This glossary will assist you in understanding many of the terms used in real estate transactions. Though general in nature, these definitions, dependent on the context, may have additional meanings that are different from those published on this site. Please feel free to Contact me if you have any questions.

ADDENDUM - An addition to the contract that must be signed by both parties to be binding.

AMORTIZATION - The payment of a financial obligation on an installment basis. An

AMORTIZED LOAN is a loan that is completely paid off, interest and principal, by a series of regular payments that are equal or nearly equal. Most first mortgages are amortized over 15 or 30 years.

ANNUAL PERCENTAGE RATE (A.P.R.) - The total amount of the finance charge - including interest, points and all loan fees (i.e. escrow, processing, etc.) - calculated as a percentage of the borrowed amount and expressed as a yearly rate.

APPLICATION FEE - This is a fee that may be charged by the lender to cover the costs of processing your loan application. It is usually charged at the beginning of the application process.

APPRAISAL - The professional examination of property for the purpose of estimating its current market value

APPRECIATION - The increase in value of a property due to any cause APPURTENANCE - that which "runs with the land"; anything incident to or attached to the land which is part of the property.

ASSESSED VALUE - The value placed upon a property for property tax purposes by the tax assessor.

ASSIGNMENT - The transfer over to another the whole of any property, real or personal, in possession or in action, or any right or estate therein.

ASSIGNEE is the person receiving the right or property.

ASSIGNOR - is the owner of the right or property, which is being transferred to another.

ASSUMABILITY (ASSUMPTION OF A MORTGAGE or ASSUMPTION OF A DEED OF TRUST) - The agreement by a buyer to assume liability under an existing mortgage or trust deed agreement between seller and lender. Not all loans or loan terms are "assumable." The lender must typically approve the new borrower.

ATTORNEY IN FACT - A person holding power of attorney from another.

BALLOON PAYMENT - Any payment on a note that is greater than the smallest installment payment.

BENEFICIARY - The inheritor of a trust. The lender on a note and trust deed transaction.

BENEFICIARY STATEMENT - Statement of a lender, giving the remaining principal balance and other information regarding the loan. Usually obtained when an owner wishes to sell or refinance.

BINDER - Written evidence of insurance which covers a limited time; to be replaced later with a permanent policy.

BROKER - A person who for compensation or expectation of compensation acts for another in a real estate or related transaction. Requires a California Broker's License.

BUNDLE OF RIGHTS - The law designates the rights that accompany ownership to real property as the bundle of rights. The right to own, possess, use, enjoy, encumber, dispose of, and exclude those who do not share ownership of real property.

CALLED LOAN - A loan that is due and payable at the deman of the lender.

CAPITAL GAIN - The gain received on the sale of real or personal property, other than property sold as stock-in-trade.

CAPITALIZATION - In appraising, determining value of property by considering net income and a percentage of reasonable return on the investment. The conversion of income into value.

CAPITALIZATION RATE - Any rate used to capitalize income.

CHAIN OF TITLE - A history of all of the documents transferring title to a parcel of real estate, beginning when it originally came from the government to a private owner, through the latest document transferring title.

CHATTLE - An item of personal property.

CHATTLE REAL - A personal property right in real estate, such as a lease.

CLOSING - The same as Close of Escrow or COE. The final procedure in a real estate transaction. This is the day the new owner can take possession of the house and actually owns it.

CLOSING STATEMENT - A statement prepared by attorney, broker, escrow company or lender, giving a complete itemization of costs incurred in the real estate transaction.

CLOUD ON TITLE - Any condition which affects the clear title of real property.

COMMINGLING - Unauthorized mixing of personal funds with the funds of a client.

COMMISSION - An agent's compensation (fee) for negotiating a real estate or loan transaction.

COMMUNITY PROPERTY - Property acquired by husband and wife during marriage, when not acquired as separate property.

COMPARATIVE ANALYSIS - A method of appraisal in which selling prices of similar properties are used as the basis for arriving at the value estimate (a.k.a. the Market Data Approach).

COMPOUND INTEREST - Interest paid on original principal and on the accrued and unpaid interest, which has accumulated.

