A
ABSTRACT
The notes made by a title examiner based on his
examination of the land records. These notes are
a concise summary of the transactions affecting
the property. The title agency produces a BINDER
from the information in the abstract.
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ACCELERATION
The right of the mortgagee (lender) to demand
the immediate repayment of the mortgage loan balance
upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale
Clause.
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ACCELERATION
CLAUSE
A condition in a real estate financing instrument
giving the lender the power to declare all sums
owing lender immediately due and payable upon
the happening of an event, such as the sale of
the property, or a delinquency in the repayment
of the note.
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ACCRETION
The buildup of land from natural forces such
as wind or water.
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ACKNOWLEDGEMENT
As a verb, the confirmation by a party executing
a legal document that this is his signature and
voluntary act. This confirmation is made to an
authorized officer of the Court or notary public
who signs a statement also called an acknowledgment.
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ACRE
43,560 square feet of land.
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ADEQUATE
PROTECTION ORDER
Forces trustees to release Post petition payments
being held prior to the Chapter 13 Confirmation
Hearing.
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ADJUSTABLE
RATE MORTGAGE (ARM)
Is a mortgage in which the interest rate is adjusted
periodically based on a preselected index. Also
sometimes known as the re negotiable rate mortgage,
the variable rate mortgage or the Canadian rollover
mortgage.
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ADJUSTMENT
INTERVAL
On an adjustable rate mortgage, the time between
changes in the interest rate and/or monthly payment,
typically one, three or five years, depending
on the index.
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ADMINISTRATOR
A person appointed by the Court to settle the
estate of a person who dies without a will. The
feminine form is Administratrix. Compare, EXECUTOR.
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ADVERSE
POSSESSION
A claim made against land titled in another person
based on open, notorious and hostile possession
and use of the land to the exclusion of the titled
owner.
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AGENCY
A relationship in which the agent is given the
authority to act on behalf of another person (Principal).
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AGENT
One who legally represents another, called a
principal, from whom authority has been derived.
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AGREEMENT
A change to the correct or alteration to the
original document/agreement without changing its
principal essence.
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AMOUNT FINANCED
The amount applied for less the prepaid finance
charges. Prepaid finance charges can be found
on the Good Faith Settlement Statement (HUD1 or
HUD1A). For example, if the borrower's Note is
for $100,000 and the prepaid finance charge total
is $5,000, the Amount Financed would be $95,000.
The Amount Finance is the amount on which the
Annual Percentage Rate (APR) is calculated.
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AMORTIZATION
Means loan payment by equal periodic payment
calculated to pay off the debt at the end of a
fixed period, including accrued interest on the
outstanding balance.
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AMORTIZED LOAN
A loan to be repaid, interest and principal,
by a series of regular payments that are equal
or nearly equal, without any special balloon payment
prior to maturity.
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ANNUAL CAP
The limit on the amount an adjustable rate mortgage's
interest rate can change over a 12-month period.
An annual cap prevents your payments from changing
too dramatically, even if the factors that determine
changes in an adjustable mortgage's rate rise
or fall sharply during that period.
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ANNUAL
PERCENTAGE RATE (A.P.R.)
This is not the Note rate for which the borrower
applied. It is an interest rate reflecting the
cost of a mortgage as a yearly rate. This rate
is likely to be higher than the stated note rate
or advertised rate on the mortgage, because it
takes into account points and other credit costs,
such as private mortgage insurance, loan discount,
origination fees, and other credit costs. The
APR allows home buyers to compare different types
of mortgages based on the annual cost for each
loan.
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APPRAISAL
An estimate of the value of property, made by
a qualified professional called an appraiser.
Most states require licenses. Various lenders
have their own lists of approved appraisers.
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APPRAISED VALUE
An opinion of value reached by an appraiser based
upon knowledge, experience, and a study of pertinent
data.
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APPROVED
ATTORNEY
An attorney authorized by a title insurance company
to handle closings and render title opinions.
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APPURTENANCE
Anything attached to the land or used with it
passing to the new owner.
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ARBITRAGE
In mortgage banking, the simultaneous purchase
and sale of mortgages, futures contracts, or mortgage
backed securities in different markets to profit
from differences in price.
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ARM'S
LENGTH TRANSACTION
A transaction in which the parties involved are
entirely independent of each other, deal with
each other as strangers, and have no reason for
collusion.
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ASSESSMENT
A local tax levied against a property for a specific
purpose, such as a sewer or street lights.
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ASSESSED VALUE
The determination, for tax purposes, of how much
a home and the property it occupies is worth.
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ASSIGN
To transfer interest.
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ASSIGNEE
One who receives an assignment or transfer of
rights. An assignment of a contract transfers
the right to buy property.
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ASSIGNOR
The one who assigns to another person.
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ASSIGNMENT
OF MORTGAGE
A document that evidences a transfer of ownership
of a mortgage from one party to another.
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ASSOCIATE
BROKER
A person who has qualified as a real estate broker
but works for a particular broker licensed in
the state.
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ASSUMPTION
AGREEMENT
The agreement between buyer and seller where
the buyer takes over the payments on an existing
mortgage from the seller. Assuming a loan can
usually save the buyer money since this is an
existing mortgage debt, unlike a new mortgage
where closing cost and new, possibly higher, market-rate
interest charges will apply.
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ASSUMPTION FEE
The fee paid to a lender resulting from the assumption
of a mortgage.
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ASSUMPTION
OF A MORTGAGE
Assumption by a purchaser of the primary liability
for a payment of an existing mortgage or deed
of trust. The seller remains secondarily liable
unless specially released by the lender.
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ATTACHMENT
Seizure of property through Court process to
repay a debt.
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ATTORNEY IN
FACT
A type of agency relationship where one person
holds a POWER OF ATTORNEY allowing him to execute
legal documents on behalf of another. Decisions
made by the attorney in fact are binding on the
principal.
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B
BALLOON
(PAYMENT) MORTGAGE
Usually a short-term fixed-rate loan which involves
small payments for a certain period of time and
one large payment for the remaining amount of
the principal at a time specified in the contract.
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BALLOON PAYMENT
The unpaid principal amount of a mortgage or
other long-term loan due on a specified date in
the future. Usually the amount that must be paid
in a lump sum at the end of the term.
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BANKRUPTCY
A provision of Federal Law whereby a debtor surrenders
his assets to the Bankruptcy Court and is relieved
of the future obligation to repay his unsecured
debts. A Trustee in Bankruptcy administers the
assets, selling them to pay as much of the debt
as possible. If your seller is in bankruptcy,
the Trustee in Bankruptcy owns the property and
is the party to sign the contract and make decisions.
After bankruptcy, the debtor is discharged and
his unsecured creditors may not pursue further
collection efforts against him. Secured creditors,
those holding deeds of trust or judgment liens,
continue to be secured by the property but they
may not take other action to collect from the
debtor.
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BASIS POINT
One one-hundredth of one percent. Used to describe
the amount of change in yield in many debt instruments,
including mortgages.
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BELLY UP
Term used to describe a failed real estate project.
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BENCHMARK
A permanent reference mark for surveyors.
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BENEFICIARY
A person named to receive a benefit from a TRUST.
A contingent beneficiary has conditions attached
to his rights, usually someone else must die first.
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BI-WEEKLY
MORTGAGE
A mortgage with payments due every two weeks
totaling 26 payments a year.
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BID
An offer.
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BINDER
A title insurance binder is the written commitment
of a title insurance company to insure title to
the property subject to the conditions and exclusions
shown on the binder.
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BLANKET MORTGAGE
A mortgage covering at least two pieces of real
estate as security for the same mortgage. This
sort of loan is more common for commercial property
or special case loans.
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BOND
An amount of money, often posted with the Court,
to guarantee against loss as a result of a possible
claim. For example, if there is a LIEN against
the property, the owner may post a bond and the
lien is removed from the property and the parties
argue over the money rather than the property.
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BORROWER
(MORTGAGOR)
One who applies for and receives a loan in the
form of a mortgage with the intention of repaying
the loan in full
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BREACH OF
CONTRACT
Failure to perform provisions of a contract.
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BROKER
An individual in the business of assisting in
arranging funding or negotiating contracts for
a client buy who does not loan the money himself.
Brokers usually charge a fee or receive a commission
for their services.
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BUILDING
RESTRICTION LINE
A required set-back a certain distance from the
road within which no building may take place.
This restriction may appear in the original plat
of subdivision, restrictive covenants or by building
codes and zoning ordinances.
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BUY-DOWN
When the lender and/or the home builder subsidizes
the mortgage by lowering the interest rate during
the first few years of the loan. While the payments
are initially low, they will increase when the
subsidy expires. These are sometimes used to qualify
borrowers for a loan amount that they would not
otherwise qualify for but will be able to pay
in subsequent years as their income increases.
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BY-LAWS
Rules and regulations governing an association
or corporation.
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C
CALL
An option to buy a specific security at a specified
price within a designated time.
