Home Buying-Selling Dictionary
Whether you are thinking about buying or selling a home, the "Home Buying-Selling Dictionary" can provide you with an understanding of a number of common words and terms used in a typical real estate transaction.
A few notes about the "Home Buying-Selling Dictionary":
- Terms are defined as they are commonly used in the mortgageand real estate industry. These same terms may have differentmeanings in another context.
- Definitions are intentionally general, non-technical and short. They may not encompass all possible meanings, and some definitions may not be applicable under all states' existing laws.
Abstract (Of Title)
A summary of the public records relating to the title to a particularpiece of land. An attorney or title insurance company reviews anabstract of title to determine whether there are any title defects whichmust be cleared before a buyer can purchase clear, marketable, andinsurable title.
Condition in a mortgage that may require the balance of the loan tobecome due immediately, if regular mortgage payments are not made or forbreach of other conditions of the mortgage.
Agreement of Sale
Known by various names, such as contract of purchase, purchaseagreement, or sales agreement according to location or jurisdiction. Acontract in which a seller agrees to sell and a buyer agrees to buy,under certain specific terms and conditions spelled out in writing andsigned by both parties.
A payment plan which enables the borrower to reduce his debt graduallythrough monthly payments of principal.
The estimate of value of real property made by an impartial expert, typically including references to sales of comparable properties to estimate the value. A lender will require an appraisal, but it does not take the place of an inspection.
Costs charged for public improvements that benefit land. Pending assessments must be addressed in the purchase agreement and at closing.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personallyliable for payment of an existing mortgage. In an assumption, thepurchaser is substituted for the original mortgagor in the mortgageinstrument and the original mortgagor is to be released from furtherliability in the assumption, the mortgagee's consent is usuallyrequired.
The original mortgagor should always obtain a written release fromfurther liability if he desires to be fully released under theassumption. Failure to obtain such a release renders the originalmortgagor liable if the person assuming the mortgage fails to make themonthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subjectto a mortgage." When one purchases subject to a mortgage, the purchaseragrees to make the monthly mortgage payments on an existing mortgage,but the original mortgagor remains personally liable if the purchaserfails to make the monthly payments. Since the original mortgagor remainsliable in the event of default, the mortgagee's consent is not requiredto a sale subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" areused to finance the sale of property. They may also be used when amortgagor is in financial difficulty and desires to sell the property toavoid foreclosure.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money,between a buyer and seller as an offer to purchase real estate. A bindersecures the right to purchase real estate upon agreed terms for alimited period of time. If the buyer changes his mind or is unable topurchase, the earnest money is forfeited unless the binder expresslyprovides that it is to be refunded.
(See real estate broker)
Building Line or Setback
Distances from the ends and/or sides of the lot beyond whichconstruction may not extend. The building line may be established by afiled plat of subdivision, by restrictive covenants in deeds or leases,by building codes, or by zoning ordinances.
Certificate of Title
A certificate issued by a title company or a written opinion rendered byan attorney that the seller has good marketable and insurable title tothe property which he is offering for sale. A certificate of titleoffers no protection against any hidden defects in the title which anexamination of the records could not reveal. The issuer of a certificateof title is liable only for damages due to negligence. The protectionoffered a homeowner under a certificate of title is not as great as thatoffered in a title insurance policy.
The closing, also known as the settlement, is a meeting at which a transfer of sold property is finalized. At closing, the buyer signs the mortgage documents and pays all closing costs, and the seller signs the deed. Both parties sign the closing statement, which is an accounting of funds credited to the buyer and seller.
The numerous expenses which buyers and sellers normally incur tocomplete a transaction in the transfer of ownership of real estate.These costs are in addition to price of the property and are itemsprepaid at the closing day. This is a typical list:
|BUYER'S EXPENSES||SELLER'S EXPENSES|
|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|
The agreement of sale negotiated previously between the buyer and theseller may state in writing who will pay each of the above costs.
The day on which the formalities of a real estate sale are concluded.
The certificate of title, abstract, and deed are generally prepared forthe closing by an attorney and this cost charged to the buyer. The buyersigns the mortgage, and closing costs are paid. The final closing merelyconfirms the original agreement reached in the agreement of sale.
Cloud (On Title)
An outstanding claim or encumbrance which adversely affects themarketability of title.
