practices are to be avoided.

Fair market value: The amount an appraiser decides a house is worth. The appraiser compares the house with houses like it that have sold recently in the same area. The physical condition of the house also affects its fair market value.

Feasibility analysis: Study of the cash flow, profitability potential and overall desirability of a project.

Federal Deposit Insurance Corporation: The FDIC insures deposits at the nation's more than 10,000 banks and savings associations. It promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed.

Federal Home Loan Bank System: Through its 12 District Banks, the FHLB makes advances to over 7,000 member financial institutions, which in turn lend the funds for home mortgages and community development. Also see AHP.

Federal Housing Finance Board (FHFB): The FHFB regulates the Federal Home Loan Bank System.

Federal Reserve System: The System's duties fall into four general areas: conducting the nation's monetary policy; supervising and regulating banking institutions; maintaining the stability of the financial system; and providing certain financial services to the U.S. government, the public, financial institutions, and foreign official institutions.

Fee simple absolute: Entire bundle of rights to use and control real property.

Fee simple: In this type of home ownership the house and the land it sits on are owned by one person (or family).

FHA (Federal Housing Administration): A division of the U.S. Department of Housing and Urban Development that insures mortgage loans.

FHA loan: A mortgage that is insured by the Federal Housing Administration.

FHLMC (Federal Home Loan Mortgage Corporation): Referred to as "Freddie Mac" and supervised by the Federal Home Loan Bank Board. FHLMC creates a secondary market for conventional mortgage loans.

Finance: To supply money for a purchase. A lender can finance home ownership with a mortgage loan.

Financial leverage: The use of borrowed funds to acquire an investment.

Financial risk: The possible change in an investment's ability to return principal and income.

Financing: Money that a financial company lends to a buyer for making a pur-chase, such as home financing.

First mortgage: The mortgage that has first claim in the event of default.

Fixed expenses or fixed payments: Expenses or payments that usually stay the same from month to month, such as rent, a car loan, a student loan, insurance, child support.

Fixed expenses: Costs that do not change with a building's occupancy rate. They include property taxes, insurance, and some forms of building maintenance.

Fixed Lease: A lease in which the lessee pays a fixed amount for the durration of the lease. May also be referred to as a Gross Lease.

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

Fixture: Anything that originally was personal property but which has been attached to real property in such a manner to be regarded by law as part of the real property

Flood insurance: Insurance required for properties in federally designated flood areas.

FNMA (Federal National Mortgage Association): Referred to "Fannie Mae", FNMA is a privately owned, government sponsored agency that buys and sells FHA-insured, VA-guaranteed and conventional mortgage loans.

Forbearance: The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

Foreclose: The process of the lender taking a property when the borrower has defaulted on the loan. The lender then sells the property to recoup its loss on the unpaid loan.

Foreclosure: A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property, and depriving the mortgagor of possession.

Front foot: A measure of property by which the distance is measured along the street, highway, stream, or other body of water.

Fully amortized mortgage: A method of loan amortization in which equal periodic payments completely loan repay the loan.

Functional obsolescence: Decline in value of property caused by changes in technology or by defects in design, layout, or size of building; loss of a building's ability to perform its function.

Functional obsolescence: Outdated design, fixtures, and other factors within the structure itself that deract from a building's value.

Future value: The amount to which money grows over a designated period of time at a specified rate of interest.

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G

General partnership: Form of co-ownership wherein all partners have a voice in the management of a business and unlimited liability for its debts.

General warranty deed: A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Good faith deposit: See Earnest Money.

Good faith estimate: A lender is required to give this estimate of a borrower's closing costs to the borrower within three business days of the loan application.

Gound Lease: A lease of the land only. Usually the land is leased for a relatively long period of time to a tenant that constructs a building on the property. Gross Area The entire floor area of a building.

Grade: The level of the ground at the structure foundation.

Graduated lease: A lease providing for a variable rate of rent depending upon some future event.

Graduated payment: A mortgage loan with monthly payments that start at a lower amount and then increase slowly over the next several years. The monthly payments then stay the same at the higher amount.

Grantee: That party in the deed who is the buyer or recipient.

Grantor: That party in the deed who is the seller or giver.

Gross income: Income from a property before expenses are deducted.

Gross income: The total amount of money that a person receives, before taxes and other deductions. This income may include funds from a job or jobs; interest or dividends; alimo-ny; disability payments; or public assistance.

Gross lease: A lease agreement whereby the property owner pays taxes, insurance, repairs, and other costs.