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CALL PROVISION
In a mortgage or deed of trust, it refers to
the mortgagee's or beneficiary's ability to speed
up payment of the obligation under certain conditions.
In bonds, it refers to the right to redeem the
bond before maturity.
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CAPITAL GAINS
Profit earned from a sale of real estate.
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CAPITALIZATION
A method used to estimate value of a property
based on the rate of return on investment.
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CAPS (INTEREST)
Consumer safeguards which limit the amount the
interest rate on an adjustable rate mortgage may
change per year and/or the life of the loan.
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CAPS (PAYMENT)
Consumer safeguards which limit the amount monthly
payments on an adjustable rate mortgage may change.
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CASHFLOW
The amount of cash derived over a certain period
of time from an income-producing property. The
cash flow should be large enough to pay the expenses
of the income producing property (mortgage payment,
maintenance, utilities, etc.)
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CAVEAT EMPTOR
Buyer beware. The buyer must inspect the property
and satisfy himself it is adequate for his needs.
The seller is under no obligation to disclose
defects but may not actively conceal a known defect
or lie if asked.
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CERTIFICATE
OF ELIGIBILITY ,
The document given to qualified veterans which
entitles them to VA guaranteed loans for homes,
business, and mobile homes. certificates of eligibility
may be obtained by sending DD-214 (Separation
Paper) to the local VA office with VA form 1880
(request for Certificate of Eligibility)
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CERTIFICATE
OF OCCUPANCY
A certificate issued by a local governmental
body stating that the building is in a condition
to be occupied.
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CERTIFICATE
OF REASONABLE VALUE (CRV)
An appraisal issued by the Veterans Administration
showing the property's current market value
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CERTIFICATE
OF SALE
A certificate issued to the buyer of real property
at a judicial sale.
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CERTIFICATE
OF SATISFACTION
A document signed by the Noteholder and recorded
in the land records evidencing release of a DEED
OF TRUST, MORTGAGE or other lien on the property.
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CERTIFICATE
OF TITLE
A written opinion by an attorney setting forth
the status of title to the property as shown on
the public records. The certificate does not certify
as to matters not of record and affords no protection
unless the author was negligent. Compare, TITLE
INSURANCE.
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CERTIFICATE
OF VETERAN STATUS
The document given to veterans or reservists
who have served 90 days of continuous active duty
(including training time) It may be obtained by
sending DD 214 to the local VA office with form
26-8261a (request for certificate of veteran status.
This document enables veterans to obtain lower
down payments on certain FHA insured loans).
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CERTIFIED
MORTGAGE BANKER (CMB)
A professional designation of the mortgage banking
industry.
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CHAIN OF TITLE
The series of transactions from GRANTOR to GRANTEE
as evidenced in the land records.
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CHAPTER 7
Insolvency (Involuntary) Unsecured debts are
extinguished. Secured creditors may continue to
be paid, or they may force the trustee to sell
the secured property to receive payment, or they
may obtain permission to foreclose, depending
on circumstances and equity.
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CHAPTER 11
Business re-organization, similar to a Chapter
13 personal bankruptcy.
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CHAPTER 13
Wage Earner Plan (Voluntary) All payments delinquent
at the time of filing a chapter 13 bankruptcy
(Pre-Petition Payments) are scheduled for repayment
over a period of time, often 60 months. All payments
due after the date of filing must be paid on time
to the mortgagee. Foreclosure is not permitted
unless mortgagor defaults in payments due after
the bankruptcy is filed (Post Petition Payments).
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CHATTEL
Personal property.
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CLASS ACTION
A claim brought up on behalf of a group of people.
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CLEAR TITLE
Title not encumbered or burdened with defects.
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CLOSED-END
MORTGAGE
A fixed amount mortgage where the debt cannot
be increased. It is the opposite of an open-end
mortage.
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CLOSING
The meeting between the buyer, seller and lender
or their agents where the property and funds legally
change hands. Also called settlement. closing
costs usually include an origination fee, discount
points, appraisal fee, title search and insurance,
survey, taxes, deed recording fee, credit report
charge and other costs assessed at settlement.
The cost of closing usually are about 3 percent
to 6 percent of the mortgage amount.
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CLOSING COSTS
The fees and charges a buyer and seller must
pay at the time of closing on a home sale. These
can include, among other things, broker commissions,
lender discount points, insurance premiums, and
attorney's fees.
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CLOUD ON TITLE
An evidence of encumbrances.
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CMBS
Acronym for conventional mortgage-backed securities
whose underlying pool of mortgages have no federal
guarantees or insurance.
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COINSURANCE
When more than one insurance company shares the
risk of a particular transaction or series of
transactions. Lenders may require co-insurance
on large commercial projects.
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COLLATERAL
Property pledged to secure a loan.
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COMMITMENT
A promise by a lender to make a loan on specific
terms or conditions to a borrower or builder.
A promise by an investor to purchase mortgages
from a lender with specific terms or conditions.
An agreement, often in writing, between a lender
and a borrower to loan money at a future date
subject to the completion of paperwork or compliance
with stated conditions.
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COMPARABLES
Properties used as comparisons to determine the
value of a specified property.
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CONDEMNATION
Taking of private property for a public use through
exercise of the power of EMINENT DOMAIN. The Constitution
protects against taking without fair compensation.
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CONDITIONAL
COMMITMENT
During HUD/FHA mortgage insurance processing,
it indicates the satisfactory completion of technical
processing involving the estimated costs of the
project, the as-is value of the site, the detailed
estimate of the operating expenses and taxes,
the supportable costs, the financial and credit
capacity of the sponsors, financial requirements,
and mortgage amounts.
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CONDOMINIUM
A system of individual FEE SIMPLE ownership of
portions (units) in a multi-unit structure, combined
with joint ownership of common areas. Each individual
may sell or encumber his own unit. Compare, COOPERATIVE.
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CONSERVATOR
Also called a Committee or Guardian, a person
designated by the Court to protect and preserve
the property of someone who is not able to manage
their own affairs. Examples include the mentally
incompetent, minors and incarcerated persons.
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CONSTRUCTION
LOAN
A short term interim loan to pay for the construction
of buildings or homes. These are usually designed
to provide periodic disbursements to the builder
as he progresses. These are generally done by
lenders with offices local to the site of the
construction. This enables the lender or their
agent to monitor the progress of the construction.
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CONTESTED
FORECLOSURE
When a mortgagor responds (answers) a Foreclosure
Complaint disagreeing with some of the facts contained
in the complaint. If the disagreement is not considered
to be factual, the court may issue a Summary Judgement
in favor of the mortgagee. If the answer disputes
facts stated within the complaint, the court may
order a hearing to determine the facts. If the
mortgagor asserts new matters in the answer, this
may be a Counter Complaint and may also result
in Summary Judgement or a hearing.
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CONTRACT
A legally enforceable agreement between two parties.
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CONTRACT
FOR DEED
Also known as a Land Contract or Land Installment
Contract. A method of financing where title remains
in the Seller's name until the Buyer has paid
the full purchase price. A Contract for Deed will
normally trigger the DUE ON SALE CLAUSE in a DEED
OF TRUST or MORTGAGE but Veterans Administration
regulations specifically allow Contracts for Deed
without invoking the DUE ON SALE CLAUSE.
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CONTRACT
SALE OR DEED:
A contract between purchaser and a seller of
real estate to convey title after certain conditions
have been met. It is a form of installment sale.
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CONVENTIONAL
LOAN
A mortgage not insured by FHA or guaranteed by
the VA.
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CONVERGENCES
The redcution or disappearance of the difference
between the cash and futures prices as the delivery
date in a futures contract approaches.
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CONVERTIBLE
MORTGAGE
An adjustable rate mortgage where the mortgagor
can convert the mortgage to a fixed rate mortgage
during a predetermined time period.
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CONVERTIBLE
STANDBY COMMITMENT
FNMA mortgage purchase that may be converted
to the same yield as offered in the most recent
Free Market Auction.
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COOPERATIVE
A system of individual ownership of stock in
a corporation that in turn, owns the structure.
Each owner has an exclusive right to use his individual
unit and must pay his portion of the debt encumbering
the entire building. Compare, CONDOMINIUM.
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CORRESPONDENT
An abbreviated term meaning mortgage loan correspondent.
A mortgage banker who services mortgage loans
as an agent for the owner of the mortgage or investor.
Also applies to the mortgage banker in the role
of originator of mortgage loan for an investor.
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COST APPROACH
A method used by an appraiser to estimate replacement
cost of improvements less depreciation.
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COTENANCY
Ownership in the same land by more than one person.
See, TENANTS IN COMMON, JOINT TENANTS, TENANTS
BY THE ENTIRETY.
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COVENANT
A written agreement or restriction on the use
of land or promising certain acts. Homeowner Associations
often enforce restrictive covenants governing
architectural controls and maintenance responsibilities.