Money paid to a real estate agent or broker by the seller ascompensation for finding a buyer and completing the sale. Usually it isa percentage of the sale price--6 to 7 percent on houses, 10 percent onland.
The taking of private property for public use by a government unit,against the will of the owner, but with payment of just compensationunder the government's power of eminent domain. Condemnation may also bea determination by a governmental agency that a particular building isunsafe or unfit for use.
The owner of a condominium unit owns the unit and has the right, along with other unit owners, to use the common areas, which are owned by the condominium association. Condominium laws vary greatly from state to state, but typically include an association that maintains the building, pays taxes and insurance, and maintains the reserves for improvements.
Contract for Deed
A contract for deed is a contract that allows a buyer to take possession of property in exchange for monthly payments until the balance is paid off, even though the seller maintains legal title to the property until the final payment is made. The parties negotiate the terms of a contract for deed.
Contract of Purchase
(See agreement of sale)
In the construction industry, a contractor is one who contracts to erectbuildings or portions of them. There are also contractors for each phaseof construction: heating, electrical, plumbing, air conditioning, roadbuilding, bridge and dam erection, and others.
A mortgage loan not insured by HUD or guaranteed by the Veterans'Administration. It is subject to conditions established by the lendinginstitution and State statutes. The mortgage rates may vary withdifferent institutions and between States. (States have various interestlimits.)
An apartment building or a group of dwellings owned by a corporation,the stockholders of which are the residents of the dwellings. It isoperated for their benefit by their elected board of directors. In acooperative, the corporation or association owns title to the realestate. A resident purchases stock in the corporation which entitles himto 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 tooccupy his unit for as long as he owns the stock.
A formal written instrument by which title to real property istransferred from one owner to another. The deed should contain anaccurate description of the property being conveyed, should be signedand witnessed according to the laws of the State where the property islocated, and should be delivered to the purchaser at closing day. Thereare two parties to a deed: the grantor and the grantee. (See also deedof trust, general warranty deed, quitclaim deed, and special warrantydeed.)
Deed of Trust
Like a mortgage, a security instrument whereby real property is given assecurity for a debt. However, in a deed of trust there are three partiesto the instrument: the borrower, the trustee, and the lender, (orbeneficiary). In such a transaction, the borrower transfers the legaltitle for the property to the trustee who holds the property in trust assecurity for the payment of the debt to the lender or beneficiary. Ifthe borrower pays the debt as agreed, the deed of trust becomes void.If, however, he defaults in the payment of the debt, the trustee maysell the property at a public sale, under the terms of the deed oftrust. In most jurisdictions where the deed of trust is in force, theborrower is subject to having his property sold without benefit of legalproceedings. A few States have begun in recent years to treat the deedof trust like a mortgage.
Failure to make mortgage payments as agreed to in a commitment based onthe terms and at the designated time set forth in the mortgage or deedof trust. It is the mortgagor's responsibility to remember the due dateand send the payment prior to the due date, not after. Generally, thirtydays after the due date if payment is not received, the mortgage is indefault. In the event of default, the mortgage may give the lender theright to accelerate payments, take possession and receive rents, andstart foreclosure. Defaults may also come about by the failure toobserve other conditions in the mortgage or deed of trust.
Decline in value of a house due to wear and tear, adverse changes in theneighborhood, or any other reason.
A State tax, in the forms of stamps, required on deeds and mortgageswhen real estate title passes from one owner to another. The amount ofstamps required varies with each State.
The amount of money to be paid by the purchaser to the seller upon thesigning of the agreement of sale. The agreement of sale will refer tothe downpayment amount and will acknowledge receipt of the downpayment.Downpayment is the difference between the sales price and maximummortgage amount. The downpayment may not be refundable if the purchaserfails to buy the property without good cause. If the purchaser wants thedownpayment to be refundable, he should insert a clause in the agreementof sale specifying the conditions under which the deposit will berefunded, if the agreement does not already contain such clause. If theseller cannot deliver good title, the agreement of sale usually requiresthe seller to return the downpayment and to pay interest and expensesincurred by the purchaser.
The deposit money given to the seller or his agent by the potentialbuyer upon the signing of the agreement of sale to show that he isserious about buying the house. If the sale goes through, the earnestmoney is applied against the downpayment. If the sale does not gothrough, the earnest money will be forfeited or lost unless the binderor offer to purchase expressly provides that it is refundable.
