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.
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.
Accretion The buildup of land from natural forces such as wind or water.
Acre 43,560 square feet of land.
Actual Age vs. Effective Age The actual age is the number of years since the structure was built. The effective age is the age that the improvements appear to be.
Ad valorem taxes Property taxes are known as "ad valorem", meaning according to value. The higher the assessed value of real estate, the higher the property taxes.
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.
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.
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.
Adverse Possession A claim made against land titled to another person based on open, notorious and hostile possession and use of the land to the exclusion of the titled owner.
Affordable Housing The U.S. Federal government has determined that no more than 30% of gross income should be spent on total housing cost. Affordable housing must meet that standard. See our Affordable Housing Pages
Agent One who is empowered to act for or in the place of another. (eg. real estate broker, property manager)
Alienate To transfer the title or ownership of property from one person to another.
Amenities Attractive or desirable features of a property.
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.
Annual percentage rate (A.P.R.) Is a 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 point and other credit cost. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.
Appraisal An estimate of the value of property, made by a qualified professional called an "appraiser".
Appurtenance Anything attached to the land or used with it passing to the new owner.
Assessed Valuation The value assigned to real estate by a state or local taxing authority. Property taxes are then determined by using a percentage of that assessed value. Some units of government tax property based on 100% of assessed value, others use various fractions, times the current tax levy.
Assessment A local tax levied against a property for a specific purpose, such as a sewer or street lights.
Assumption 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, probably higher, market-rate interest charges will apply.
Assignee: The person to whom property is transferred. (In real estate terminology, "or's" give, "ee's" receive.)
Assignment: The legal transfer of rights or interest in property to another person.
Assignments of rents clause: A clause in a land-contract or trust deed which, in the event of a default, gives the beneficiary the right to collect rents of the secured property.
Assumption: The act of assuming or taking over the primary liability for payment of an existing mortgage, land-contract or trust deed.
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.
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. The final payment on a note which is greater than the preceding installment payments. Real estate law considers that any final payment twice as great as the smallest installment payment is a balloon payment.
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.
Beneficiary: One who receives the income from a trustor. The lender on a note and trust deed transaction. A person named in a insurance policy or a will to receive property.
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.
Blanket Mortgage A mortgage covering at least two pieces of real estate as security for the same mortgage.
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.
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.
Buy-down When the lender and/or the home builder subsidized 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
Buyers Remorse Law: Most states have this law which allows a tenant 3 days after signing the lease to change his / her mind, and therefore break the lease, with no penalty.
Capitalization Rate The capitalization rate, or "cap rate," is the yield that an owner receives on his or her investment-the return rate that is considered reasonable compensation for the investment. The cap rate is determined using the following formula:
Cap rate = Net operating income divided by the total amount of the investment.
Cash on Cash Rate of Return The cash on cash rate of return method uses cash flow analysis to determine the value of property. It is calculated using the following formula:
Cash on cash rate of return is Net operating income - debt service Equity
Cash Flow 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).
Caveat Emptor Buyer beware. The buyer must inspect the property and satisfy himself that 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.
Certificate of Eligibility , The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).
Certificate of Reasonable Value (CRV) An appraisal issued by the Veterans Administration showing the property's current market value
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.
Chattel mortgage: A personal property mortgage.
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.
Closing Costs The fees charged to affect a transfer of real estate ownership and obtain financing. Some costs like: title insurance, document preparation and recording fees are often paid by the seller. The buyer usually pays for: property tax, utility and assessment perorations, inspections, prepaid insurance, appraisals, surveys and financing costs.
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 paper work or compliance with stated conditions.
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.
Conventional loan A mortgage not insured by FHA or guaranteed by the VA.
Condemnation The act by Government of appropriating private property through the exercise of the power of eminent domain for public use upon the payment of a fair compensation.
Constructive Eviction: May occur when the tenant moves in the following situations:
- When a landlord begins construction on nearby buildings causing too much dust and noise,
- Where severe code violations exist
- When a landlord physically prevents a tenant from using the premises for the purpose for which they were intended Credit Report A report documenting the credit history and current status of a borrower's credit standing.
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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.
Deed of trust In many states, this document is used in place of a mortgage to secure the payment of a note.
Default Failure to meet legal obligations in a contract, specifically, failure to make the monthly payments on a mortgage.
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.
Deferred maintenance A term used in the real estate business to describe why a building is falling down.
Delinquency Failure to make payments on time. This can lead to foreclosure.
Demise: A transfer to another of an estate for years, for life, or at will.
Department of Veterans Affairs (VA) An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.