However, land could be subject to restrictive
covenants even if there is no homeowner's association.
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COVENANTS,
CONDITIONS, AND RESTRICTIONS.
The basic rules establishing the rights and obligations
of owners of real property within a subdivision
or other tract of land in relation to other owners
within the same subdivision or tract and in relation
to an association of owners organized for the
purpose of operating and maintaining property
commonly owned by the individual owners.
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CREDIT LIFE
Declining term life insurance taken out by a
borrower as added security for repayment of a
loan.
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CREDIT REPORT
A report documenting the credit history and current
status of a borrower's credit standing.
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D
DEBT COVERAGE
RATIO
The ration of effective annual net income to
annual debt service.
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DEBT SERVICE
A borrower's periodic payment comprising repayment
of principal plus payment of interest on the unpaid
balance.
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DEBT-TO-INCOME
RATIO
The ratio, expressed as a percentage, which results
when a borrower's monthly payment obligation on
long-term debts is divided by his or her gross
monthly income. See housing expenses-to-income
ratio.
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DEED
The written document conveying real property.
The Deed must be executed (signed), ACKNOWLEDGED,
and DELIVERED to the Grantee. Once recorded at
the Courthouse, the original piece of paper is
not needed to convey title in the future.
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DEED OF TRUST
A type of security instrument conveying title
in trust to a third party covering a particular
piece of property. It is used to secure the payment
of a note. Compare, MORTGAGE. In some states,
this document is used in place of a mortgage to
secure the payment of a note.
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DEED IN LIEU
A deed given by a mortgagor to a mortgagee to
satisfy a debt and avoid foreclosure.
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DEFAULT
Failure to meet legal obligations in a contract,
specifically, failure to make the monthly payments
on a mortgage.
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DEFERRED
INTEREST
When a mortgage is written with a monthly payment
that is less than required to satisfy the note
rate, the unpaid interest is deferred by adding
it to the loan balance. See negative amortization
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DEFICIENCY
JUDGMENT
If the foreclosure sale does not bring sufficient
proceeds to pay the costs of sale and the note
in full, the holder of the note may obtain a judgment
against the maker for the difference.
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DELINQUENCY
Failure to make payments on time. this can lead
to foreclosure.
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DELIVERY
The final, unconditional and absolute transfer
of a DEED to the Grantee so that the Grantor may
not revoke it. A Deed, signed but held by the
Grantor, does not pass title.
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DEPARTMENT OF
VETERANS AFFAIRS (VA)
An independent agency of the federal government
that guarantees long-term, low-or no-down payment
mortgages to eligible veterans.
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DEPOSIT
A sum of money given to bind a sale of real estate,
or a sum of money given to assure payment, or
an advance of funds in the processing of a loan.
Also known as earnest money.
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DISCHARGE
Unsecured debts are extinguished and the bankruptcy
is closed.
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DISCOUNT
In loan origination, a discount refers to an
amount withheld from loan proceeds by a lender.
In a secondary marketing sale, a discount is the
amount by which the sale price of a note is less
than its face value. In both instances, the purpose
of a discount is to adjust the yield upward, either
in lieu of interest or in addition to interest.
The rate of the amount of the discount depends
on money market conditions, the credit of the
borrower, and the rate or terms of the note.
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DISCOUNT POINT
The amount of money you can choose to pay when
you first get a loan to reduce its overall interest
rate. Discount points are usually a small fraction
of the total amount of your loan—i.e., 1, 2, or
3%—and can lower the interest rate for the entire
life of the loan, or just part of it. See Point
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DOWER
A spouse's interest in the property of a deceased
spouse.
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DOWN PAYMENT
Money paid to make up the difference between
the purchase price and the mortgage amount.
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DUAL AGENCY
Representation of opposing parties (buyer and
seller) at the same time in the same transaction.
This situation most often refers to cases where
the Realtor is the agent for both parties.
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DUE ON SALE
CLAUSE
A clause in the MORTGAGE that makes the loan
non-assumable by providing the noteholder may
call the loan immediately due and payable upon
a sale or conveyance of an interest in the property.
The FNMA/FHLMC form provides that a lease of more
than three years or a lease with an option to
buy also triggers this provision.
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E
EARNEST MONEY
Money given by a buyer to a seller as part of
the purchase price to bind a transaction or assure
payment. A good faith deposit.
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EASEMENT
The right to use the land of another for a specific
limited purpose. Examples include utility lines,
driveways, and INGRESS AND EGRESS. Easements can
be temporary or permanent.
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ECOA
Equal Credit Opportunity Act. ECOA is a federal
law that requires lenders and other creditors
to make credit equally available without discrimination
based on race, color, religion, national origin,
age, sex, marital status, or receipt from public
assistance programs.
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ECONOMIC LIFE
The estimated period of time during which a property
can be utilized profitably.
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EFFECTIVE AGE
For purposes of an appraisal, the physical age
given to a building based on its present condition,
which may be longer or shorter than its actual
age.
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EMINENT DOMAIN
The power of the state to take private property
for public use upon payment of just compensation.
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ENCROACHMENT
The physical intrusion of a structure or improvement
on the land of another. Examples include a fence
or driveway over the property line.
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ENCUMBRANCE
Any lien, liability or charge against a property.
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ENDORSEMENT
A writing on a negotiable instrument by which
title to a property mentioned therein is assigned
and transferred. A notation added to an instrument
after execution to change or clarify its contents.
In insurance, coverage may be restricted or enlarged
by endorsing a policy. In FHA loans, a notation
placed on the note by the FHS indicating that
the loan is insured under the National Housing
Act.
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ENTITLEMENT
The VA home loan benefit is called entitlement.
Entitlement for a VA guaranteed home loan. This
is also known as eligibility.
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EQUAL
CREDIT OPPORTUNITY ACT (ECOA)
A federal law that requires lenders and other
creditors to make credit equally available without
discrimination based on race, color, religion,
national origin, age, sex, marital status or receipt
of income from public assistance programs.
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EQUITY
The difference between the fair market value
and current indebtedness, also referred to as
the owner's interest. The value an owner has in
real estate over and above the obligation against
the property. When you first buy a home, your
ownership equals your down payment; your mortgage
lender owns the rest. To figure out your equity,
subtract the amount you owe on your loan from
your home's current market value.
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EQUITY SHARING
A form of joint ownership between an owner/occupant
and an owner/investor. The investor takes depreciation
deductions for his share of the ownership. The
occupant receives a portion of the tax write-offs
for interest and taxes and a part of his monthly
payment is treated as rent. The co-owners divide
the profit upon sale of the property. Compare,
JOINT OWNERSHIP AGREEMENT.
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ESCHEAT
Property that reverts to the state when an individual
dies without heirs and without a will.
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ESCROW
A bank account where you deposit money that will
be used to pay charges that come with your purchase
of a house. An escrow account is sort of a neutral
area between you and your mortgage lender that
stores money you've deposited until you need it
to pay for certain aspects of your loan, like
closing costs, taxes or insurance fees.
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ESCROW ACCOUNT
The segregated trust account in which escrow
funds are held.
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ESCROW AGENT
The person or organization having a fiduciary
responsibility to both the buyer and seller (Or
lender or borrower) to see that the terms of the
purchase/sale (or loan) are carried out.
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ESCROW ANALYSIS
The periodic examination of escrow accounts to
determine if current monthly deposits will provide
sufficient funds to pay tax, insurance, and other
bills when due.
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ESCORW COMPANY
An organization established to act as an escrow
agent.
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ESCORW CONTRACT
A three-party agreement between the buyer, seller,
and the escrow agent specifying the rights and
duties of each.
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ESCROW
OVERAGE OR SHORTAGE
The difference determined by escrow analysis,
between the escrow funds on deposit and the escrow
funds required.
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ESCROW PAYMENT
The portion of a mortgagor's monthly payments
held by the lender or servicer to pay for taxes,
hazard insurance, mortgage insurance, lease payments,
and other items as they become due. Known is impounds
or reserves in some states.
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EVICTION
Also know as Ejectment in some jurisdictions,
the legal removal of former property owners, tenants
or squatters from a foreclosed property.
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EXECUTED
SALES CONTRACT
A contract where all the terms have been successfully
completed by the buyer and the seller.
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EXECUTOR
A person named in a will to carry out its terms
and administer the estate. The feminine form is
Executrix. Compare, ADMINISTRATOR.
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F
FACE VALUE
Par value; the principal or nominal value of
a bond, note, mortgage, etc.. The amount of principal
the issuer contracts to pay.
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FAIR MARKET
VALUE
A term that refers how much a home or property
is worth, given the current conditions of the
local real estate market. The fair market value
of a home is usually used in conjunction with
the amount of tax its owner must be charged.
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FANNIE MAE
See Federal National Mortgage Association.
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FARMERS
HOME ADMINISTRATION (FMHA)
Provides financing to farmers and other qualified
borrowers who are unable to obtain loans elsewhere.