A right-of-way granted to a person or company authorizing access to orover the owner's land. An electric company obtaining a right-of-wayacross private property is a common example.
An obstruction, building, or part of a building that intrudes beyond alegal boundary onto neighboring private or public land, or a buildingextending beyond the building line.
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 aszoning ordinances, easement rights, claims, mortgages, liens, charges, apending legal action, unpaid taxes, or restrictive covenants. Anencumbrance does not legally prevent transfer of the property toanother. A title search is all that is usually done to reveal theexistence of such encumbrances, and it is up to the buyer to determinewhether he wants to purchase with the encumbrance, or what can be doneto remove it.
The value of a homeowner's unencumbered interest in real estate. Equityis computed by subtracting from the property's fair market value thetotal of the unpaid mortgage balance and any outstanding liens or otherdebts against the property. A homeowner's equity increases as he paysoff his mortgage or as the property appreciates in value. When themortgage and all other debts against the property are paid in full thehomeowner has 100% equity in his property.
Funds paid by one party to another (the escrow agent) to hold until theoccurrence of a specified event, after which the funds are released to adesignated individual. In FHA mortgage transactions an escrow accountusually refers to the funds a mortgagor pays the lender at the time ofthe periodic mortgage payments. The money is held in a trust fund,provided by the lender for the buyer. Such funds should be adequate tocover yearly anticipated expenditures for mortgage insurance premiums,taxes, hazard insurance premiums, and special assessments.
A legal term applied to any of the various methods of enforcing paymentof the debt secured by a mortgage, or deed of trust, by taking andselling the mortgaged property, and depriving the mortgagor ofpossession. Foreclosure proceedings vary by state, but typically include foreclosure by advertisement, which does not include a court proceeding, and foreclosure by action in court.
General Warranty Deed
A deed which conveys not only all the grantor's interests in and titleto the property to the grantee, but also warrants that if the title isdefective or has a "cloud" on it (such as mortgage claims, tax liens,title claims, judgments, or mechanic's liens against it) the grantee mayhold the grantor liable.
That party in the deed who is the buyer or recipient.
That party in the deed who is the seller or giver.
Protects against damages caused to property by fire, windstorms, andother common hazards.
U.S. Department of Housing and Urban Development. Office ofHousing/Federal Housing Administration within HUD insures home mortgageloans made by lenders and sets minimum standards for such homes.
A charge paid for borrowing money. (See mortgage note)
A claim by one person on the property of another as security for moneyowed. Such claims may include obligations not met or satisfied,judgments, unpaid taxes, materials, or labor. (See also special lien.)
A title that is free and clear of objectionable liens, clouds, or othertitle defects. A title which enables an owner to sell his propertyfreely to others and which others will accept without objection.
A lien or claim against real property given by the buyer to the lenderas security for money borrowed. Under government-insured orloan-guarantee provisions, the payments may include escrow amountscovering taxes, hazard insurance, water charges, and specialassessments. Mortgages generally run from 10 to 30 years, during whichthe loan is to be paid off.
A written notice from the bank or other lending institution saying itwill advance mortgage funds in a specified amount to enable a buyer topurchase a house.
Mortgage Insurance Premium
The payment made by a borrower to the lender for transmittal to HUD tohelp defray the cost of the FHA mortgage insurance program and toprovide a reserve fund to protect lenders against loss in insuredmortgage transactions. In FHA insured mortgages this represents anannual rate of one-half of one percent paid by the mortgagor on amonthly basis.
A mortgage loan is a loan that is secured with a lien on real property. Forms of mortgages include fixed rate, adjustable-rate, and balloon mortgages. The functioning, legal effect, and foreclosure of a mortgage varies greatly from state to state.
A written agreement to repay a loan. The agreement is secured by amortgage, serves as proof of an indebtedness, and states the manner inwhich it shall be paid. The note states the actual amount of the debtthat the mortgage secures and renders the mortgagor personallyresponsible for repayment.
A mortgage with a provision that permits borrowing additional money inthe future without refinancing the loan or paying additional financingcharges. Open-end provisions often limit such borrowing to no more thanwould raise the balance to the original loan figure.
The lender in a mortgage agreement.
The borrower in a mortgage agreement.
A map or chart of a lot, subdivision or community drawn by a surveyorshowing boundary lines, buildings, improvements on the land, andeasements.