Depreciation: Depreciation is the loss of a property's value due to any source. Although homes historically increase in value over the long term, once they age their market values are never as great as their costs to rebuild. Similarly, a home compared with another may be worth less for many different reasons. Therefore, this value difference may also be referred to as depreciation. Typically, however, investors use the term as it relates to tax shelter. Since the 1986 Tax Reform Act, a residential rental property can be depreciated over 27.5 years, then the amount of paper loss can be deducted from income for tax purposes.
Discount Point See point.
Down Payment Money paid to make up the difference between the purchase price and the mortgage amount. Due-on-Sale-Clause A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.
Earnest Money Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.
Economic obsolescence Loss in value from reduced desirability and usefulness of a structure resulting from such extraneous causes as zoning regulations, deteriorating neighborhoods, excessive taxation, or rent controls.
Encumber: To place a lien or charge on a property.
Entitlement The VA home loan benefit is called entitlement. Entitlement for a VA guaranteed home loan. This is also known as eligibility.
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 of income from public assistance programs.
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.
Escrow A part of a transaction, usually a sale, where the seller delivers evidence of title to a third person to be held until the performance of a prescribed condition, after which the evidence of title is delivered to the buyer.
Escrow-Impound An account held by the lender into which the home buyer pays money for tax or insurance payments. Also earnest deposits held pending loan closing.
Estoppel Certificate A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.
Executor A person named in a will to carry out its terms and administer the estate. The feminine form is Executrix. Compare, Administrator
Fair Credit Reporting Act The Fair Credit Reporting Act (FCRA), as amended September 30, 1997, regulates consumer credit information gathering and dissemination. It dictates a seven and ten year limit on how long negative information can be reported. The Act also provides a method for correcting erroneous information in a credit file. The 1997 amendment covers landlord tenant relationships and requires landlords to notify tenants if they have been rejected because of information in their credit file or references from previous landlords. See our FCRA Pages
Fair Housing Act The Fair Housing Act, as amended in 1988, prohibits discrimination in housing based on race, color, religion, national origin, sex, physical or mental handicap, or living with children, except that housing for older persons may exclude children.
Fair Market Value The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and the seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised and each acting in what he considers his own best interest; (3) a reasonable time is allowed in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions *granted by anyone associated with the sale. *adjustments to the comparables must be made for special or creative financing or sales concessions.
Fannie Mae see Federal National Mortgage Association .
Farmers Home Administration (FmHA) Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.
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
Federal Home Loan Mortgage Corporation FHLMC, known as Freddie Mac, and FNMA, popularly known as Fannie Mae, are government-sponsored enterprises (GSEs) formed to support a secondary market for residential mortgages. Although they have different histories, the two GSEs are now functionally identical. They are both highly profitable. Given the extent to which capital is now directed into housing the question has been raised as to whether the GSEs still need their full array of government privileges to do what they do.
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.
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. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.
Fee Simple The absolute total interest in real property. Compare, Life Estate Reversion.
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.
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.
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." See: Federal Home Loan
Fixed Rate Mortgage The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.
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."
Four F Property Find them, fix them, flip them and forget them. A term used by investors who buy to fix up and resell.
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.
Freddie Mac see Federal Home Loan Mortgage Corporation.
Functional Obsolescence A type of depreciation reflecting loss in value from out-of-date, old fashioned, or poorly designed equipment and fixtures.
Ginnie Mae see Government National Mortgage Association.
Government National Mortgage Association (GNMA)
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.
Grant Deed The customary document used in California to transfer title to real property. It contains two implied warranties; that the owner has the right to sell and that there are no liens or other clouds on the title.
Gross Rent Multiplier The simplest way to obtain cursory estimates of the value of a property-the so-called " yardstick value "-is to calculate the gross rent multiplier (GRM). This method compares the property's sale price with its current gross annual rental income to determine whether the income will cover your new mortgage and operating expenses. The gross rent multiplier is calculated using the following formula: GRM = Sale price divided by the Gross annual rents The higher the gross rent multiplier, the more likely the property will yield a negative cash flow. Investors should not pay more than five to six times gross rent.
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.
Hazard Insurance A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.
Historic Building. A depreciable structure that is certified and listed in the National Register of Historic Places or listed in a registered historic district, if the structure is certified as contributing to the significance of the district.
Historic District. Registered historic districts include those on the National Register of Historic Places and those that have been state or locally designated, if the ordinance or act authorizing the district, and the district itself are also certified.
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.
Hypothecate To designate certain property as security for a debt without giving up possession.
Impound-Escrow 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.
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.
Interim Financing A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.
Internal Rates of Return Internal rate of return (IRR) and financial market rate of return (FMRR) are sophisticated valuation methods used when properties have uneven and/or negative cash flows. They usually factor in tax ramifications and a sale of the property at some future date. The IRR uses discounted cash analysis to measure investment yield. The FMRR is a modified IRR that accounts for negative cash flows by using a safe estimated rate to save funds and earn interest in profitable years. Investors should note that IRR and FMRR are based on assumptions that may not be accurately predicted.
