Acceleration Clause
Condition in a mortgage that may require the balance of the loan to become
due immediately, if regular mortgage payments are not made or for breach
of other conditions of the mortgage.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement,
or sales agreement according to location or jurisdiction. A contract in which
a seller agrees to sell and a buyer agrees to buy, under certain specific
terms and conditions spelled out in writing and signed by both parties.
Amortization
A payment plan which enables the borrower to reduce his debt gradually through
monthly payments of principal.
Appraisal
An expert judgment or estimate of the quality or value of real estate as
of a given date.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally liable
for payment of an existing mortgage. In an assumption, the purchaser is substituted
for the original mortgagor in the mortgage instrument and the original mortgagor
is to be released from further liability in the assumption, the mortgagee's
consent is usually required.
The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.
Broker
(See real estate broker)
Building Line or Setback
Distances from the ends and/or sides of the lot beyond which construction
may not extend. The building line may be established by a filed plat of subdivision,
by restrictive covenants in deeds or leases, by building codes, or by zoning
ordinances.
Closing Costs
The numerous expenses which buyers and sellers normally incur to complete
a transaction in the transfer of ownership of real estate. These costs are
in addition to price of the property and are items prepaid at the closing
day. This is a typical list:
BUYER'S EXPENSES SELLER'S EXPENSESThe agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.
Documentary Stamps on Notes Cost of Abstract
Recording Deed and Mortgage Documentary Stamps on Deed
Escrow Fees Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Inspection Escrow Fees
Survey Charge Attorney's Fee
Closing Day
The day on which the formalities of a real estate sale are concluded. The
certificate of title, abstract, and deed are generally prepared for the closing
by an attorney and this cost charged to the buyer. The buyer signs the mortgage,
and closing costs are paid. The final closing merely confirms the original
agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the marketability
of title.
Commission
Money paid to a real estate agent or broker by the seller as compensation
for finding a buyer and completing the sale. Usually it is a percentage of
the sale price--6 to 7 percent on houses, 10 percent on land.
Condemnation
The taking of private property for public use by a government unit, against
the will of the owner, but with payment of just compensation under the government's
power of eminent domain. Condemnation may also be a determination by a governmental
agency that a particular building is unsafe or unfit for use.
Condominium
Individual ownership of a dwelling unit and an individual interest in the
common areas and facilities which serve the multi-unit project.
Contract of Purchase
(See agreement of sale)
Contractor
In the construction industry, a contractor is one who contracts to erect
buildings or portions of them. There are also contractors for each phase
of construction: heating, electrical, plumbing, air conditioning, road building,
bridge and dam erection, and others.
Conventional Mortgage
A mortgage loan not insured by HUD or guaranteed by the Veterans' Administration.
It is subject to conditions established by the lending institution and State
statutes. The mortgage rates may vary with different institutions and between
States. (States have various interest limits.)
Cooperative Housing
An apartment building or a group of dwellings owned by a corporation, the
stockholders of which are the residents of the dwellings. It is operated for
their benefit by their elected board of directors. In a cooperative, the
corporation or association owns title to the real estate. A resident purchases
stock in the corporation which entitles him to occupy a unit in the building
or property owned by the cooperative. While the resident does not own his
unit, he has an absolute right to occupy his unit for as long as he owns
the stock.
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as
security for a debt. However, in a deed of trust there are three parties to
the instrument: the borrower, the trustee, and the lender, (or beneficiary).
In such a transaction, the borrower transfers the legal title for the property
to the trustee who holds the property in trust as security for the payment
of the debt to the lender or beneficiary. If the borrower pays the debt as
agreed, the deed of trust becomes void. If, however, he defaults in the payment
of the debt, the trustee may sell the property at a public sale, under the
terms of the deed of trust. In most jurisdictions where the deed of trust
is in force, the borrower is subject to having his property sold without
benefit of legal proceedings. A few States have begun in recent years to
treat the deed of trust like a mortgage.
Default
Failure to make mortgage payments as agreed to in a commitment based on the
terms and at the designated time set forth in the mortgage or deed of trust.