Gross Lease: A lease in which the lessee pays a fixed rental amount for the durration of the lease and the lessor pays the expenses associated with owning the property such as taxes and insurance.

Gross operating income: The total amount of cash generated by the operations of a property. Hedging Protecting oneself against negative outcomes.

Ground lease: An agreement for rental of land only.

Ground rent: The portion of property income attributed to the ground value itself; in a few states a person can own a structure and rent the ground.

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H

Hazard insurance: Insurance that compensates for a loss on a specific property due to damages caused by fire, vandalism, theft, storm damage and certain other natural disasters.

Hazard insurance: Protects against damages caused to property by fire, windstorms, and other common hazards.

Highest and best use: The use of a property that will yield the greatest return on the property.

Home inspector: A licensed professional who looks at all parts of a house and evaluates its condition.

HOME: Funds from the Department of Housing and Urban Development to local governments and states for new construction, rehabilitation, acquisition of standard housing, assistance to homebuyers, and tenant-based rental assistance.

Homeowner's insurance: An insurance policy that combines liability coverage and hazard insurance.

Homeowner's warranty: A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Homestead: Primary residence as declared by the head of a household and filed with the county clerk in order to exempt the homestead from claims of creditors.

Housing expense ratio: The percentage of a person's gross monthly income that it takes to pay a mortgage loan payment plus interest, property taxes, and insurance. Lenders use this ratio to decide whether or not to make mortgage loans.

HUD: U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

HVAC: Heating, Ventilation, and Air Conditioning.

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I

Impound account: See Escrow.

Improvement: Anything done to a house that increases its value, such as adding a sun porch or modernizing the kitchen.

Improvement: Structure on real property.

Income approach: A valuation method that capitalizes or converts the current benefits of the property into an estimated value.

Income capitalization: A way to determine the market value of an income-producing property by approach converting its future income stream into a single capital value.

Index Lease: A lease in which the rental amount adjusts according to changes in a price index, commonly the consumer price index.

Index: The index is the measure of interest rate changes that the lender uses to decide how much the interest rate on an ARM will change over time. No one can be sure when an index rate will go up or down. Common indexes currently used in include Treasury Securities (especially one-year T-Bills), Cost of Funds indexes of member saving & loans and banks (such as the 11th District Cost Of Funds Index), LIBOR (London Interbank Offered rate), Prime Rate and Certificates of Deposit.

Industrial revenue bond: Bonds issued to raise funds for developing commercial buildings for lease or industrial parks.

Ingress: A means of entry to a property.

Inspection: When a house is remodeled or rehabbed it must be inspected by an inspector from the local government to be sure all work is done properly.

Installment debt: Debts or accounts that are paid off in monthly payments, or install-ments, such as credit-card accounts.

Installment sale contract (land contract, installment contract, and contract for deed): A contract in which a seller of real estate promises to deliver a deed to the buyer at some time in the future after the buyer has, in an agreed upon number of payments of principal and interest, paid the purchase price in full.

Insurable interest: A person's interest in property such that an occurrence of a peril would cause financial loss to that person.

Insurable value: The value of the portions of the property that are physically destructible.

Interest escalation clause: Provides for variable rate of interest according to a standard index.

Interest rate cap: A provision of an ARM limiting how much interest rates may increase per adjustment period. See also Lifetime cap.

Interest rate: The lender's rate of return on borrowed fund.

Interest: A charge paid for borrowing money. The interest rate is the actual percentage of that charge.

Interest: A charge that a borrower pays to a lender to borrow money. Usually it is a percentage of the amount of the loan.

Interest-only loan: A method of loan amortization in which interest is paid periodicaly over the term of the loan and the entire original loan amount is paid at maturity.

Internal Rate of Return (IRR): The percentage rate earned on each dollar that remains in an investment each year. The IRR of an investment is the discount rate at which the sum of the present value of future cash flows equals the initial capital investment.

Intestate: Without a last will and testament.

Investment value: The value to a specific investor, based on that investor's requirements, tax rate, financing, etc.

Investment: An item, such as a house, on which money is spent in the hope of getting money or other benefits back in return.

Involuntary lien: A lien such as taxes or mechanic's lien imposed without consent of the property owner.

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J

Joint tenancy: A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Joint tenancy: Form of taking title to a property in which two or more owners hold equal shares, acquire the shares concurrently, and have equal rights of possession. The rights of one owner passes to the other owner(s) upon the one's death. (Right of Survivorship)

Joint venture: An equity participation in which a lender puts up funds and others, such as developers , contribute expertise. Other examples include the participation of non-profits agencies with for-profit agencies where one provides the debt and the other the equity.