CONDITION - A stipulation or qualification in the deed which, if violated or not performed, defeats the deed and places the title back in the hands of the original grantor.

CONDOMINIUM - A structure of two or more units with each unit being individually owned. The structure and land is owned in common by all the unit owners.

CONSIDERATION - Anything of value given to induce another to enter into a contract including money, service or a promise. This is essential to a valid contract.

CONTINGENCY - A stated fact that must occur before a contract is binding. Example: Contractors inspection must be done and buyers must be satisfied with the condition of the property to remove that contingency.

CONTINGENCY REMOVAL - Must be signed by the buyer to remove any contingency and create a binding contract.

CONTRACT - A deliberate agreement, based upon legal consideration, between two or more parties who have legal capacity, to perform a legal act. A binding promise.

CONVENTIONAL LOAN - A loan that is not underwritten by a government agency.

CONVEYANCE - 1) The transfer of a title. 2) The document, such as a deed, by which the title is officially transferred.

CO-OP - (Co-operative housing) A structure of two or more units which is owned by a corporation made up of the occupants. As such, no real property is owned by the individuals, only shares in the corporation allocated to particular apartments.

CORNER INFLUENCE - The increase in value of a corner lot due to its location.

COVENANT - A clause in a contract; an agreement contained in a deed for the performance or non-performance of certain acts.

CURABLE DEPRECIATION - Items of physical deterioration and functional obsolescence which can be repaired or replaced by a prudent property owner.

DEED OF RECONVEYANCE - The transfer of legal title from the trustee to the trustor (borrower) after a trust deed debt has been paid.

DEED OF TRUST - Used in place of a mortgage in some states. Deed that conveys bare legal title to a trustee to be held as security for a loan on real property.

DEFERRED PAYMENT - A payment under which the total balance of principal and an amount for finance charge is put off until the future. This balance is paid by means of installments over a long period.

DEPOSIT RECEIPT - A term commonly applied to the purchase contract. A form used to receipt "earnest money" accompanying an offer for the purchase of real property.

DEPRECIATION - As used in appraisal, loss in value due to any cause. As used in taxation, a capital cost recovery out of income.

DISCOUNT - To sell a note for less than its face value.

DOCUMENTARY TRANSFER TAX - A method of taxing real property transfers. State law requires that a tax be paid prior to recording a deed.

EARNEST MONEY - A deposit of money accompanying an offer to buy a property; to show good faith.

EASEMENT - A right to use the land of another.

EFFECTIVE AGE - Age of a structure as estimated by its condition rather than actual age. Takes into account rehabilitation and maintenance.

EGRESS - As applied to an easement, a way out; exit.

ENCUMBER - To place a lien or charge on land, or a limitation on the use of property.

EQUITY - The market value of a property minus the amount of any existing liens.

ESCHEAT - Reverting of property to the state upon death of an intestate? (without a will) owner without any heirs.

ESCROW - The temporary holding by a third neutral party of deposited money pending completion of agreed terms in the sales contract. In some states, all instruments necessary to the sale are delivered to the third party with instructions as to their use. (See the escrow explanation sheet within this page.)

ESCROW FEES - The fee that the title company (the third party) charges for doing the paper work involved.

ESTATE - The ownership interest of a person in real property; also used to refer to the property left by a deceased person.

ET AL - An abbreviation for "et alli," meaning "and others". ET UX- "and wife".

EXCLUSIVE AGENCY LISTING - A written instrument giving one agent the "authorization to sell" property for a specified time, but reserving the right to collect a commission if the property is sold by anyone during the term of the listing.

EXECUTED - A contract that has been fully performed.

EXTENDED COVERAGE - A form of title insurance that is available to homeowners.

FIDUCIARY - A person holding a position of trust; agents, trustees, attorneys, etc.

FINANCIAL STATEMENT - A statement in writing often required of a borrower of money from a bank, stating fully all of the borrower's assets, liabilities and net worth.

FIXED EXPENSES - The regular recurring costs or charges required in the holding of a property, such as taxes and fire insurance.

FIXTURE - Personal property permanently attached to land or improvements, which becomes real property.