It is the mortgagor's responsibility to remember the due date and send the
payment prior to the due date, not after. Generally, thirty days after the
due date if payment is not received, the mortgage is in default. In the event
of default, the mortgage may give the lender the right to accelerate payments,
take possession and receive rents, and start foreclosure. Defaults may also
come about by the failure to observe other conditions in the mortgage or
deed of trust.
Depreciation
Decline in value of a house due to wear and tear, adverse changes in the
neighborhood, or any other reason.
Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when
real estate title passes from one owner to another. The amount of stamps
required varies with each State.
Downpayment
The amount of money to be paid by the purchaser to the seller upon the signing
of the agreement of sale. The agreement of sale will refer to the downpayment
amount and will acknowledge receipt of the downpayment. Downpayment is the
difference between the sales price and maximum mortgage amount. The downpayment
may not be refundable if the purchaser fails to buy the property without
good cause. If the purchaser wants the downpayment to be refundable, he should
insert a clause in the agreement of sale specifying the conditions under
which the deposit will be refunded, if the agreement does not already contain
such clause. If the seller cannot deliver good title, the agreement of sale
usually requires the seller to return the downpayment and to pay interest
and expenses incurred by the purchaser.
Easement Rights
A right-of-way granted to a person or company authorizing access to or over
the owner's land. An electric company obtaining a right-of-way across private
property is a common example.
Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal
boundary onto neighboring private or public land, or a building extending
beyond the building line.
Encumbrance
A legal right or interest in land that affects a good or clear title, and
diminishes the land's value. It can take numerous forms, such as zoning ordinances,
easement rights, claims, mortgages, liens, charges, a pending legal action,
unpaid taxes, or restrictive convenants. An encumbrance does not legally
prevent transfer of the property to another. A title search is all that is
usually done to reveal the existence of such encumbrances, and it is up to
the buyer to determine whether he wants to purchase with the encumbrance,
or what can be done to remove it.
Equity
The value of a homeowner's unencumbered interest in real estate. Equity is
computed by subtracting from the property's fair market value the total of
the unpaid mortgage balance and any outstanding liens or other debts against
the property. A homeowner's equity increases as he pays off his mortgage
or as the property appreciates in value. When the mortgage and all other
debts against the property are paid in full the homeowner has 100% equity
in his property.
Equity 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.
Escrow
Funds paid by one party to another (the escrow agent) to hold until the occurrence
of a specified event, after which the funds are released to a designated
individual. In FHA mortgage transactions an escrow account usually refers
to the funds a mortgagor pays the lender at the time of the periodic mortgage
payments. The money is held in a trust fund, provided by the lender for the
buyer. Such funds should be adequate to cover yearly anticipated expenditures
for mortgage insurance premiums, taxes, hazard insurance premiums, and special
assessments.
Grantee
That party in the deed who is the buyer or recipient.
Grantor
That party in the deed who is the seller or giver.
HUD
U.S. Department of Housing and Urban Development. Office of Housing/Federal
Housing Administration within HUD insures home mortgage loans made by lenders
and sets minimum standards for such homes.
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.
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).
Mortgage
A lien or claim against real property given by the buyer to the lender as
security for money borrowed. Under government-insured or loan-guarantee provisions,
the payments may include escrow amounts covering taxes, hazard insurance,
water charges, and special assessments. Mortgages generally run from 10 to
30 years, during which the loan is to be paid off.
Mortgage Commitment
A written notice from the bank or other lending institution saying it will
advance mortgage funds in a specified amount to enable a buyer to purchase
a house.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD to help
defray the cost of the FHA mortgage insurance program and to provide a reserve
fund to protect lenders against loss in insured mortgage transactions. In
FHA insured mortgages this represents an annual rate of one-half of one percent
paid by the mortgagor on a monthly basis.
Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage,
serves as proof of an indebtedness, and states the manner in which it shall
be paid. The note states the actual amount of the debt that the mortgage
secures and renders the mortgagor personally responsible for repayment.
Mortgage (Open-End)
A mortgage with a provision that permits borrowing additional money in the
future without refinancing the loan or paying additional financing charges.