Joists: Wood beams in a house to which the floor is nailed and the ceiling lath of the floor below is nailed.

Judgment: A decision given by a judge or court that says a person has to pay another person a certain amount of money.

Junior mortgage: Any mortgage on a property that is subordinate to a senior mortgage in priority.

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K

Kicker: A benefit to the lender beyond ordinary interest, such as the increased appreciation of the property.

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L

Land Contract (also known as Land Sales Contract or Installment Sales Contract): Method of conveying title to a real property in which title does pass to the buyer until the contract for Deed is fulfilled. The contract for deed usually requires that the purchase price is paid in installments. (Cal-Vet loans are the most common occurrence of this in California)

Landlocked: Surrounded by adjacent land with no means of access.

Late charge: The penalty a borrower must pay when a payment is made after the due date.

Latent defect: Concealed defect not easily determined from an inspection of the property.

Lease: A contract between landlords and tenants for a possession of space for a specified amount of rent. Leases are used for all types of properties.

Lease: A contract between the property owner and another person to use of occupy the land for a set period of time.

Leased fee: The landlord's interest.

Leasehold: A possessory legal interest in real property acquired by a tenant (lessee) when she enters into a rental agreement with the owner of the property (landlord or lessor).

Lease-purchase mortgage loan: An alternative financing option that allows low- and moderate-income home buyers to lease a home from a nonprofit organization with an option to buy, and with each month's rent payments consisting of PITI payments on the first mortgage, plus an extra amount that is earmarked for a savings account in which money for a down payment accumulates.

Lessee: The person renting or leasing a property. Also referred to as a tenant.

Lessee: The tenant in a lease agreement.

Lessor: A person who rents or leases a property to another. Also referred to as a Landlord.

Lessor: The landlord in a lease agreement.

Leverage: The use of borrowed funds to finance a portion of the cost of an investment.

Leverage: The use of borrowed funds to increase the effective rate of return on an investment.

Liability insurance: Insurance a contractor buys to protect herself and the person who hires her in case someone is hurt or damage is caused during the work she performs on a house.

Lien: A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor. (See also special lien.)

Lien: A legal claim on a property that must be paid before a property can be sold.

Lien: An encumbrance in which the land serves as security for the payment of debt or discharge of an obligation.

Lifetime cap: A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Liquid assets: Cash or other assets that can be quickly converted to cash with little or no sacrifice in value.

Liquidated damages: A specified sum of money agreed upon by contracting parties that will be received by the other or others if one of the parties commits a breach of the contract.

Listing agent: A real estate agent who lists a house for sale. The listing agent represents the seller of the house.

Listings: A computerized pool of information, shared by real estate agents, that list houses for sale. Also called Multiple Listing Service or MLS.

Loan balance: The amount of money remaining to be paid on an amortizing loan at a given time.

Loan commitment: See Commitment letter.

Loan or mortgage value: That portion of the value of real property recognized by the lender when used to secure a loan.

Loan origination: The process whereby a lender initiates a loan with a borrower.

Loan point: A charge prepaid by the borrower upon the origination of a loan. One point equals one percent of the loan amount.

Loan servicing: Collecting loan payments, keeping records, following up on delinquencies, and taking foreclosure actions relating to a mortgage loan.

Loan servicing: The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan To Value Ratio (LTV): The loan balance on a house compared to the appraised value of a house. In making a mortgage loan, a lender uses the LTV to show that a house is worth more than the loan amount. This is important because, if the homeowner does not make pay-ments on the mortgage loan, the bank gets the house in return, as payment.

Loan-To-Value Ratio (L/V): The amount of money borrowed in relation to the total market value of a property. LTV = loan amount divided by the property value.

Loan-to-Value Ratio: Amount of money that a lender will loan upon a property divided by the property value.

Loan-to-value ratio: The ratio of amount borrowed to the property market value, usually expressed as a percentage.

Lock-in: A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

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M

Managing risk: The steps taken by an investor or manager to control or reduce investment risk.

Margin (also known as Spread): The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Margin: The set percentage the lender adds to the index rate to determine the interest rate of an ARM.

Market approach: The process of comparing the subject property to equivalent properties sold recently to arrive at an estimate of value for a property being appraised.

Market interest rate: Interest rate currently demanded by lenders and investors.

Market rent: The current rent that real estate would bring if available for rent.

Market value: Price that a property should bring in a competitive market when there is sufficient marketing time, no coercion, typical financing availability, arms-length negotiation and knowledgeable buyers and sellers.