Involuntary Lien A tax lien, judgment lien, mechanic's lien, or any other which has been legally imposed against a property without the consent of the owner.
Investor A money source for a lender.
Java When an RHOL page is loading you will sometimes see "Loading Java" near the bottom of your screen. Java is a programming language that allows a mini program to be included with a web page. It adds dynamics and interactively but slows loading.
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 . See RHOL pages on Types of Real Estate Ownership
Landlord's Revenge When a landlord has not been able to collect on an old debt for back rent or damages after nine years or so, they sometimes forgive it with a letter to the IRS. The amount of the debt, plus interest, becomes income to the former tenant that year and messes up everything from earned-income tax credits to expected refunds. It takes the place of a Christmas card that year.
Lead-Based Paint Lead has been determined to cause developmental problems in young children when ingested. Lead-based paint was used in and on homes in America until 1978 and continues to present a serious health problem. The federal government has mandated lead-based paint disclosure and information whenever a pre 1978 home is sold or rented. See lead on our Environmental Pages
Lien A claim upon a piece of property for the payment or satisfaction of a debt or obligation.
Life Estate The right to use, occupy and own for the life of an individual. Compare, Fee Simple
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.
Loan-to-Value Ratio The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage.
Low Income Housing Tax Credit A temporary low income housing incentive added to the IRS code in 1986 as part of tax reform that was made permanent in 1993. Investors receive an annual credit of up to their tax bracket times $25,000. The credit must be spread out over 11 years. See our Tax Credit Pages
Margin The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.
Market Analyses A real estate appraisal term for determining what price the property is likely to bring in the local market at a certain point in time. The value is determined by comparing the subject property to similar properties that have recently sold, those that did not sell, and those that are currently being offered for sale.
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.
Mechanic's Lien A statutory lien placed on a property to secure payment for labor or materials contributed to work or improvement on that property.
MIP (Mortgage Insurance Premium) It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.
Mortgage Insurance Money paid to insure the mortgage when the down payment is less than 20 percent. See private mortgage insurance, FHA mortgage insurance.
Mortgagee The lender.
Mortgagor The borrower or homeowner.
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 home buyer ends up owing more than the original amount of the loan.
Neighborhood Analysis A demographic analysis of the area in which a property is located, performed for use in property management planning.
Neighborhood Watch A very successful nationwide program that organizes area residents in an effort to prevent crime and vandalism by watching each other's property. It is usually promoted by the Community Relations Section of local police Departments. Training includes: how to spot trouble and how to report suspicious activity. Signs are posted announcing the existence of the group in the neighborhood as a deterrent.
Net Effective Income The borrower's gross income minus federal income tax.
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.
Net Operating Income Gross income less all operating expenses, including: maintenance, repair, taxes, insurance, management and a reserve for vacancy and uncollected rent. All expenses except mortgage interest and principal.
Office of Thrift Supervision (OTS) The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.
Offset Statement: That statement of an owner or lender which sets forth the present status of any loan against the property. Also, a tenant's declaration of his interest in the property.
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.
Payback Rate : The payback rate is an old-fashioned but widely used yardstick to calculate the owner's return. It simply measures how long it will take for an investor to earn back his or her investment. If the investor purchased a building for $1,000,000 in cash, and the property delivered an annual return of $100,000, at an 8% cost of funds, the payback period would be just under 14 years.
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.
Permanent Loan A long term mortgage, usually ten years or more. Also called an "end loan."
PITI Principal, Interest, Taxes and Insurance. Also called monthly housing expense.
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.
Points (loan discount points) Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount paid to the lender as an incentive to make the loan. (e.g., two points on a $100,000 mortgage would cost $2,000). Points are also used to buy down an interest rate, typically on Government insured loans where the maximum interest rate that can be charged is regulated. In the stock market, a point means one dollar.
Power of Attorney A legal 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
Prepayment A privilege in a mortgage permitting the borrower to make payments in advance of their due date.
Prepayment Penalty Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in many states.
Price Per Square Foot: Calculating price per square foot and price per unit is a good way to evaluate a property against comparable buildings in the area. Commercial buildings are usually leased at a annual square foot rate. So values are compared by calculating the price per square foot. That number is derived by dividing the building's cost or annual lease amount by its square footage. B oth the cost-per-square foot and value per-square-foot of a structure decline, however, when its size is increased by building up or down, rather than outward. For example, a finished area in a basement does not have the same cost or value as living area of identical size on the main floor.
Price Per Unit: Price per rentable unit is more commonly used on residential properties. Price per unit is derived by dividing the sale price by the number of units.
Principal: The amount of debt, not counting interest, left on a loan.
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 5 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.
