Why have an attorney?

Buying real estate is complicated business. Therefore, you need someone on your side who is an expert and knowledgeable. A real estate attorney can look out for your interests, ensure that you get a clear title to your new property, as well as help you protect your investment for the future. Legal advice offers you something the average buyer really needs, and usually lacks: knowledge of the subtleties and peculiarities of real estate law and the transfer of property rights and title.

What can an attorney do for you?

Attending a real estate closing without an attorney can mean you are entering into an unfamiliar transaction without sufficient knowledge. In a typical real estate transaction, your attorney can explain the following:

• Your liability if assuming an existing mortgage.
• The effect of any existing mortgage and construction liens.
• Alternative means of financing, including the effect of mortgage prepayment.
• Where and how to file for homestead exemption.
• The seller’s liability after the sale.
• Post-contract liability for fire and other hazards.

 

As a matter of course, your attorney will also evaluate the legal rights you are purchasing when you purchase property, with special attention to these following questions:

• Is the property’s recorded legal description sufficient?
• Do the rights include physical access to the property that meets your needs?
• Will the purchased rights permit you to use the property in the manner desired?
• Will the title be marketable should you decide to sell or remortgage the property?

 

Your attorney will also perform a series of important actions as appropriate to your specific transaction, such as:

• Obtain a title search, evaluate the status of title, and require appropriate legal remedies to clear defects.
• Prepare and review the Closing Statement and other closing documents, and inform you about any stipulations that affect your interests.
• Interpret and counsel you about all legal documents related to the title and transaction, including deeds, mortgages, and closing statements.
• Prepare a bill of sale to cover any personal property such as window treatments and appliances that are included in the sale.
• Advise you how title should be taken and how this affects your overall business and personal estate.
• As required, investigate zoning ordinances and other governmental use restrictions.
• Relate the income, estate, and gift tax consequences to your estate.
• Check unrecorded municipal liens, including sewer and special assessment liens.
• Advise you on what the title policy does not protect against, with emphasis on insurability and marketability
• Explain the property tax structure.
• Explain any lender problems that may result from unmarketabilty.

 

Finally, at closing, your attorney will be present to check every detail, making sure the documents carry out the parties’ actual intent as originally expressed in the contract, and meet requirements for a marketable title, This is the most critical part of all, and your attorney’s participation is important in helping you protect your investment and your financial security.

What is title insurance?

Title Insurance is a policy issued by a title company that represents the state of title to a particular parcel of realty and insures the accuracy of title against claims of title defects. Some of the things that can be uncovered by a title search are any unpaid taxes or mortgages, jusgements against previous owners, easements, and other court actions or recorded documents which can affect title to real estate.

How does a title insurance policy protect against these damages?

If a claim is made against the title to your property as covered by your policy, your title insurance protects you by: Defending your title, in court if necessary, at our expense; or Bearing the cost of settling the claim, if valid, in order to perfect the title and keep you in possession of the property; or Paying you for a covered loss.

Title insurance guarantees the owner/purchaser of land that any unexpected claim covered by the policy that arises out of the past to threaten ownership of real estate will either be disposed of, or will be reimbursed for any expenses, as provided in the title insurance policy. Likewise, the original premium is your only cost as long as you own the property! There are no annual payments to keep your Owners Title Insurance Policy in force.

What is escrow/closing?

An escrow is created when money and/or documents are deposited, by two or more persons, with a third party, which are to be delivered upon the happening of a contingency or performance of a certain condition. The third party is known as the escrow agent or escrow holder.

The authority given to an escrow holder is strictly limited by instructions provided by the parties invovled. Accordingly, and escrow holder acts on mutual instructions deposited into escrow and DOES NOT represent any party. The escrow officer is authorized by instructions to allocate funds for items during the escrow period, such as real estate commissions, title insurance, liens, recording fees and other closing costs. Instructions also specify the method of collecting funds, proration issues, time limitations, and the term of the transaction. The escrow process all parties invovled by retaining money and documents until the mutual instructions are met by the parties to the transaction.

Buyer's Expenses

• Recoding Deed & Mortgage
• Settlement Fees
• Attorney’s Fees
• Title Insurance
• Appraisal and Inspection
• Survey Charge
• Courier/Federal Express
• Title Examination
• Loan Costs
• Tax Pro-rations
• ORCA dues Pro-ration
• Condo Dues Pro-ration

Seller's Expenses

• Cost of Abstract/Title Update
• Documentary Stamps on Deed
• Real Estate Commission
• Recording Mortgage Satisfaction
• Settlement Fees
• Attorney’s Fees
• Tax Pro-rations
• ORCA dues Pro-ration
• Condo dues Pro-ration

Abstract (of Title)

A history of all transactions shown in the public records affecting a particular tract of land. An Attorney or title insurance company reviews an abstract of title in order to determine whether there are any title defects which must be cleared before a buyer can obtain and purchase clear, marketable and insurable title.