Market value: The most probable price that a property would bring in a competitive and open market under "fair sale" conditions. Market value also refers to an estimate of this price.

Market value: The price that property would be expected to bring in the open market under normal conditions.

Marketable title: A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Maturity: The date a note or mortgage must be paid in full.

Maturity: The date when an agreement or obligation runs out.

Meander line: The approximate border of a natural body of water.

Meandered: Area such as a lake on which taxes are not paid.

Mechanic's lien: A lien that can be filed by mechanics or material suppliers; it is against real property created by statute for the purpose of securing payments for services performed or materials furnished in the construction or repair of buildings or making other improvements to land.

Mechanic's lien: Right to have a property sold by those who perform labor or services or furnished material for the improvement of the subject property.

Meridian: Map lines running north and south to locate land under the governmental survey system.

Metes and bounds: A method of legal description using measurements, boundaries, and directions.

Modernization: Replacement of outmoded fixtures, equipment, and other improvements with modern features.

Monthly housing costs: The total of a homeowner's mortgage loan pay-ment and expenses for utilities, general home repair, and upkeep.

Moratium: A period of time when a lender may waive interest and/or principal payment on a loan.

Mortgage agreement: A document signed by a borrower and a lender giving the lender the right to take the borrower's house if the borrower does not repay the loan.

Mortgage banker: A company that originates mortgages exclusively for resale in the secondary market.

Mortgage broker: A company that for a fee matches borrowers with lenders.

Mortgage commitment: A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage insurance premium (MIP): The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

Mortgage insurance premium: See Private mortgage insurance.

Mortgage insurance: See Private mortgage insurance.

Mortgage note (also none as Promissory Note or Note): A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgage note: A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.

Mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

Mortgage: A lien or claim against real property given by the borrower to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement.

Mortgagor: The party who borrows money with property as security.

Multiple listing: Sharing of property sales listings by a number of real estate brokers with an agreement as to how the costs and commissions are to be split.

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N

Navigable water: A waterway capable of passage by watercraft; navigable if so designated buy a U.S. or state map.

Negative amortization: Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Negative amortization: Mortgage where the loan balance increases owing to payments less than interest due.

Negative amortization: Payment terms under which the borrower's monthly payments do not cover the interest due; as a result, the loan balance increases.

Negative leverage: Situation where the cost of funds exceeds the rate of return on the real estate.

Net lease: A lease agreement in which the tenant pays rent plus all taxes, insurance, repairs and other costs.

Net Operating Income (NOI): The potential rental income plus other income, less vacancy, credit losses, and operating expenses.

Net Operating Income (NOI): The property gross earnings less the operating expenses, but before interest and depreciation expenses are deducted.

Net Present Value (NPV): The sum of the present values of all future cash flows netted against the initial investment, discounted at a given rate.

Net-Net-Net Lease (NNN): See tripple net lease.

Nominal interest rate: The interest rate stipulated in an agreement.

Nonconforming use: A use of land that lawfully existed before a zoning ordinance that is legally continued after the effective date of the ordinance, even though the use no longer conforms to the new zoning regulations.

Non-recurring closing costs: See Closing costs.

Nontraditional credit history: A record of credit performance shown with receipts and bill and check stubs from payments to landlords, utility companies, child-care providers, and others. A method for loan applicants who do not have a credit history from, for example, car-loan or credit card payments.

Note: A document on which a borrower promises to repay a loan. Also called promissory note.

Note: See Mortgage note.

Note: The economic life of a building decides the recapture rate. If a building has an economic life of 50 years, then the recapture rate is 2% per year. Yields available to investors decide the rate of return. If a life insurance company is lending commercial loans at a 9% interest rate, the rate of return is 9% interest. You decide the cap rate by combining the recapture rate and the rate of return. You use the cap rate in the income approach to valuation. A cap rate is essentially a discount rate used to find the present value of a series of future cash flows. If a building produces $50,000 in net income and the cap rate is 11%, the value is $454,545.

Notice of default: A formal written notice to a borrower that a default has occurred and that legal action may be taken.

Nuisance: The wrongful interference by one person with the use and enjoyment of real estate owned by another.

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O

Offer: A purchase proposal to the seller of a house, telling the amount a certain buyer would pay for the house and other conditions that would have to be met before the proposed house sale.

Office of the Comptroller of the Currency: Charters, regulates and supervises national banks to ensure a safe, sound and competitive banking system that supports the citizens, communities and economy of the U.S.