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FDIC
Federal Deposit Insurance Corporation. Originally
established by the Banking At of 1933 to insure
the deposits of all banks entitled to federal
deposit insurance.
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FEDERAL
HOME LOAN BANK BOARD (FHLBB)
The former name for the regulatory and supervisory
agency for federally chartered savings institutions.
Agency is now called the Office of Thrift Supervision
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FEDERAL
HOME LOAN MORTGAGE CORPORATION (FHLMC)
A affiliate of the Federal Home loan Bank which
creates a secondary money market in conventional
residential loans and in FHA and VA loans by purchasing
mortgage loans from members of the Federal Reserve
System and the Federal Home Loan Bank Systems.
Also known as Freddie Mac.
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FEDERAL
HOME LOAN MORTGAGE CORPORATION (FHLMC) ALSO CALLED
FREDDIE MAC,
Is a quasi-governmental agency that specializes
in purchasing mortgage loans, primarily from savings
and loans associations. Freddie Mac is run by
the United States government, with assistance
from private sector professionals.
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FEDERAL
HOUSING ADMINISTRATION (FHA)
A division of the Department of Housing and Urban
Development. Its main activity is the insuring
of residential mortgage loans made by private
lenders. FHA also sets standards for underwriting
mortgages.
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FEDERAL
NATIONAL MORTGAGE ASSOCIATION (FNMA) ALSO KNOW
AS FANNIE MAE
A tax-paying corporation created by Congress
that purchases and sells conventional residential
mortgages as well as those insured by FHA or guaranteed
by VA to add cash to the mortgage market. This
institution, which provides funds for one in seven
mortgages, makes mortgage money more available
and more affordable.
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FEE SIMPLE
The absolute total interest in real property.
Compare, LIFE ESTATE, REVERSION.
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FHA LOAN
A loan insured by the Federal Housing Administration
open to all qualified home purchasers. While there
are limits to the size of FHA loans ($155,250
as of 1/1/96), they are generous enough to handle
moderately-priced homes almost anywhere in the
country.
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FHA
MORTGAGE INSURANCE
Requires a fee (up to 2.25 percent of the loan
amount) paid at closing to insure the loan with
FHA. In addition, FHA mortgage insurance requires
an annual fee of up to 0.5 percent of the current
loan amount, paid in monthly installments. The
lower the down payment, the more years the fee
must be paid.
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FHLMC
The Federal Home Loan Mortgage Corporation provides
a secondary market for savings and loans by purchasing
their conventional loans. Also known as Freddie
Mac.
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FIDUCIARY
One who acts in a capacity of trust and confidence
for another.
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FIDUCIARY
RELATIONSHIP
A relationship of trust and confidence between
principal and agent; lawyer and client; doctor
and patient; etc.
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FINANCE CHARGE
The amount of interest, prepaid finance charge,
and certain insurance premiums (if any) which
the borrower will be expected to pay over the
life of the loan.
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FINANCING
STATEMENT
Lenders record financing statements to evidence
personal property, such as a new furnace, siding
or windows, is subject to a lien.
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FIRST MORTGAGE
A real estate loan that creates a primary lien
against real property.
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FIRM COMMITMENT
A promise by FHA to insure a mortgage loam for
a specified property and borrower. A promise from
a lender to make a mortgage loan.
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FIXED RATE
MORTGAGE
The mortgage interest rate will remain the same
on these mortgages throughout the term of the
mortgage for the original borrower.
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FIXTURE
An item of personal property attached to real
property so that it can not be removed without
damage to the real property. A FIXTURE becomes
part of the real property.
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FLOATING
RATE OF INTEREST
An interest rate that instead of being a fixed
percent is stated as an amount above or below
another rate, usually the prime rate, so that
as the prime rate moves up and down the interest
rate moves with it.
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FLOOD INSURANCE
An insurance policy that covers damage your home
may receive due to flooding. If the home you're
buying is in an area prone to flooding, then you
may be required by your home loan provider to
get flood insurance. To establish whether or not
your home is in such an area, a land survey must
be done—at the expense of the person selling the
home—at least fifteen days before the date you
close on the home purchase.
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FNMA
The Federal National Mortgage Association is
a secondary mortgage institution, which is the
largest single holder of home mortgages in the
United States. FNMA buys VA, FHA, and conventional
mortgages from primary lenders. Also known as
Fannie Mae.
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FORBEARANCE
Formal or informal agreement the mortgagee will
forebear (withhold) legal action permitting the
mortgagor an extended period of time to catch
up on delinquent payments.
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FORECLOSURE
A legal process by which the lender or the seller
forces a sale of a mortgaged property because
the borrower has not met the terms of the mortgage.
Also known as a repossession of property. Under
a DEED OF TRUST, foreclosure is by public auction
after appropriate advertisement. A MORTGAGE may
require the lender to obtain Court approval prior
to sale.
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FORWARD
COMMITMENT
A commitment made by the lender to make or purchase
a loan in the future.
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FORWARD DELIVERY
The delivery of mortgages or mortgage-backed
securities to satisfy cash or future market transactions
on an earlier date.
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FREDDIE MAC
See Federal Home Loan Mortgage Corporation
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FREE-MARKET
SYSTEM AUCTION
A periodic auction conducted by the Federal National
Mortgage Association, at which commitments to
purchase mortgages are issued. Approved lenders
specify a dollar amount and yield to FNMA.
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FULL DISCLOSURE
A legal requirement that says a person selling
a home must inform a potential buyer of everything
they know about the home's physical and economic
condition.
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FULLY
INDEXED NOTE RATE
As related to adjustable rate mortgages, the
index value at the time of application plus the
gross margin stated in the note.
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G
GENERAL
WARRANTY DEED
The Grantor warrants title against all claims.
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GESTATION REPO
A repurchase agreement covering the time between
the date an issuer submits documents to the Government
National Mortgage Association for final pool approval
and the date the new security is actually issued
(usually 20 calendar days).
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GIFT LETTER
A form stating that a relative is giving you
money to help you buy a home, and that they will
not ask you to it pay back. The letter also provides
proof, by referring to bank statements and other
records, that the relative does, in fact, have
enough money to cover the amount of the gift,
and that the money has been transferred to your
possession.
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GINNIE MAE
See Government National Mortgage Association.
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GOING LONG
A strategy wherein loans are originated before
an attempt is made to sell them to investors.
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GOING SHORT
A strategy wherein investor commitments are obtained
before loans are originated against commitments.
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GOVERNMENT
NATIONAL MORTGAGE ASSOCIATION
On September 1, 1968, Congress enacted legislation
to partition FNMA into two continuing corporation
entities. GNMA has assumed responsibility for
the special assistance loan programs. Also, GNMA
administers the mortgage-backed securities programs
that channel new sources of funds into residential
financing through the sale of privately issued
securities carrying the GNMAS guaranty.
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GRADUATED
PAYMENT MORTGAGE (GPM)
A type of flexible-payment mortgage where the
payments increase for a specified period of time
and then level off. This type of mortgage has
negative amortization built into it.
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GRANTEE
The person receiving an interest in property.
Compare, GRANTOR
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GRANTOR
The person granting, selling or giving up an
interest in property. Compare, GRANTEE.
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GROSS INCOME
Income before expenses.
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GROSS MARGIN
With regard to an adjustable rate mortgage, an
amount expressed as percentage points, stated
in the note which is added to the current index
value on the rate adjustment date to establish
a new note rate.
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GROUND LEASE
The owner grants a long term lease of the land
(usually 99 years) and allows the lessee to build
and use the land as agreed. At the end of the
term, the land and all improvements revert to
the owner.
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GUARANTEED
COUPON
A term in a contract for the purchase or sale
of mortgage-backed securities that states the
securities to be delivered will bear an agreed
upon interest rate.
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GUARANTEED
MORTGAGE CERTIFICATE (GMC)
A bond-like instrument issued by the Federal
Home Loan Mortgage Corporation that represents
ownership in a large pool of residential mortgages.
Principal is returned annually and interest is
paid semiannually.
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GUARANTY
A promise by one party to pay a debt or perform
an obligation contracted by another if the original
party fails to pay or perform according to a contract
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GUARDIAN
One appointed by the Court to administer the
affairs of a minor. A guardian ad litem is appointed
to protect one's interest in a particular legal
action. See, CONSERVATOR.
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H
HAZARD INSURANCE
A form of insurance in which the insurance company
protects the insured from specified losses, such
as fire, windstorm and the like.
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HEDGING
The matching of assets to liabilities of a similar
nature; the assumption of one risk is calculated
to offset another. In mortgage banking, the purchase
or sale of mortgage futures contracts to offset
market transactions to be made at a later date.
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HIATUS
A gap or space left between two parcels of land
and not included in the legal description of either
parcel. Similar terms are Gaps and Gores.
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HOME EQUITY
LOAN
A loan that lets you borrow back money against
the difference of what you own on your current
home loan and the home's estimated sales price.