Open-end provisions often limit such borrowing to no more than would raise
the balance to the original loan figure.
Mortgagee
The lender in a mortgage agreement.
Mortgagor
The borrower in a mortgage agreement.
Notary Public
One authorized by law to acknowledge and certify documents and signatures.
Points
Sometimes called "discount points." A point is one percent of the amount of
the mortgage loan. For example, if a loan is for $25,000, one point is $250.
Points are charged by a lender to raise the yield on his loan at a time when
money is tight, interest rates are high, and there is a legal limit to the
interest rate that can be charged on a mortgage. Buyers are prohibited from
paying points on HUD or Veterans' Administration guaranteed loans (sellers
can pay, however). On a conventional mortgage, points may be paid by either
buyer or seller or split between them.
Prepayment
Payment of mortgage loan, or part of it, before due date. Mortgage agreements
often restrict the right of prepayment either by limiting the amount that
can be prepaid in any one year or charging a penalty for prepayment. The
Federal Housing Administration does not permit such restrictions in FHA insured
mortgages.
Principal
The basic element of the loan as distinguished from interest and mortgage
insurance premium. In other words, principal is the amount upon which interest
is paid.
Purchase Agreement
(See agreement of sale.)
Refinancing
The process of the same mortgagor paying off one loan with the proceeds from
another loan.
Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive covenants
are created by deed and may "run with the land," binding all subsequent purchasers
of the land, or may be "personal" and binding only between the original seller
and buyer. The determination whether a covenant runs with the land or is
personal is governed by the language of the covenant, the intent of the parties,
and the law in the State where the land is situated. Restrictive covenants
that run with the land are encumbrances and may affect the value and marketability
of title. Restrictive covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be erected, or prevent
particular businesses from operating or minority groups from owning or occupying
homes in a given area. (This latter discriminatory covenant is unconstitutional
and has been declared unenforceable by the U.S. Supreme Court.)
Special Assessments
A special tax imposed on property, individual lots or all property in the
immediate area, for road construction, sidewalks, sewers, street lights,
etc.
Special Lien
A lien that binds a specified piece of property, unlike a general lien, which
is levied against all one's assets. It creates a right to retain something
of value belonging to another person as compensation for labor, material,
or money expended in that person's behalf. In some localities it is called
"particular" lien or "specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees to protect
the grantee against title defects or claims asserted by the grantor and those
persons whose right to assert a claim against the title arose during the
period the grantor held title to the property. In a special warranty deed
the grantor guarantees to the grantee that he has done nothing during the
time he held title to the property which has, or which might in the future,
impair the grantee's title.
State Stamps
(See documentary stamps.)
Survey
A map or plat made by a licensed surveyor showing the results of measuring
the land with its elevations, improvements, boundaries, and its relationship
to surrounding tracts of land. A survey is often required by the lender to
assure him that a building is actually sited on the land according to its
legal description.
Title
As generally used, the rights of ownership and possession of particular property.
In real estate usage, title may refer to the instruments or documents by
which a right of ownership is established (title documents), or it may refer
to the ownership interest one has in the real estate.
Title Insurance
Protects lenders or homeowners against loss of their interest in property
due to legal defects in title. Title insurance may be issued to a "mortgagee's
title policy." Insurance benefits will be paid only to the "named insured"
in the title policy, so it is important that an owner purchase an "owner's
title policy", if he desires the protection of title insurance.
Title Search or Examination
A check of the title records, generally at the local courthouse, to make
sure the buyer is purchasing a house from the legal owner and there are no
liens, overdue special assessments, or other claims or outstanding restrictive
convenants filed in the record, which would adversely affect the marketability
or value of title.
Trustee
A party who is given legal responsibility to hold property in the best interest
of or "for the benefit of" another. The trustee is one placed in a position
of responsibility for another, a responsibility enforceable in a court of
law. (See deed of trust.)
U
Laurie
King
Re/Max Southeast, Inc.
8821 East Hampden Ave.
Denver, CO 80231
(303) 777-7435
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