Sometimes called "discount points." A point is one percent of the amountof the mortgage loan. For example, if a loan is for $25,000, one pointis $250. Points are charged by a lender to raise the yield on his loanat a time when money is tight, interest rates are high, and there is alegal 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 aconventional mortgage, points may be paid by either buyer or seller orsplit between them.
Payment of mortgage loan, or part of it, before due date. Mortgageagreements often restrict the right of prepayment either by limiting theamount that can be prepaid in any one year or charging a penalty forprepayment. The Federal Housing Administration does not permit suchrestrictions in FHA insured mortgages.
The basic element of the loan as distinguished from interest andmortgage insurance premium. In other words, principal is the amount uponwhich interest is paid.
See agreement of sale.
A deed which transfers whatever interest the maker of the deed may havein the particular parcel of land. A quitclaim deed is often given toclear the title when the grantor's interest in a property isquestionable. By accepting such a deed the buyer assumes all the risks.Such a deed makes no warranties as to the title, but simply transfers tothe buyer whatever interest the grantor has. (See deed.)
Real Estate Broker
A licensed person or entity that represents either the buyer or seller in the purchase or sale of real estate, usually on a commission basis. A "dual" broker represents both parties in the same transaction. The terms of broker agreements are negotiable.
Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act (RESPA) requires borrowers to receive disclosures regarding the costs associated with the settlement, the lender servicing and escrow account practices and the business relationships between settlement service providers. RESPA requires a mortgage lender to give the borrower a good faith estimate of the settlement service charges he or she is likely to have to pay.
The process of the same mortgagor paying off one loan with the proceedsfrom another loan.
Private restrictions limiting the use of real property. Restrictivecovenants are created by deed and may "run with the land," binding allsubsequent purchasers of the land, or may be "personal" and binding onlybetween the original seller and buyer. The determination whether acovenant runs with the land or is personal is governed by the languageof the covenant, the intent of the parties, and the law in the Statewhere the land is situated. Restrictive covenants that run with the landare 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, orprevent particular businesses from operating or minority groups fromowning or occupying homes in a given area. (This latter discriminatorycovenant is unconstitutional and has been declared unenforceable by theU.S. Supreme Court.)
See agreement of sale.
A special tax imposed on property, individual lots or all property inthe immediate area, for road construction, sidewalks, sewers, streetlights, etc.
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 retainsomething of value belonging to another person as compensation forlabor, material, or money expended in that person's behalf. In somelocalities it is called "particular" lien or "specific" lien. (Seelien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees toprotect the grantee against title defects or claims asserted by thegrantor and those persons whose right to assert a claim against thetitle arose during the period the grantor held title to the property. Ina special warranty deed the grantor guarantees to the grantee that hehas done nothing during the time he held title to the property whichhas, or which might in the future, impair the grantee's title.
See documentary stamps.
A map or plat made by a licensed surveyor showing the results ofmeasuring the land with its elevations, improvements, boundaries, andits relationship to surrounding tracts of land. A survey is oftenrequired by the lender to assure him that a building is actually sitedon the land according to its legal description.
As applied to real estate, an enforced charge imposed on persons,property or income, to be used to support the State. The governing bodyin turn utilizes the funds in the best interest of the general public.
As generally used, the rights of ownership and possession of particularproperty. In real estate usage, title may refer to the instruments ordocuments by which a right of ownership is established (titledocuments), or it may refer to the ownership interest one has in thereal estate.
Protects lenders or homeowners against loss of their interest inproperty due to legal defects in title. Title insurance may be issued toa "mortgagee's title policy." Insurance benefits will be paid only tothe "named insured" in the title policy, so it is important that anowner purchase an "owner's title policy", if he desires the protectionof title insurance.
Title Search or Examination
A check of the title records, generally at the local courthouse, to makesure the buyer is purchasing a house from the legal owner and there areno liens, overdue special assessments, or other claims or outstandingrestrictive covenants filed in the record, which would adversely affectthe marketability or value of title.
A party who is given legal responsibility to hold property in the bestinterest of or "for the benefit of" another. The trustee is one placedin a position of responsibility for another, a responsibilityenforceable in a court of law. (See deed of trust.)
The acts of an authorized local government establishing building codes,and setting forth regulations for property land usage.