People generally use home equity loans to get
cash for large expenses like education, home improvement,
or health care.
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HOMESTEAD DEED
A declaration filed in the land records that
an individual is asserting his homestead exemption.
That exemption allows one to protect some assets
(amount varies by state) against the claims of
creditors.
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HOUSING
EXPENSES-TO-INCOME RATIO
The ratio, expressed as a percentage, which results
when a borrower's housing expenses are divided
by his/her gross monthly income. See debt-to-income
ratio.
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HOUSING RATIO
The ratio, expressed as a percentage, which results
when a borrower's housing expenses are divided
by his/her gross monthly income. See debt-to-income
ratio.
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I
IMPOUND
That portion of a borrower's monthly payments
held by the lender or servicer to pay for taxes,
hazard insurance, mortgage insurance, lease payments,
and other items as they become due. Also known
as reserves.
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INCOME APPROACH
A method used by an appraiser to estimate the
value of a property by calculating it's generated
income.
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INDEMNITY
A protection against actual loss or damage as
a result of the matter mentioned. An indemnity
is not an absolute guarantee that something won't
happen, it states the terms under which an actual
loss will be compensated.
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INDEX
A published interest rate against which lenders
measure the difference between the current interest
rate on an adjustable rate mortgage and that earned
by other investments (such as one- three-, and
five-year U.S. Treasury security yields, the monthly
average interest rate on loans closed by savings
and loan institutions, and the monthly average
costs-of-funds incurred by savings and loans),
which is then used to adjust the interest rate
on an adjustable mortgage up or down.
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INGRESS
AND EGRESS
Applied to EASEMENTS, meaning the right to go
in and out over a piece of property but not the
right to park on it.
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INITIAL NOTE
RATE
With regard to an adjustable rate mortgage, the
note rate upon origination. This rate may differ
from and is usually less than the fully indexed
rate.
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INSTITUTIONAL
LENDER
A financial institution that invests its own
funds or funds it is managing in real estate.
Mutual savings banks, life insurance companies,
commercial banks, pesnion and trust funds, and
savings and loan associations are examples.
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INSURABLE TITLE
Title subject to a defect or claim which a title
insurance company is willing to insure against.
Compare, MARKETABLE TITLE.
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INSURED
CLOSING LETTER
An Indemnity given to a lender from a title insurance
company, agreeing to be responsible if the closing
agent does not follow the lender's instructions
or misappropriates the loan proceeds. Lenders
usually require an insured closing letter be on
file for each settlement.
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INSURED MORTGAGE
A mortgage insured against loss to the mortgagee
in the event of default and a failure of the mortgaged
property to satisfy the balance owing plus costs
of foreclosure.
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INTEREST
The amount of money a lender charges you to borrow
money to buy a home. The interest you pay is a
percentage of your total loan, and is paid over
time.
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INTEREST RATE
The percentage of an amount of money which is
paid for its use for a specified time. Usually
expressed as an annual percentage.
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INTERIM FINANCING
A construction loan made during completion of
a building or a project. A permanent loan usually
replaces this loan after completion.
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INTERNAL
RATE OF RETURN
A method of determining investment yield over
time assuming a set of income, expense, and property
value conditions. It combines the present worth
of the right to receive future income streams
with the present worth of the right to receive
a particular profit when the property is sole.
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INTESTATE
An estate without a Will. Compare, TESTATE
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INVESTOR
A money source for a lender.
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J
JOINT
OWNERSHIP AGREEMENT
An agreement between owners defining their rights,
ownership, monetary obligations and responsibilities.
This could be between and investor and an occupant
or the occupants. If an investor is involved,
the investor does not take depreciation deductions
and none of the occupant's payment is deemed rent
for tax purposes. Compare, EQUITY SHARING.
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JOINT TENANTS
Two or more persons own a property. Joint tenants
with the common law right of survivorship means
the survivor inherits the property without reference
to the decedent's will. Creditors may sue to have
the property divided to settle claims against
one of the owners. Compare, TENANTS IN COMMON,
TENANTS BY THE ENTIRETY.
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JUDGMENT LIEN
A judgment is a lien against all real property
owned by the judgment debtor in the county where
the judgment is docketed (recorded).
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JUMBO LOAN
A loan which is larger (more than $214,600 as
of 1/1/97) than the limits set by the Federal
National Mortgage Association and the Federal
Home Loan Mortgage Corporation. Because jumbo
loans cannot be funded by these two agencies,
they usually carry a higher interest rate.
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JUNIOR MORTGAGE
Mortgage of lesser priority than the prior recorded
mortgage.
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K
KICKER
A term describing any benefit to a lender above
ordinary fixed interest payments. It may be an
equity position in a property or a percentage
participation in the income stream.
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L
LAND CONTRACT
See CONTRACT FOR DEED.
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LATE CHARGE
An additional charge a borrower is required to
pay as penalty for failure to pay a regular installment
when due.
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LEASE HOLD
ESTATE
Tenants right of possession for a specific period
of time under a lease agreement. (Common in Hawaii.)
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LENDER
A financial institution, like a bank, that loans
you money to buy a home, and expects you to pay
the money back to them in a stated period of time,
usually with interest.
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LETTER OF
CREDIT
A letter authorizing a person or company to draw
on a bank or stating that the bank will honor
their credit up to the stated amount.
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LIEN
A claim upon a piece of property for the payment
or satisfaction of a debt or obligation. Property
is said to be encumbered by a lien and the lien
must be removed to clear title.
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LIFE CAP
With regard to an adjustable rate mortgage, a
ceiling the note rate cannot exceed over the life
of the loan.
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LIFE ESTATE
The right to use, occupy, and own for the life
of an individual. Compare, FEE SIMPLE.
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LINE OF CREDIT
An agreement by a commercial bank or other financial
institution to extend credit up to a certain amount
for a certain time to a specified borrower.
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LIQUIDITY
Cash position based upon assets that can readily
be converted to cash.
top
LIS PENDENS
Recorded document showing a pending litigation
filed in the court. These show up on the preliminary
title report and must be dealt with when transferring
ownership or refinancing.
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LOAN APPLICATION
The loan application is the source of information
on which the lender bases a decision to make the
loan; defines the term of the loan, gives the
name(s) of the borrower(s) , place of employment,
salary, bank accounts and credit references, and
describes the real estate that is to be mortgaged.
It also stipulates the amount of the loan being
applied for and the repayment terms.
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LOAN FEE
The charge made for negotiating a loan, in addition
to interest; sometimes used in reference to an
additional fee paid directly to a lender either
for a commitment or at the time advances are made.
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LOAN
GUARANTY CERTIFICATE
VA document stating that portion of a loan that
is guaranteed.
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LOAN TERM
The total amount of time you are given by a lender
to pay off your home loan. Loan terms vary, but
are generally set at 15 or 30 years.
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LOAN-TO-VALUE
RATIO (LTV)
The relationship between the amount of the mortgage
loan and the appraised value of the property expressed
as a percentage.
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LOCK-IN PERIOD
That portion of the term of a mortgage loan during
which the loan cannot be prepaid.
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LOSS MITIGATION
Mortgagees attempt to devise a delinquency resolution
without having to resort to lengthy and expensive
litigation (foreclosure). Loss Mitigation methods
include: Creative Forbearance Plans, Pre-Foreclosure
Short Sales, Deed-in-Lieu of Foreclosure, Deferments,
Modifications, Refinances.
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M
MAJORITY
The age at which a person may handle his or her
own affairs.
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MARGIN
The amount a lender adds to the index on an adjustable
rate mortgage to establish the adjusted interest
rate.
top
MARGIN CALL
A call for the deposit of additional funds or
collateral to offset trading losses on an outstanding
position that is subject to margin.
top
MARK TO
THE MARKET
The daily adjustment of margin accounts to reflect
the market gain or loss on the position relative
to the daily settlement price.
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MARKET
APPROACH TO VALUE
In appraising, the market value estimate is predicated
upon actual prices paid in market transactions.
It is a process of correlation and analysis of
similar recently sold properties.
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MARKET VALUE
The highest price that a buyer would pay and
the lowest price a seller would accept on a property.
Market value may be different from the price a
property could actually be sold for at a given
time.
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MARKETABLE
TITLE
Title without defects or claims so as to be readily
accepted without fair or reasonable doubt. Compare,
INSURABLE TITLE.
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MATURITY DATE
The scheduled date for your final payment on
a loan. After making the payment on a loan's maturity
date, you assume complete ownership of your home
from the lender.
top
MECHANIC'S
LIENS
The right of an unpaid contractor, laborer or
supplier to file a lien against property to recover
the value of his work
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METES AND
BOUNDS
A means of describing land by directions and
distances rather than reference to a lot number.
Generally used when land has not been subdivided
into lots.
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MIP
(MORTGAGE INSURANCE PREMIUM)
An insurance from FHA to the lender against incurring
a loss on account of the borrower's default.