Abstract Plant

A geographically filed collection of title information that helps in expediting title examinations, such as copies of previous attorneysí opinions, abstracts, tax searches, and copies of take-offs of the public records.

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.

Adjustable Rate Mortgage (ARM)

Mortgage loans under which the interest rate is periodically adjusted, in accordance with some market indicator, to more closely coincide with the current rates. The extent and number of these adjustments are agreed upon at the inception of the mortgage loan.

Adverse Possession

The possession, by one person, of land belonging to another in a manner deemed adverse to the interest of the owner. In most states, by operation of law, title to the land becomes vested in the adverse possessor after a fixed number of years if the owner fails to assert his or her rights.

Affidavit

A written statement made under oath before a notary public or other judicial officer.

Agreement of Sale

Also known 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 specific terms and conditions spelled out in writing and signed by both parties.

ALTA (American Land Title Association)

The trade association of the title insurance industry, which has adopted certain insurance policy forms to standardize coverage on a national basis.

Amortization

Payment plan which enables the borrower to reduce his/her debt gradually through monthly payments of principal.

Appraisal

A report from an independent third party detailing the estimated value of real estate as of a given date.

Appurtenance

A right or privilege that is annexed as part of the ownership of property.

Arms-Length Transaction

A transaction negotiated by unrelated parties, each acting in his/her own best interest.

Assessment

(1) The valuation of real estate for purposes of taxes or special improvement charges. (2) The amount of taxes or special improvement charges. Special improvement charges are usually for the costs of streets, sidewalks, sewers, etc.

Assignment

(1) The act of transferring to another all or part of one’s property, interest, or rights, such as a loan secured by a mortgage.
(2) The instrument or paper by which one person transfers his/her property, interest, or rights to another.

Assumption of Mortgage

An obligation undertaken to take or acquire a mortgage or deed of trust from some prior holder. In an assumption, the purchaser of the mortgage is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption. Consent of the mortgagee is usually required.

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.

Attorneyís Opinion

A statement by an attorney as to the validity of title after an examination of the history of the title as recorded in the public records.

 

Back-End Ratio

Total debt-to-income ratio. Total monthly obligations divided by gross monthly income. Monthly obligations include: mortgage payment, property taxes, insurance premiums, installment loans, and revolving debt.

Back Title Letter

Also called “Back Title Certificate” in some areas, and “Starter” in others. When titles previously have been examined up to a certain date by reliable examiners, title companies sometimes give subsequent examiners of such titles a letter that sets forth the condition of the title at the time of the previous examination and authorizes them to begin their subsequent examination with the terminal date of the previous examination.

Balloon Mortgage

A mortgage that has level monthly payments over a stated term but which provides for a lump-sum payment to be due at the end of an earlier specified time.

Bankruptcy

A proceeding in the U.S. District Court wherein assets of an insolvent debtor is protected and he/she is relieved from the payment of debts.

Binder

An early agreement to buy a home from a seller, which is usually ensured with an earnest money deposit.

Broker

Also known as a “Real Estate Broker”. A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

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.

Buy Down

An arrangement whereby a party pays a lender an up-front fee, or premium, to “buy down” the interest rate on a loan for a temporary time period, usually one to three years. For example, 2/1 where the two represents a 2% rate buy down the first year and the one represents 1% buy down the second year. The third year the rate would revert back to the “straight” note rate.

 

Cash-Out Refinance

A transaction that provides cash proceeds to the borrower in excess of 1% of the mortgage amount or provides cash that is used to pay-off consumer debt.

Cash Reserves

The total amount of liquid assets the borrower has remaining after the mortgage loan transaction is completed.

Certificate of Title

A certificate issued by a title examiner stating the condition of a title.

Chain of Title

The successive ownerships or transfers in the history of title to a tract of land.

Claim

An adverse right or interest asserted by one part against another party, or against an insurer or indemnitor. Claims may arise from unpaid debts or taxes, as well as from hidden title defects such as fraud, forgery, missing heirs, etc.

Clear Title

Real property ownership free of liens, defects, encumbrances or claims.

Closing

A meeting of all parties involved in a property transaction during which the transaction is consummated.

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:
The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.

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 that adversely affects or impairs the marketability of title.

Co-borrower

A person who is jointly and equally liable for repayment of the mortgage obligation. A co-borrower completes an application and submits all documentation and may not be on the security instrument.

Co-insurance

Two or more policies of title insurance issued by different insurers, each covering a portion of the same risk which together provide a total coverage of the risk.