FUNCTIONAL OBSOLESCENCE - A loss of value due to out-of-date, old-fashioned or poorly designed equipment; a type of depreciation.

GRANT DEED - Customary document used in California to transfer title to real property; contains two implied warranties.

GRANTEE - Receiver of the title being granted.

GRANTOR - Owner of title being granted; the person who makes the grant.

GUARANTEE OF TITLE - A guarantee by an abstract company or title company that the title is vested as shown on the guarantee; backed only by the assets or reserves of the guarantor.

HARD MONEY - Cash proceeds from a loan; differs from credit extended by the seller.

HAZARD INSURANCE - Insurance protection for the borrower and lender against property loss due to fire, wind or natural hazards.

HOME INSPECTION SERVICE - A service performed by a contractor or experienced individual or company, for the purpose of detecting and diagnosing defects in a property and generally evaluating its condition.

HOMEOWNER'S ASSOCIATION (HOA) - An organized group of homeowners whose members help to regulate and enforce the rules and standards of their respective communities.

HYPOTHECATE - To make property security for a debt without giving up possession

IMPOUND ACCOUNT- An account held by the lender for payment of taxes, insurance and other periodic debts against a property. The borrower pays an apportioned amount with each monthly loan payment and the lender pays the bills with the accumulated funds.

INDEMNIFY- To secure against hurt, loss or damage; to make compensation to for hurt, loss or damage.

INDEX - A published interest rate composite used by lenders. Its movements determine interest adjustments on adjustable rate loans.

INTEREST RATE - The percentage of a sum of money charged for its use.

INVOLUNTARY LIEN - A lien imposed against property by operation of law without the consent of the owner, such as a tax lien, judgement lien or mechanic's lien.

LIEN - A claim against a property in satisfaction of a debt. It can be voluntary such as a mortgage or involuntary such as for back taxes.

LIQUIDATED DAMAGES- A definite sum of money to be paid under a contract in the event of a breach of the contract.

LOAN CORRESPONDENT - A representative who negotiates and/or services loans.

LOAN ORIGINATION FEE - A fee charged by the lender for setting up the loan records and file.

LOCK-IN - A clause that may appear in a note or contract that prohibits the payor from paying off the indebtedness before the date set forth in the contract.

LOAN-TO-VALUE (LTV) RATIO - The amount of the loan as a percentage of the property's appraised value. An 80% loan, for example, is determined by subtracting a 20% down payment from the property's appraised value.

MARGIN - The margin is the difference between the ARM index and the rate the lender charges. For example, an index rate of 8% plus a margin of 2.5% could result in a home loan rate of 10.5%. The fixed margin over the index covers the lender's operating expenses and profit margin.

MARKET VALUE - The current value of real estate that a buyer is willing to pay and a seller is willing to accept.

MARKETABLE TITLE - Title to property that is free of objectionable encumbrances and liens.

MECHANIC'S LIEN - A statutory lien on a specific property for labor or materials contributed to a work of improvement.

MORATORIUM - A temporary suspension, as in the payment of a debt.

MORTGAGE - A legal document between the lender and borrower stipulating the terms of repayment of a loan for a specific property. Basically, it is the amount of money owed on the property. This document, signed by the borrower, gives the lender the right to the property if the borrower fails to live up to the loan arrangement. There can be several mortgages on a property and they are numbered in the order they are placed on the property.

MULTIPLE LISTING SERVICE (MLS) - A real estate service that advises brokers of properties that are for sale.

NOVATION - The substitution of a new obligation for an old one.

OFFSET STATEMENT - Statement of owner setting forth the present status of title and all liens against the property.

OPEN END MORTGAGE (or TRUST DEED) - Allows for future advances, using the same instrument for security.

OPTION - A right given to a person to buy, sell or lease property within a stated period and under certain specified terms. A contract to keep an offer open.

OPTIONEE - receives an option.

OPTIONOR - owns the title who gives an option.

PACKAGE TRUST DEED or MORTGAGE - Secured by both real property and personal property (appliances, carpeting, etc.)

PAYMENT CAP - This cap places an annual limit on the amount that a monthly payment can increase. This feature is offered by some ARM lenders instead of an annual interest rate cap.