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MONTHLY
HOUSING ALLOWANCE
The percentage of a person's income they can
comfortably use each month to pay for where they
live—with enough left over to spend on food, clothing,
and other luxuries. As the result of a series
of mind-numbing calculations, mortgage experts
have determined that most folks can spend approximately
28% of their total income on housing.
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MORTGAGE
A voluntary lien filed against property to secure
a debt, usually a loan. It states that if you
don't make your payments on the loan in a timely
fashion, you may lose your rights to ownership
of the home. To foreclose, the lender must often
institute a court action and the borrower may
have the right to reclaim the property after foreclosure.
Compare, DEED OF TRUST.
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MORTGAGE-BACKED
SECURITIES
Bond-type investment securities representing
an undivided interest in a pool of mortgages or
trust deeds. Income from the underlying mortgages
is used to pay of the securities.
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MORTGAGE BANKER
A firm or individual who originates loans for
sale to other investors. The mortgage banker generally
continues to service the loans.
top
MORTGAGE BANKING
The packaging or mortgage loans secured by real
property to be sold to a permanent investor with
servicing retained for the life of the loan for
a fee. The origination, sale, and servicing of
mortgage loans by a firm or individual. The investor-correspondent
system is the foundation of the mortgage banking
industry.
top
MORTGAGE BROKER
A firm or individual who brings the borrower
and lender together, receiving a commission if
a sale results. A mortgage broker does not retain
servicing.
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MORTGAGE
INSURANCE
Money paid to insure the mortgage when the down
payment is less than 20 percent. See private mortgage
insurance, FHA mortgage insurance.
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MORTGAGE
PORTFOLIO
The aggregate of mortgage loans held by an investor,
or serviced by a mortgage banker.
top
MORTGAGE
REVENUE BOND
Bonds issued by public entity payable from revenues
derived from repayments of interest on mortgage
loans that were financed from the proceeds of
bonds.
top
MORTGAGEE
The lender
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MORTGAGOR
The borrower or homeowner
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N
NEGATIVE
AMORTIZATION
Occurs when your monthly payments are not large
enough to pay all the interest due on the loan.
This unpaid interest is added to the unpaid balance
of the loan. The danger of negative amortization
is that the homebuyer ends up owing more than
the original amount of the loan.
top
NEGOTIABLE
INSTRUMENT
Under the Uniform Commercial Code, an instrument
that meets certain legal requirements and can
be transferred by endorsement or delivery.
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NET EFFECTIVE
INCOME
The borrower's gross income minus federal income
tax.
top
NET WORTH
The difference between total assets and total
liabilities.
top
NON ASSUMPTION
CLAUSE
A statement in a mortgage contract forbidding
the assumption of the mortgage without the prior
approval of the lender. Note: The signed obligation
to pay a debt, as a mortgage note.
top
NOTARY PUBLIC
One authorized by law to acknowledge and certify
documents and signatures.
top
NOTE
A written promise to pay a certain sum of money
at a certain time. A negotiable note starts Pay
to the order of and is transferable by endorsement
similar to a check.
top
O
OBLIGATIONS
The things you have to pay for consistently each
month, excluding housing costs. Obligations include
things like car loans, credit card bills, student
loans, and alimony or child support.
top
OFFER
A proposal; after acceptance it becomes a contract.
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OFFICE
OF THRIFT SUPERVISION (OTS)
The regulatory and supervisory agency for federally
chartered savings institutions. Formally known
as Federal Home Loan Bank Board
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OPEN-END
MORTGAGE
A mortgage with a provision that the outstanding
loan amount may be increased upon mutual agreement
of the lender and the borrower.
top
OPTION
A right given for a consideration to keep an
offer to purchase or lease open for specific time.
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ORIGINATION
FEE
The fee charged by a lender to prepare loan documents,
make credit checks, inspect and sometimes appraise
a property; usually computed as a percentage of
the face value of the loan.
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ORIGINATOR
A person who solicits builders, brokers, and
others to obtain applications for mortgage loans.
Origination is the process by which a mortgage
banker or direct lender brings into being a mortgage
secured by real property.
top
OWNER OF RECORD
The actual owner of a property, according to
public records.
top
P
PAR
A situation where the face value of a mortgage
(or bond) principal equals its actual selling
price -- that is, with no discount or premium.
top
PARCEL
A piece of land or property under one ownership.
Parcels are created when a single large property
is sub-divided into many smaller pieces of property.
top
PARTITION
The forced division of land among parties who
were formerly co-owners. A partition suit may
ask to divide the land or if that is not practical,
sell the land and divide the proceeds.
top
PAYOFF SCHEDULE
The dollar figure in the Payment Schedule represent
the principal, interest, plus Private Mortgage
Insurance (if applicable) over the life of the
loan. These figures will not reflect taxes and
insurance escrows or any temporary buydown payments
contributed by the seller.
top
PAY-OFF AMOUNT
A total balance, mount of a full payment on existing
loan or lien.
top
PER-DIEM
INTEREST
Interest charges that cover the period of time—usually
a matter of days, or a few weeks—between when
you close on your home, and the first day of the
first month of your regular loan payments.
top
PERMANENT LOAN
A long term mortgage, usually ten years or more.
Also called an end loan.
top
PIGGYBACK
FINANCING
Two different mortgagors participating in the
same loan.
top
PIPELINE
Term used to express loan applications in process
up until closing or until the mortgage is sold;
used when analyzing mortgage loan inventory or
commitment coverage.
top
PIPESTEM LOT
A lot connected to a public street by a narrow
strip of land. Usually several adjacent pipestems
are combined to form one driveway with each owner
having a mutual-reciprocal easement to use and
maintain the driveway to the street.
top
PITI
Principal, Interest, Taxes and Insurance. Also
called monthly housing expense.
top
PLAT
A map showing the division of piece of land with
lots, streets and, if applicable, common area.
top
PLEDGED
ACCOUNT MORTGAGE (PAM):
Money is placed in a pledged savings account
and this fund plus earned interest is gradually
used to reduce mortgage payments.
top
POINTS
(LOAN DISCOUNT POINTS)
Prepaid interest assessed at closing by the lender.
Each point is equal to 1 percent of the loan amount
(e.g., two points on a $100,000 mortgage would
cost $2,000).
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POWER OF
ATTORNEY
A written document authorizing another to act
on his behalf as an ATTORNEY IN FACT. One does
not need to be a licensed attorney to act as an
attorney in fact but, power of attorney forms
are powerful legal documents that should be used
only under advice of a licensed attorney at law.
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PRE-APPROVAL
A way you can establish your ability to get a
home loan worth a certain amount of money, even
before you've found the home you want to buy.
The pre-approval process is done in conjunction
with a specific lender; the results are based
on the total income of your household, the amount
of your monthly debt, as well as other factors—depending
on your situation as a home buyer.
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PRE-FORECLOSURE
SHORT SALE
Mortgagor may sell the secured property for an
amount that will produce insufficient proceeds
to pay the mortgagee in full. The Mortgagee agrees
to accept a payoff which is short of the full
amount in lieu of incurring the expense and time
of foreclosing. Pre-foreclosure Short Sales are
usually the product of a reduced market value.
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PREPAID EXPENSES
Necessary to create an escrow account or to adjust
the seller's existing escrow account. Can include
taxes, hazard insurance, private mortgage insurance
and special assessments.
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PREPAID
FINANCE CHARGE
Certain charges made in connection with the loan
and which must be paid upon closing. The charges
are defined by the Federal Reserve Board in Regulation
Z and the charges must be paid by the borrower.
Examples include, loan origination fees, points,
PMI, and tax service fees. Prepaid finance charges
are totaled and then subtracted from the Loan
Amount. The net figure is the amount financed.
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PREPAYMENT
A privilege in a mortgage permitting the borrower
to make payments in advance of their due date.
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PREPAYMENT
CLAUSE
A condition written into a mortgage that gives
a borrower the privilege of paying off a loan
in full before the final scheduled payment date.
The borrower usually must agree to pay a pre-determined
fee to do so.
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PREPAYMENT
PENALTY
An additional charge imposed by the lender for
paying off a loan before the due date. Prepayment
penalties are allowed in some form (but not necessarily
imposed) in many states.
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PRIMARY
MORTGAGE MARKET
Lenders making mortgage loans directly to borrower's
such as savings and loan associations, commercial
banks, and mortgage companies. These lenders sometimes
sell their mortgages into the secondary mortgage
markets such as to FNMA or GNMA, etc.
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PRIME RATE
The most favorable interest rate charged by lenders
on a short term loans to qualified customers.
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PRINCIPAL
The amount of debt, not counting interest, left
on a loan.
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PRIVATE
MORTGAGE INSURANCE (PMI)
In the event that you do not have a 20 percent
down payment, lenders will allow a smaller down
payment - as low as 3 percent in some cases. With
the smaller down payment loans, however, borrowers
are usually required to carry private mortgage
insurance. Private mortgage insurance will usually
require an initial premium payment and may require
an additional monthly fee depending on you loan's
structure.