Combined Loan-to-Value (CLTV)

The ratio of the total mortgage liens against the subject property to the lesser of either the appraised value or the sales price. Co-insurance

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.

Commitment

Also called a “Binder”. A document issued by a title insurance company that contains the conditions under which a policy of title insurance will be issued.

Compensating Factors

Borrower strengths that mitigate or compensate for a borrower’s weakness (i.e.; length of employment, considerable cash reserves, etc.).

Condemnation

1) The process of taking private property for a public purpose, with compensation to the owner, under the right of eminent domain.

Conditional Offer

An offer to buy a property, but only under certain circumstances.

Condominium

System of separate ownership of individual units and an interest by unit owners in the common areas and facilities which serve the multi-unit project.

Conforming Loans

Loans that do not exceed the maximum loan amount and LTV limitations established by FNMA or FHLMC.

Construction Perm

Construction-to-permanent financing involves the granting of a long term mortgage for the purpose of replacing interim construction financing that the borrower obtained to fund the construction of a new residence.

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.)

Convertible ARM

A type of ARM that includes an option for the mortgagor to change the mortgage to a fixed rate mortgage at specified intervals during a predetermined time.

Conveyance

The transfer of title to property from one person to another.

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.

Covenant

A formal agreement or contract between two parties in which one party gives the other certain promises and assurances, such as covenants of warranty in a warranty deed.

Credit Bureau Repository

An organization that compiles credit history data directly from lenders and creditors to build in-file credit reports for individuals.

 

Debt-to-Income Ratio

The ratio of the borrowers total monthly obligations, including housing expenses and recurring debts to monthly income. It is used to determine the borrower’s capacity to repay the mortgage and all other debts.

Dedication

The setting aside of certain land by the owner and declaring it to be for public use. Examples: Streets, Sidewalks, Parks, Etc.

Deed

A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also Deed of Trust, General Warranty Deed, Quitclaim Deed, and Special Warranty Deed)

Deed of Trust

A legal instrument that secures a note and perfects a security interest upon real property.

Deed Restriction

A covenant contained in a deed imposing limits on the use or occupancy of the real estate or the type, size, purpose or location of improvements to be constructed on it.

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. 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.

Defect (of Title)

A blemish, imperfection or deficiency. A defective title is one that is irregular and faulty.

Depreciation

Loss in value occasioned by ordinary wear and tear, destructive action of the elements, or functional or economic obsolescence.

Devise

A gift of real estate made by a will.

Discount Points

Payable to the lender by the borrower or seller to decrease the interest rate. One point is equal to 1% of the loan amount.

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.

Dominant Estate

The property for the benefit of which a right-of-way easement exists across anotherís adjoining piece of land is said to be the dominant estate.

Down Payment

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 down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser.

Drive-by Appraisal

An estimate of value given that is based mainly on recent comparable sales.

 

Earnest Money

The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement

A right to use all or part of the land owned by another for a specific purpose.

Eminent Domain

The right of a government to take privately owned property for public purposes under condemnation proceedings subject to payment of its fair market value.

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

Any interest, right, lien, or liability attached to a parcel of land (such as unpaid taxes or an unsatisfied mortgage) that constitutes or represents a burden or charge upon the property and affects a good or clear title.

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.

Escheat

The reversion of property to the state when an owner dies leaving no legal heirs, devises or claimants.

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.

Estoppel

A legal restraint that stops or prevents a person from taking a contradictory position based on his/her previous position or previous assertions or commitments.

Examination

The study of the instruments and muniments incident to a chain of title to determine their effect and condition in order to reach a conclusion as to the status of title.

Exception

A provision in a title insurance binder or policy that excludes liability for a specific title defect or an outstanding lien or encumbrance.

Execute

To sign a legal instrument. A deed is said to be executed when it is signed, sealed, witnessed, and delivered

Federal Housing Administration (FHA)

A government mortgage insurance agency under direction of the Department of Housing and Urban Development (HUD) that insures lenders against loss from default of borrowers on residential properties.

Federal National Mortgage Association (FNMA) AKA Fannie Mae

A federal agency that purchases federally insured first mortgages.

Federal Home Loan Mortgage Corporation (FHLMC) AKA Freddie Mac

A federal agency that purchases both conventional and federally insured first mortgages from members of the Federal Reserve System and the Federal Loan Bank System.

Fee Simple Deed

The absolute ownership of a parcel of land. The highest degree of ownership that a person can have in real estate, which gives the owner unqualified ownership and full power.

FHA (Federal Housing Administration)

A federal agency that insures first mortgages, enabling lenders to lend a very high percentage of the sale price.

Fixed Rate Mortgage

A mortgage having a rate of interest that remains the same for the life of the mortgage. Typically a period of 15-30 years.