Office of Thrift Supervision: OTS regulates and supervises the nation's thrift industry. OTS' mission is to ensure the safety and soundness of thrift institutions and to support their role as home mortgage lenders and providers of other community credit and financial services.

Open-end mortgage: A mortgage agreement that slows the mortgagor to borrow additional funds in the future without rewriting the mortgage.

Open-end mortgage: A mortgage that provides for the borrowing of additional funds.

Operating expenses: Such as real estate taxes, insurance premiums, etc.

Operating expenses: Cash outlays necessary to operate and maintain a property.

Operating ratio: Ratio of operating expenses to effective gross income.

Opportunity cost: The "cost" of selecting one alternative is the benefit foregone from the next best alternative.

Option: A Contract given by the owner of a property to another person, giving the latter a right to buy or lease the property at a certain price within a specified period of time.

Optionee: A person who holds an option.

Optionor: An owner how gives an option to another person.

Origination fee: A fee for processing a mortgage application.

Origination fee: A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, or points.

Origination: The process that a lender goes through to get complete and correct informa-tion about a loan applicant's income and credit.

Overhang: The portion of a roof extending beyond the walls.

Owner financing: A purchase in which the seller provides all or part of the financing.

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P

Package mortgage: A mortgage that includes personal property as part of the security.

Partially amortized: The payments do not repay the loan over its term and thus a lump sum mortgage loan (balloon) is required to repay the loan.

Participation mortgage: A loan in which two or more lenders participate.

Partnership: An association of two or more persons to carry on a business for profit as co-owners.

Party wall: A wall erected on the line between two adjacent properties for the use of both parties.

Payment cap: A provision of some ARMs limiting how much a borrower's payments may increase regardless of how much the interest rate increases; may result in negative amortization.

Percentage lease: A lease in which the rent amount is based on a percentage of gross sales (monthly or annually) made by the tenant.

Percentage lease: A lease whereby the fee paid is a percentage of the income from business done on the premises.

Percentage rent: The additional rent (over a base amount) paid by tenants to owners based on tenant sales over a specified dollar amount.

Personal property: Same as chattel. Tangible and intangible things capable of being owned that are not real property.

Physical depreciation: Physical deterioration and concurrent loss in property value caused by wear, tear, and decay.

PITI: Payments covering principal, interest, taxes, and insurance.

PITI: Stands for principal, interest, taxes, and insurance - the components of a monthly mortgage payment.

Planned Unit Development (PUD): A Land Development project involving a mixture of land uses and densities not available for separately zoned units. Similar to condominiums, it is viewed as an integrated whole. Unlike condominiums, however, the individual unit owners do own a portion of the land under and around their individual unit.

Planned unit development: A housing development in which common areas, such as parks or building lobbies, are owned and kept up by a residents' association, while individuals own their own housing units.

Plat: A map showing how a property is subdivided into lots.

Plat: A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Plot plan: A drawing showing the placement of a building on a site with precise locations, dimensions, and elevations.

Plottage: The increase in value of land by assembling smaller properties into one larger site.

Point of beginning: The starting point in a metes and bounds legal description.

Point or points: A one-time charge the lender adds to a mortgage loan. A point is 1% of the mortgage loan amount.

Point: A charge of 1 percent of the loan amount made at origination of mortgage.

Points: See Discount Points.

Positive leverage: Borrowed funds are invested at a rate of return higher than the cost of the funds to the borrower.

Potential rental income: The total amount of rental income for a property if it were 100% occupied and rented at competitive market rates.

Prefabricated home: Home built or partially assembled prior to delivery to the building site.

Premium: Amount above the face value of a loan.

Prepayment penalty: A fee charged to a borrower who pays off a loan before it is due.

Prepayment priviledge: The right of a borrower to pay a mortgage ahead of the scheduled due date.

Prepayment: Payment of a mortgage loan, or part of it, before the due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. .The practice of charging money for an early payoff of the existing mortgage loan varies by state, type of lender, and type of loan. Prepayment penalties are forbidden on various loans including loans from federally chartered credit unions, FHA and VA loans, and some other home-purchase loans.

Prequalification: The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

Present value: The current value of future benefits or the discounted value of future payments.

Present value: The sum of all future benefits accruing to the owner of an asset when such benefits are discounted to the present by an appropriate discount rate.

Price: The dollar amount that was offered, asked, or actually paid for a property.

Prime rates: The interest rate charged by lenders to their best rated customers.

Principal: In finance, the basic element of the loan as distinguished from interest and possible mortgage insurance premiums. In other words, principal is the amount upon which interest is paid. - - In brokerage, the person giving authority to an agent to act on his behalf.