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PROBATE
Court process to prove a valid will.
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PRO FORMA
STATEMENT
Latin word meaning according to form; a projection
of anticipated income, expenses, and cash flow
from an investment enterprise.
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PROMISSORY
NOTE
A written unsecured note promising to pay a specified
amount of money on demand, transferable to a third
party.
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PROPERTY
PRESERVATION
Taking adequate steps to preserve a vacated property
from casual entry and inclement weather such as
changing locks, repairing/replacing/boarding windows
or doors, fixing leaking roofs and general maintenance
and upkeep.
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PRORATE
To divide in proportionate shares, such as taxes,
insurance, rent, or other items which the buyer
and seller share as of the time of closing, or
other agreed upon time.
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PROSPECTUS
A proposal or offering in conjunction with the
sale of improved or unimproved property that outlines
all aspects of the offer. Regulations of the Securities
and Exchange Commission require many real estate
offerings to be described by a detailed prospectus.
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PUBLIC RECORDS
The documents that are evidence of real estate
transactions, which are usually stored at the
county courthouse and are accessible, by law,
to the general public.
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PUBLIC SALE
Sale, auction open to the public.
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PUNCH LIST
A written inventory of things that need to be
done to a home in order to meet the requirements
of a sales contract.
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PURCHASE
AGREEMENT
An unconditional sales contract that defines
the terms and conditions under which real property
is conveyed.
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PURCHASE CAPITAL
The total amount of money a person uses to buy
a home, regardless of the source.
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PURCHASE
MONEY MORTGAGE (PMM)
Seller financing as a part of the purchase price.
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PUT
An option to sell a specific security at a specified
price within a designated period.
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Q
QUIET TITLE
A suit brought to remove a claim or objection
on title.
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QUIT CLAIM
DEED
A deed releasing whatever interest you may hold
in a property but making no warranty whatsoever.
Compare, SPECIAL WARRANTY DEED and GENERAL WARRANTY
DEED
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R
RATE LOCK
A way you can establish that the interest rate
on your loan remains the same between the time
of your application, and when you qualify for
the loan. When applying for a loan, you can lock
the interest rate for a specific amount of time;
depending on the length of the lock, this feature
may cost as much as 1% of the total value of the
loan, although often it is offered free of charge
by the lender.
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REAFFIRMATION
AGREEMENT
Debtor who has filed bankruptcy reconfirms the
promise to pay a debt after filing bankruptcy.
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REAL ESTATE
Land and anything permanently affixed to the
land, and those things attached to the building.
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REAL
ESTATE INVESTMENT TRUST (REIT)
An investment vehicle established for the benefit
of a group of real estate investors and managed
by one or mire trustees who hold title to the
assets for the trust and control its acquisitions
and investments.
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REALTOR
A real estate broker or an associate holding
active membership in a local real estate board
affiliated with the National Association of Realtors.
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REASONABLE
INVESTIGATION
Statutory process in some foreclosure court jurisdictions
mandating the procedures required to certify to
the court that the defendant (mortgagor) cannot
be found for the purpose of serving (hand delivering)
a notice of a complaint in foreclosure, thereby
permitting alternate service, usually publication
of the complaint in an approved newspaper or nailing
it to the door of the property which is called
Posting.
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REASSESSMENT
The process of updating the understood value
of a property for tax purposes.
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RECISION
The cancellation of a contract. With respect
to mortgage refinancing, the law that gives the
homeowner three days to cancel a contract in some
cases once it is signed if the transaction uses
equity in the home as security.
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RECONCILED
VALUE
The Fair Market Value of a property as determined
by the weighted analysis of different types of
opinions of value such as an Appraisal, BPO (Broker's
Price Opinion), CMA (Comparative Market analysis),
Property Inspections, Electronic Data, and other
methodology such as interviews with the producers
of these products and corporate field inspections.
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RECORDING
The noting in the registrar’s office of the details
of a property executed legal document, such as
a deed, mortgage, a satisfaction of mortgage,
or an extension of mortgage, thereby making it
a part of the public record.
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RECORDING FEES
Money paid to the lender for recording a home
sale with the local authorities, thereby making
it part of the public records.
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REDLINING
The practice of restricting or denying mortgage
loans for certain areas in a discriminatory pattern.
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REFINANCE
Obtaining a new mortgage loan on a property already
owned. Often to replace existing loans on the
property.
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REINSTATEMENT
The curing of all defaults by a borrower; the
restoration of a loan to current status through
payment of arrearages.
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REMAINDER
An interest in land that is postponed until the
termination of some other interest such as a LIFE
ESTATE. Compare, FEE SIMPLE.
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RENEGOTIABLE
RATE MORTGAGE
A loan in which the interest rate is adjusted
periodically. See adjustable rate mortgage.
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REPURCHASE
AGREEMENT
An agreement to sell mortgage-backed securities
to a party with a simultaneous agreement by the
purchaser to resell them to the original party
at a specified future date and price.
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RESISSUE RATE
A discounted rate for title insurance when the
title was previously insured with an owner's title
insurance policy issued within the last ten years.
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RESPA
Short for the Real Estate Settlement Procedures
Act. RESPA is a federal law that allows consumers
to review information on known or estimated settlement
cost once after application and once prior to
or at a settlement. The law requires lenders to
furnish the information after application only.
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RETIRE A DEBT
When you pay off your home loan completely, thereby
fulfilling your obligation under the loan contract.
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REVERSE
ANNUITY MORTGAGE (RAM)
A form of mortgage in which the lender makes
periodic payments to the borrower using the borrower's
equity in the home as Satisfaction of Mortgage:
The document issued by the mortgagee when the
mortgage loam is paid in full. Also called a release
of mortgage.
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REVERSE
REPURCHASE AGREEMENT
An agreement to purchase mortgage-backed securities
from a party with a simultaneous agreement to
resell them at a specified future date and price.
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REVERSION
A provision in a conveyance that the land will
return to the grantor upon the happening of an
event or contingency. Compare, FEE SIMPLE.
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RIPARIAN RIGHTS
The rights of an owner of land adjacent to water.
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ROLLOVER
Renewal of a loan at the time of maturity; Reinvestment
of the proceeds of the sale of a housing unit
into another, which defers payment of the tax
on the gain from the sale.
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ROLLOVER
MORTGAGE
A mortgage that provides for renegotiation of
the interest rate and payment terms, typically
at each five-year period of its term. Sometimes
referred to as a Canadian rollover mortgage.
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S
SBA
Small Business Administration.
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SECOND MORTGAGE
A mortgage recorded after a First mortgage, ranks
second in priority.
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SECONDARY
FINANCING
A loan secured by a second mortgage on a property,
sometimes used to refer to any financing technique
other that equity or first-mortgage debt.
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SECONDARY
MARKET
A market for the purpose of purchase and sale
of existing mortgages usually at discounted prices
to provide greater liquidity to the mortgagee/lender.
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SECONDARY
MORTGAGE MARKET
The place where primary mortgage lenders sell
the mortgages they make to obtain more funds to
originate more new loans. It provides liquidity
for the lenders.
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SECURED PARTY
The party holding a security interest or lien;
may be referred to as a mortgagee, the conditional
seller, or the pledge.
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SECURITIES
AND EXCHANGE COMMISSION (SEC)
The federal agency which regulates securities
and the securities business. It is involved in
real estate and mortgage lending when MBS are
issued.
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SECURITY
Real or personal property pledged by a borrower,
as additional protection for the lender’s interest.
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SECURITY
INSTRUMENT
The mortgage or trust deed evidencing the pledge
of real estate security as distinguished from
the note or other credit instrument.
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SELF-AMORTIZING
LOAN
A loan that gets paid back through regular monthly
installments, each of which is a combination of
a pay-backs to the principal of the loan, and
its interest charges.
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SENSITIVITY
ANALYSIS
A method of valuation of the rate of return on
an investment which changes with a single factor.
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SERVICE
OF THE COMPLAINT
Hand delivery of a Complaint in Mortgage Foreclosure
to all mortgagors of a mortgage being foreclosed.
Service is usually perfected (completed) by a
Sheriff, Deputy Sheriff, or authorized process
server. Foreclosure cannot be continued until
such time as the complaint has been served and
the mortgagor has had the prescribed time to reply,
usually 21 days.
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SERVICING
All the steps and operations a lender performs
to keep a loan in good standing, such as collection
of payments, payment of taxes, insurance, property
inspections and the like.
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SERVICING
AGREEMENT
A written agreement between an investor and mortgage
servicer stipulating the rights and obligations
of each party.
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SERVICING
INCOME
Income derived from servicing.
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SERVICING
RUNOFF
The dollar amount of principal paid off on a
mortgage or mortgage portfolio.
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SETTLEMENT/SETTLEMENT
COSTS
See closing/closing costs
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SETTLEMENT
STATEMENT
A statement prepared by broker, escrow, or lender,
giving a complete breakdown of costs involved
in a real estate sale.