Quiet Enjoyment: The right of a tenant to use a property without interference.
Quiet Title Action A suit brought for the purpose of establishing clear title to real property or to remove a cloud on the title such as an unjust lien.
Quitclaim Deed A deed containing no warranties of any kind used to transfer any interest in real property which the grantor may have.
Realtor A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.
Regression An appraising principal that holds that a high-valued property placed in an area of lower-valued property seeks the level of the lower-valued property.
Rent Control: Rent control and rent stabilization laws are quite complex and very greatly from city to city, but they all presume an ability to control the price of something without having the same ability to control the cost of providing it. Such laws actually date back to World War II when the federal government tried to regulate the price of things in short supply, including butter, gas and housing. The federal rent control law expired in 1950, but rent-controlled housing continued to exist, since the laws in some states allow them to be kept in a family from generation to generation. The rent in these dwellings may be increased only by an amount set by the government.
Rent Stabilization: A modern term for rent control. Rent "stabilization" laws were a political response to a shortage of affordable housing which actually worsened the problem they were enacted to solve. The laws typically cover multi-unit buildings and usually exempt one and two-family houses. They:
- set-up rent stabilization boards who attempt to regulate the market through edict
- regulate when and how much rent can be increased
- require that landlords continue to provide essential services (even if at a loss)
- define how, when and why a lease may be terminated
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.
Recording Fees Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.
Refinance Obtaining a new mortgage loan on a property already owned. Often to replace existing loans on the property.
Rescind To cancel the contract from the beginning, thus restoring the parties to their original positions.
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.
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 loan is paid in full. Also called a "release of mortgage."
Right Things Wrong. Unsightly but easily repairable. For example:
- Broken porch steps and rails
- Broken windows
- Pealing paint and wallpaper
- Holes in plaster
Second Mortgage A mortgage made subsequent to another mortgage and subordinate to the first one.
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. Security.
Section 8 Housing Assistance A federal Department of Housing and Urban Development program to assist low income tenants in securing decent, safe and affordable housing. Originally a subsidy tied to projects, it now includes certificates and rent vouchers that allow tenants to seek the best housing available in the private market as well. Under the program, a tenant pays 30% of their income for total housing expense, (rent and utilities) the federal government pays the balance directly to the landlord. See our Section 8 Pages
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.
Settlement/Settlement Costs See closing/closing costs.
Simple Interest Interest which is computed only on the principle balance.
SMART Safety Management Alliance of Residents and Tenants, is a program from the Institute of Real Estate Management , designed to increase awareness, encourage commitment, and provide low or no-cost strategies to reduce crime.
Statute of Frauds Rule that requires contracts of one year or more to be in writing in order to be enforceable.
Step Up Clause: A lease term allowing for rent increases at specified times.
Subordination Relinquishing priority to a subsequent mortgage or trust deed.
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.
Sweat Equity Equity created by a purchaser performing work on a property being purchased.
Tenant at Will Tenancy can be terminated at the will of the landlord without cause, with legal notice.
Tenants by the Entiret y 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.
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
Termination vs. Eviction Termination is the ending of a rental agreement or lease by either the landlord or the tenant. Eviction is the forced removal of a tenant and can only be ordered by a judge. See our Eviction Pages
Title A document that gives evidence of an individual's ownership of property.
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 Search An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.
Trust Deed (Deed of Trust): A deed by which a trustor conveys his title to the trustee as security for the payment of a debt.
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.
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.
Usury Interest charged in excess of the legal rate established by law.
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. The loans can be made with no money down on buildings containing up to four units. Interest is usually just below market rates and the mortgages can be assigned to a new buyer using a simple assumption. See our VA Loan Pages
Valuation An estimate of the value or worth of a property.
Variance Change in zoning of a single parcel. Called "legal non-conforming" in some states.
Variable Rate Mortgage (VRM) See adjustable rate mortgage.
Verification of Deposit (VOD) A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.
Verification of Employment (VOE) A document signed by the borrower's employer verifying his/her position and salary.
Waiver Relinquishing specific rights or responsibilities.
Wear and Tear That deterioration which occurs as a result of intended use, without negligence, carelessness, accident, misuse or abuse. See our Ware & Tear Page
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.
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.
Writ of Execution In landlord tenant actions, a writ is a judge's order, usually issued 10 days after judgment, allowing an eviction to proceed. Some states allow immediate removal of a tenant and their property, others require up to a 48 hour notice of intent to proceed.
Zoning: A municipal restriction on the type of building or use permitted in a defined geographic area.
1031 Tax Deferred Exchange Section 1031 of the Internal Revenue Code allows investors to exchange like kind investments for another of equal or greater value. The tax basis in the original property is retained in the new property, so the only advantage is a deferment of the tax due on any realized capitol gain. See our Exchange Pages