Principal: The outstanding balance of a loan, not counting interest or any other charges.

Principal: The portion of a loan payment used toward reducing the original loan amount.

Private mortgage insurance: Insurance that protects a lender from loss caused by the default of the borrower. Usually covers only a portion of the loan amount.

Probate sale: A sale held to sell property, including houses, of a person who has died.

Promissory note: A written promise of a person (maker) to pay a specified sum of money to another person (payee) in accordance with terms and conditions agreed upon by the parties.

Promissory Note: See Mortgage Note.

Property inspection: The examination of a house by a licensed inspector to see if its structure is sound and if its mechanical systems, such as plumbing and heating, are working.

Proration: A division of taxes, interest, and insurance so that the seller and the buyer pay the portion covering his period of ownership.

Proration: Allocation of costs and income between the buyer and seller of real estate at the time of the transaction closing, based upon the time of ownership of each.

Purchase Agreement: See Agreement of Sale.

Purchase and sale agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Purchase money mortgage: A mortgage taken by the seller as pat of the purchase price.

Pyramiding: A process of acquiring additional properties by refinancing existing properties.

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Q

Qualifying ratios: Guidelines applied by lenders to determine how large a loan to grant a homebuyer.

Quiet enjoyment: Right of property owner to use his property without adverse claims of another to title or interest.

Quitclaim deed: A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. (see Deed.)

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R

Radon: A radioactive gas found in some homes that in sufficient concentrations can cause health problems.

Rafter: A board that supports the roof of a house.

Rate lock: See Lock-in.

Raw land: Land with no improvements.

Real Estate Agent: A person licensed to negotiate and transact the sale of real estate on behalf of the owner.

Real Estate Broker: A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Real Estate Investment Trust (REIT): Passive investment vehicle whose distributions are taxed only to the investors who receive them.

Real estate settlement procedures act: A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Real estate: Land including the buildings or other improvements upon the land. Also includes the airspace above the parcel and the contents below the surface.

Real property: Real estate.

Recasting: Changing terms of a loan while retaining the same loan.

Recording: Filing a document with the appropriate public official in order to provide constructive notice.

Recurring closing costs: See Closing Costs.

References: Names and phone numbers of previous customers of a contractor. It's a good idea to call a contractor's references before hiring him, to make sure he has done good work in the past.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

Refinancing: The process of the same mortgagor paying off one loan with the proceeds from another loan.

Rehab: Short for "rehabilitation." To rebuild an existing house or building, to make the space more livable or usable and more valuable.

Remodeling: To rebuild and improve a house or building, often changing its "model" or layout or adding rooms.

Renegotiable Rate Mortgages (RRM): A mortgage where the interest rate is renegotiated at intervals, usually every three to five years.

Rent with option to buy: See Lease-Purchase Mortgage Loan.

Rent: Consideration paid for the use of property.

Rentable area: The actual square foot area for which the tenant will pay rent. Compare with gross area and usable area.

Repossess: To take back a property, such as a car, when the borrower or owner does not make payments due on the property. Done by a lender or seller.

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

Reverse Annuity Mortgage: Loan to a homeowner which is paid as an annuity with interest increasing on the accumulated balance. The loan is paid back in full upon the sale or refinancing of the property.

Right-of-way: The right to cross over or under another person's property for ingress, egress, utility lines, or sewers.

Riparian rights: Rights of an owner of property abutting water to use the water and have uninterrupted flow.

Rollover mortgage: A loan having a call date earlier than the full amortization period.

Run with the land: When easements or restrictions do not expire when ownership in transferred.

Rural Development (RD): Formerly the Farmers Home Administration, RD is part of the U. S. Department of Agriculture. It administers grant and loan programs to promote and support housing and essential community facilities development in rural communities.

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S

Sale cost: The brokerage commissions and fees, and any additional transaction costs that are incurred during the sale of the property.

Sale price: The total amount paid to the seller at time of sale.

Sale proceeds after tax: The sale proceeds before tax minus the tax liability on the sale.

Sale proceeds before tax: The sale price minus the sale costs and the mortgage loan balance.

Sales agreement: See Agreement of sale.

Sales comparison approach: A way to determine market value by comparing a subject property to properties with the same or similar characteristics.

Sales comparison approach: See Direct comparison approach.

Second mortgage: A mortgage that has rights that are subordinate to the rights of the first mortgage holder.

Secondary financing: See Junior mortgages.

Secondary mortgage market: The buying and selling of existing mortgages.

Section 8 program: Program of rent supplements developed by HUD and allocated to local governments.