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SHARED
APPRECIATION MORTGAGE (SAM)
A mortgage in which a borrower receives a below-market
interest rate in return for which the lender (or
another investor such as a family member or other
partner) receives a portion of the future appreciation
in the value of the property. May also apply to
mortgage where the borrowers shares the monthly
principal and interest payments with another party
in exchange for part of the appreciation.
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SIMPLE INTEREST
Interest which is computed only on the principle
balance.
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SINKING FUND
A fund that, with interest, will serve as payment
for future replacements required for an income
property.
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SITE ASSESSMENT
A mandatory environmental inspection that checks
for the existence of hazardous waste on the premises
of a home that's being sold.
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SOFT DOLLARS
The amount invested in the development of a purchase
of a property that is immediately deductible for
tax purposes, such as prepaid interest and fees.
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SPECIAL
ASSESSMENT
Additional tax imposed by the local government
for public improvements such as new streets, etc..
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SPECIAL
WARRANTY DEED
The seller warrants he has done nothing to impair
title but makes no warranty before his ownership.
Compare, GENERAL WARRANTY DEED and QUITCLAIM DEED.
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SPECIFIC
PERFORMANCE
A legal action to complete the performance of
a contract.
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STANDBY
COMMITMENT
A commitment to purchase a loan or loans with
specified terms, both parties understanding that
delivery is not likely unless circumstances warrant.
The commitment is issued for a fee with willingness
to fund in the event that a permanent loan is
not obtained. Such commitments are typically used
to enable the borrower to obtain construction
financing at a lower cost on the assumption that
permanent financing of the project will be available
on more favorable terms when the improvements
are completed and the project is generating income.
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STANDBY CONTRACT
An option to sell a specified amount of mortgages
or mortgage-backed securities by or on a specified
date at a specified price.
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STANDBY FEE
A nonrefundable fee paid by a borrower to a lender
for a standby commitment.
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STANDING
MORTGAGE
A loan where no amortization payments are required
and the entire loan comes due at maturity. Interest
is normally paid at periodic intervals while the
loan is standing.
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STATUTE
OF LIMITATIONS
The time period to file a law suit to enforce
a claim or it is barred by law.
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SUBDIVISION
Dividing land into lots and streets. The owner
signs a PLAT and Deed of Resubdivision which is
recorded among the land records. The state and
county have strict requirements for subdivision
of land.
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SUBJECT TO
Taking title to property with a lien but not
agreeing to be personally responsible for the
lien. If the holder who forecloses the lien can
take the property but may not collect any money
from the owner who took subject to. Compare, ASSUMPTION.
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SURVEY
A measurement of land, prepared by a registered
land surveyor, showing the location of the land
with reference to know points, its dimensions,
and the location and dimensions of any buildings.
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SWEAT EQUITY
Equity created by a purchaser performing work
on a property being purchased.
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T
TAX LIEN
A claim against property for the amount of its
due and unpaid taxes.
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TENANTS
BY THE ENTIRETY
A husband and wife own the property with the
common law right of survivorship so, if one dies,
the other automatically inherits. One may not
sue the other to PARTITION the property. A creditor
of one may not claim the property or the proceeds
of sale. Compare, TENANT IN COMMON, JOINT TENANTS.
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TENANTS IN
COMMON
Two or more persons own the property with no
right of survivorship. If one dies, his interest
passes to his heirs, not necessarily the co-owner.
Either party, or a creditor of one, may sue to
PARTITION the property. Compare, TENANTS BY THE
ENTIRETY, JOINT TENANTS.
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TERM
The period of time between the commencement date
and termination date of a note, mortgage, legal
document, or other contract.
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TESTATE
To die with a Will. Compare, INTESTATE.
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TESTATOR
One who makes out a last will and testament.
The feminine form is Testatrix.
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TITLE
The legal, written evidence that identifies the
owner of a home or piece of property, and outlines
that person's rights as owner. At the time of
a home sale, the title passes from the seller
to the buyer and the lender who is providing the
buyer's home loan. The buyer gets the title when
their home loan is paid back in full.
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TITLE INSURANCE
A policy, usually issued by a title insurance
company, which insures a home buyer against errors
in the title search. The cost of the policy is
usually a function of the value of the property,
and is often borne by the purchaser and/or seller.
Policies are also available to protect the lender's
interests. Title insurance covers mistakes made
during a TITLE SEARCH as well as matters which
could not be found or discovered in the public
records such as missing heirs, mistakes, fraud
and forgery. Compare, CERTIFICATE OF TITLE.
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TITLE SEARCH
An examination of the public records, including
court decisions, to disclose facts concerning
the ownership of real estate. The title examiner
prepares an ABSTRACT and the title agent prepares
a BINDER, but decisions regarding the legal sufficiency
of title or questions requiring legal interpretation
must be resolved by a licensed attorney at law.
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TOTAL OF
PAYMENTS
The total of all payments made toward principal,
interest, and mortgage insurance (if applicable)
over the life of the loan.
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TRUST
A right to or in property held for the benefit
of another. A trust may be written or implied.
An implied trust is called a Constructive Trust.
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TRUST DEED
The instrument given by a borrower (trustor)
to a trustee vesting title to a property in the
trustee as security for the borrower's fulfillment
of an obligation.
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TRUSTEE
One who holds property in Trust for another.
Appointee of the Bankruptcy Court to act as a
court officer in charge of a debtor's assets until
such time as the court determines how those assets
will be liquidated.
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TRUTH-IN-LENDING
A federal law requiring disclosure of the Annual
Percentage Rate to home buyers shortly after they
apply for the loan. Also known as Regulation Z.
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TWO-STEP
MORTGAGE
A mortgage in which the borrower receives a below-market
interest rate for a specified number of years
(most often five or 7), and then receives a new
interest rate adjusted (within certain limits)
to market conditions at that time. the lender
sometimes has the option to call the loan due
with 30 days notice at the end of five or 7 years.
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U
UNDERWRITING
The decision whether to make a loan to a potential
home buyer based on credit, employment, assets,
and other factors and the matching of this risk
to an appropriate rate and term or loan amount.
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UP-FRONT COSTS
The total amount of cash you need to pay when
you buy a home, minus the amount of your loan.
Up front costs include your down payment, any
closing fees you must pay—like broker's commissions
or insurance charges—and the discount points you
can use to lower your overall interest rate.
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USURY
Charging more than the maximum legally permitted
rate of interest.
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V
VA LOAN
A long-term, low-or no-down payment loan guaranteed
by the Department of Veterans Affairs. Restricted
to individuals qualified by military service or
other entitlements.
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VA
MORTGAGE FUNDING FEE
A premium of up to 1-7/8 percent (depending on
the size of the down payment) paid on a VA-backed
loan. On a $75,000 fixed-rate mortgage with no
down payment, this would amount to $1,406 either
paid at closing or added to the amount financed.
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VALUATION
Estimation of value or price through appraisal.
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VARIABLE
RATE MORTGAGE (VRM)
See Adjustable Rate Mortgage
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VERIFICATION
OF DEPOSIT (VOD)
A document signed by the borrower's financial
institution verifying the status and balance of
his/her financial accounts.
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VERIFICATION
OF EMPLOYMENT (VOE)
A document signed by the borrower's employer
verifying his/her position and salary.
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VESTED INTEREST
A fixed right to the enjoyment of real estate
by a specified person, subject to termination
of a previous estate.
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W
WAIVER
Relinquishment of a right.
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WAREHOUSE FEE
Many mortgage firms must borrow funds on a short
term basis in order to originate loans which are
to be sold later in the secondary mortgage market
(or to investors). When the prime rate of interest
is higher on short term loans than on mortgage
loans, the mortgage firm has an economic loss
which is offset by charging a warehouse fee.
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WAREHOUSING
The borrowing of funds by a mortgage banker on
a short-term basis using permanent mortgage loans
as collateral. This form of interim financing
is used until the mortgages are sold to a permanent
investor.
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WARRANTY DEED
A deed conveying the title to a property with
a warranty of clean, clear marketable title
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WRAPAROUND
The debt secured includes an existing debt already
on the property. The payments made to the holder
of the wraparound include payments due on the
existing loan and the holder must forward the
appropriate portion of each payment to the existing
noteholder. Often used to avoid a PREPAYMENT PENALTY
or a DUE ON SALE CLAUSE. Can refer to a wraparound
DEED OF TRUST or CONTRACT FOR DEED.
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WRAPAROUND
MORTGAGE
Results when an existing assumable loan is combined
with a new loan, resulting in an interest rate
somewhere between the old rate and the current
market rate. The payments are made to a second
lender or the previous homeowner, who then forwards
the payments to the first lender after taking
the additional amount off the top.
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Y
YIELD
The ratio of investment income to the total investment
amount over a given period of time.
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Z
ZONING
Regulation of private land use and development
by local government.
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