POINT(S) - An amount equal to one percent of the loan amount. (Two points equal 2% of the amount, etc.)

POWER OF SALE CLAUSE - A clause in a trust deed that gives the trustee the right to sell borrower's property publicly, without court procedure, if the borrower defaults on the loan.

PREPAID INTEREST - Interest paid before accrued.

PREPAYMENT PENALTY - Some lenders charge this fee if the loan is repaid prior to its maturity.

PRIMARY FINANCING - The trust deed and note that has first priority.

PRIMARY MORTGAGE MARKET - The market in which loans are made directly to borrowers.

PRIVATE MORTGAGE INSURANCE (PMI) - Mortgage default insurance designed to pay the lender a portion of the outstanding balance of a loan, in the event that a homeowner defaults.

PROMISSORY NOTE - A written contract containing a promise to pay a definite amount of money at a definite future time. The evidence of a debt.

PRORATE - To divide proportionally to time or use.

QUIET TITLE ACTION - A suit brought for the purpose of establishing clear title to real property or to remove a cloud (problem with) on the title.

QUITCLAIM DEED - A deed used to transfer any interest in real property which the grantor may have. It contains no warranties of any kind.

RATE CAP - The rate cap defines rate limits, either from one adjustment period to the next or over the life of the loan.

RATIFY - The agreement of both the buyer and seller to the terms offered in the real estate contract.

REAL ESTATE AGENT - A person licensed by the state, who represents a broker in real estate transactions.

REAL PROPERTY - Land, that which is affixed to the land, incidental or appurtenant to land and that which is immovable by law.

REAL ESTATE TRANSFER DISCLOSURE STATEMENT - This must be provided by the seller, listing any known defect or problem with the house. Both agents must reveal anything they know that might be a problem with the property.

RECORDING AND TRANSFER FEES - These are charges for recording documents with public agencies. These may also be included in the borrower's closing costs. A document tax is charged in some states on real estate transactions.

RECURRING COSTS - Expenses that the buyer can expect again, year after year, such as property taxes, fire insurance, earthquake insurance, interest.

REFINANCE - The securing of a new loan either to pay off an existing lien or mortgage on the property, or to access your equity.

RESCIND - To cancel a contract from the beginning, restoring the parties to their original positions. Referred to as an annulment.

SALE-LEASEBACK - A transaction in which at the time of sale the seller retains occupancy by concurrently agreeing to lease the property from the purchaser. The seller receives cash while the buyer is assured a tenant and a fixed return on the buyer's investment.

SEASONED LOAN - A loan with a good payment record.

SECONDARY FINANCING - Junior trust deeds or mortgages, recorded after the first or primary financing.

SECONDARY MORTGAGE MARKET - Market place for the sale and purchase of existing trust deeds and mortgages.

SETTLEMENT - See "Closing."

SOCIAL or ECONOMIC OBSOLESCENCE - A loss in value of property due to factors outside the property.

SUBORDINATION CLAUSE - A clause in a junior lien permitting retention of priority for prior liens OR it may be used in a first deed of trust permitting it to be subordinated to subsequent liens as, for example, the liens of construction loans.

SURVEY - This may be required by the title company to insure that the house is properly situated on the property. It reveals whether the house, fence, pool, etc., are built on or too near adjoining property or utility easements.

TENEMENT - All rights in land that pass with a conveyance of the land.

TITLE - Ownership or proof of ownership to real property.

TITLE COMPANY - The company who issues Title Insurance and employs the escrow officer.

TITLE INSURANCE - Insurance protection against the consequences of a pre-existing lien or encumbrance on a property that might be discovered after the change of ownership. The title company searches public records to make sure the seller has the right to sell the property and that no other people need to sign.

TRUSTEE - The third person who holds legal title to property for a special purpose without being the actual owner. A trustee is one of the parties to every trust deed.

UNDERWRITING - These are standards set by the lender which the borrower must meet in order to qualify for the loan.

USURY - Charging interest in excess of the maximum rate as set by law.
VESTING - Conveying ownership.

WAIVER - The intentional or voluntary relinquishment of a know right, essentially a unilateral act.