Section: A unit of land measure. One mile square containing 640 acres.

Security: See collateral.

Seller take-back: An agreement in which the owner of a property provides financing, often in combination with an assumed mortgage.

Semi-detached house: A house that is attached to another property, such as a duplex or townhouse.

Senior mortgage: A mortgage, usually a first mortgage, having priority over another.

Septic tank: An underground tank used for sewage treatment where city sewerage is not available.

Setback: A distance from the curb to the building. Often a minimum setback is specified by ordinance or code..

Setback: See Building line or setback.

Settlement attorney: A lawyer who organizes the closing on a house sale, by preparing necessary papers, paying fees, and conducting the settlement meeting between seller and buyer.

Settlement costs: See closing costs.

Settlement sheet: The computation of costs payable at closing which determines the seller's net proceeds and the buyer's net payment.

Settlement: See Closing.

Shared Appreciation Mortgage (SAM): A mortgage loan agreement in which the lender shares in the appreciation of the real property.

Simple interest: Interest charged only on the outstanding principal.

Site: A plot of ground upon which anything is, has been, or will be located.

Site: Parcel of land developed to the point that it is ready for construction of a building or other improvements.

Situs: Location.

Special Assessments: A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, street lights, etc.

Special lien: A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. (See lien.)

Special warranty deed: A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

Specifications: A detailed description of the size, shape, materials, and other details of a building or remodeling project.

Spot zoning: Zoning that sets aside certain areas for purposes different from the general area requirements.

Step up lease: A lease in which the rental amount paid by the lessee increases by a preset rate at predetermined intervals.

Stud: Vertical timber in a wall.

Subcontractor: A contractor that a contractor hires. If you hire a contractor to remodel your kitchen, for instance, he might hire a plumber as a subcontractor to add new pipes for a dishwasher.

Subdividing: Separation of a parcel of land into smaller parcels.

Subject property: The property under analysis or appraisal.

Subject-to purchase: When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage. Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

Sublease: The transfer of a legal interest in leased premises by a tenant to another person that is less than the tenant's leasehold interest.

Subordinate: To make a mortgage subservient to another mortgage.

Subsidized second mortgage: An alternative financing option for low- and moderate-income households that also includes a down payment and a first mortgage, with funds for the second mortgage provided by city, county, or state housing agencies, foundations, or nonprofit corporations. Payment on the second mortgage is often deferred, carries no or low interest rates, and part of the debt may be forgiven for each year the family remains in the home.

Surrender: Reconveyance of property or lease to mortgagee or landlord.

Survey: A drawing or map showing a property's boundaries, any places the property may have been improved or changed, rights of way, and other physical features.

Survey: A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.

Survey: A measurement of land by a registered surveyor.

Survey: The process that determines the shape, area, and position of a parcel of land by locating its boundaries.

Surveyor: A professional who checks the boundaries of a property.

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T

Takeout commitment: Promise by a lender to provide a permanent loan to pay off a construction loan.

Tax assessor: A government employee who determines a property value for tax purposes.

Tax credit: Allowable reduction in the amount of income tax owed.

Tax deferred exchange: Trade of like-kind property that does not trigger recognition of taxable gain at the time of the exchange.

Tax lien: A charge against property that makes it security for unpaid taxes.

Tax: An enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Tenancy by entirety: A type of joint ownership of property available only to a husband and wife.

Tenancy in common: A type of joint ownership in a property without right of survivorship.

Tenant improvements: A lease provision that obligates the owner to incur a prespecified dollar. Allowance amount to prepare the space for the tenant's occupancy.

Term loan: A loan having the entire principal due at maturity.

Term: The length of time in which a loan is to be repaid. A 30-year mortgage loan has a 30 year term.

Terms: All conditions placed on a loan, including the interest rate, any finance charges, and the length of the loan.

Three/two (3/2) option: An alternative financing plan that enables households whose earnings are no more than 115 percent of the median income in their regional area to make a 3 percent down payment with their own funds, coupled with a 2 percent gift from a relative or a 2 percent grant or unsecured loan from a nonprofit or state or local government program.

Time Value Of Money (TVM): An economic principle recognizing that a dollar today has greater value than a dollar in the future because of its earning power.

Time value of money: Relation of value at one time to value at another through discounting or compounding at a certain interest rate.

Title company: A company that specializes in insuring title to property.

Title insurance: Insurance that compensates the insured a specific amount for any loss caused by defects of title to real estate.

Title insurance: Protects lenders or homeowners against loss of their interest in property due to legal defects in title. Title insurance may be issued to a "mortgagee's title policy." Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance.

Title search or examination: A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims or outstanding restrictive convenants filed in the record, which would adversely affect the marketability or value of title.

Title search: A check of public title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Title: As generally used, the rights of ownership and possession of particular property. In real estate usage, title may refer to the instruments or documents by which a right of ownership is established (title documents), or it may refer to the ownership interest one has in the real estate.

Title: Proof of ownership of a property. A clean title is one that shows no liens against it.

Topography: The nature of the surface of land, such as level, rolling, and so forth.

Total monthly debt: The total amount of credit card, car loan, and other debt payments a person must pay each month. Used to figure out debt-to-income ratios.

Total monthly income: The amount of money that comes into a household every month from a job or jobs, interest or dividends, alimony, disability payments, and public assistance. A lender uses the total monthly income figure to decide how much house payment a loan applicant can afford. Also called gross monthly income.

Tract: An area of land.

Trade fixture: An item of personal property attached to leased premises by a tenant for purposes of use in his trade or business.

Transfer tax: State or local tax payable when title passes from one owner to another.

Transfer tax: Tax levied on deeds, usually based upon the purchase price and payable upon recordation of the deed.

Triple-net lease: A lease in which the tenant pays, in addition to rent, all expenses related to the operation of the property.

Trust deed: See Deed of Trust.

Trustee: A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law. (see Deed of Trust.)

Truth in lending act: A federal law that requires lenders to provide complete and correct information, in writing, about how much a borrower owes when payments are due and how much they are, and what interest rates and other charges are.

Truth in lending act: A federal law that says companies that give credit or loans have to give complete and correct information about how much a borrower owes, are due and what interest rates are.

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U

U.S. Department of Housing and Urban Development (HUD): A federal govern-ment agency responsible for managing many of the nation's housing programs and for protecting rights of homebuyers, homeowners, sellers, and renters.

U.S. Department of Veterans Affairs (VA): A federal government agency responsible for programs for former members of the armed services.

Underimprovement: A property not being used to its fullest and best potential.

Underwriting: Evaluating borrower creditworthiness and cash value and ascertaining risks involved prior to deciding whether or not to make a loan.

Underwriting: The process of analyzing a borrower's finances and credit in order to decide whether or not to make a loan. The underwriter is the person who has authority to approve a loan.

Unsecured credit: Any credit that is not secured by property (such as a house). A credit card is unsecured credit, a mortgage loan is secured.

Usable area: Rentable area less certain common areas that are shared by all tenants (corridors, storage, bathrooms, etc.). Usable area = rentable area - common areas.

Usury laws: State laws limiting the maximum interest rate which can be charged on loans.

Usury: Interest on a loan at a rate higher than allowed by law.

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V

VA (Veterans Administration) Loan: Loan guaranteed by the Veterans Administration.

VA loans: A loan that is guaranteed by the Veterans Administration.

Vacancy: Loss Rent that is not collected due to turnover or sustained vacancy of a commercial space.

Valuable consideration: Consideration in the form of money, promises, or property.

Variable expenses: Costs, such as utilities, that vary with a building's occupancy rate.

Variable Rate Mortgage (VRM): See Adjustable Rate Mortgages.

Variable-Rate Mortgage (VRM): A mortgage loan for which the interest varies according to an index.

Variance: In zoning, a permitted deviation for a particular property from the zoning category for that property.

Variance: The right to deviate from the use of land prescribed by an existing zoning ordinance.

Vendee: The buyer.

Vendor: The seller.

Verification: The process of making sure or verifying that all of a borrower's loan applica-tion information is accurate.

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W

Warranty: A guarantee by a seller or manufacturer that a product is what it is claimed to be, that it is in working order, and, in some cases, that the seller or maker will repair the product.

Water rights: Rights associated with the use of water adjacent to, in, or underneath the property.

Will: Document executed during a person's lifetime that conveys the person's property at death.

Wiring diagram: A diagram of the electrical wiring in a house, showing where all the cir-cuits and plugs are.

Wraparound mortgage: See All Inclusive Trust Deed.

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X

Y

Yield: A measure of investment performance, gauging the percentage return on each dollar invested. Also known as rate of return.

Yield: Relationship between income or cash received from an investment and the value of the capital invested.

Yield: Return on an investment or loan.

Z

Zoning ordinances: The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.

Zoning: A county or city law stating the types of use to which properties can be put in specific areas.

Zoning: The division of an area or community by a government into districts or zones with regulations as to the use of land varying from one zone to another.

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