Fixtures

Personal property that is attached to real property and is legally treated as real property while it is so attached. Examples: Medicine Cabinets, Window Blinds, and Chandeliers.

Foreclosure

The legal process by which a borrower is in default under a mortgage or deed of trust and loses his/her interest in the mortgaged property. This process usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Forgery

The fraudulent signing of anotherís name to an instrument.

 

General Warranty Deed

A deed which conveys not only all the grantor’s interests in and title to the property to the grantee, but also warrants that if the title is defective or has a “cloud” on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic’s liens against it) the grantee may hold the grantor liable.

Gift Funds

Funds donated on behalf of the borrower from certain eligible sources to assist the borrower in meeting closing costs. Generally eligible sources are: relatives, church, municipality, or a nonprofit organization.

Ginnie Mae (GNMA)

Governmental National Mortgage Association. A federal association working with the FHA that offers special assistance in obtaining mortgages and purchases mortgages in the secondary market.

Grant

To bestow or confer, with or without compensation, a gift such as land or money by one having control or authority over the gift.

Grantee

The buyer in the deed who is the buyer or recipient.

Grantor

The party in the deed who is the seller or giver.

 

Hazard Insurance

Insurance coverage that compensates for physical damage by fire, wind or other natural disasters to the property.

Hereditaments

Any and all kinds of estates, interest and rights in real estate that can be inherited.

Home Equity Line of Credit:

A real estate loan, usually in a subordinate position, that allows a borrower to withdraw equity in real estate owned with specific limitations.

Homeowners Association

A nonprofit association, whose directors and officers are elected by the unit owners of a condominium or PUD project; primary responsibilities are to manage the common areas, expenses and services of the project.

Homeowners Insurance

Real Estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending on the terms of the policy. Also includes coverage such as personal liability and theft away from home.

Housing Debt-to-Income Ratio

The sum of all monthly housing mortgage expenses such as PITI, homeowners dues, private mortgage insurance and any special assessments as a percentage of gross qualifying income.

HUD (Department of Housing and Development)

The federal department responsible for insuring home mortgage loans made by lenders and sets minimum standards for such homes.

 

Index

(1) An alphabetical listing in the public records of the names of parties to recorded real estate instrument together with the book and page number of the record. (2) The listing in abstract and title plants of recorded real estate instruments in groups according to land descriptions, known as geographical index. (3) The alphabetical listing in abstract and title plants, by names of the parties, of all recorded instruments that affect but do not describe particular real estate, such as judgments, powers of attorney, wills and probate proceedings. Such indexes are known by various names, such as “General Index”, “Judgment Index”, and “Name Index”.

Installment Debt

Borrowed money that is repaid in successive payments, usually at regular intervals; the monthly debt service can be excluded for D/I purposes if 10 or fewer payments remain to be made. .

Instrument

Any written document having a legal effect.

Interest

A charge paid for borrowing money. (Also See Mortgage Note)

Investment Property

A non-owner occupied residential property used for the generation of income.

 

Judgment

The determination of a court regarding the rights of parties in an action. A judgment of debt on a property owner can create a lien on all of that ownerís land within a certain jurisdiction.

Junior Lien

Any lien that is subordinate or subsequent to the claims of a prior lien.

Junior Mortgage

A mortgage lower in lien priority than another.

 

Leasehold

The right to possession and use of land for a fixed period of time. The lease is the agreement that creates the right.

Lessee

A tenant holding a leasehold.

Lessor

A landlord; one who gives a leasehold to a lessee.

License

Permission to go upon or use the land of another, the permission being a personal privilege and not constituting an interest in the land.

Lien

A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor. (See also Special Lien)

Lien Waiver

Also called a “Waiver of Liens.” A waiver of mechanics’ lien rights, signed by contractors or subcontractors.

Loan Policy

Also called a ììMortgagee Policyîî. A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalidity or unenforceability of a lien, or loss of priority of the mortgage or deed of trust.

Lock-In

A guarantee that one will receive a specific rate on a mortgage.

Lis Pendens

A legal notice intending to bind third parties of litigation claiming an interest in real estate.

Lot

Generally, a portion or parcel of real property. Usually refers to a portion of a subdivision.

 

Margin

The amount that is added to the index to create the mortgage interest rate for an ARM.

Market Value

The average of the highest price that a buyer would pay and the lowest price a seller would accept.

Marketable Title

A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Mechanicís Lien

A lien on real estate, created by operation of law, that secures the payment of debts due to persons who perform labor or services or furnish materials incident to the construction of buildings and improvements on the real estate.

Metes and Bounds

A land description in which boundaries are described by courses, directions, distances and monuments.

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 (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.

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

Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price.

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.

Mortgagee

The lender in a mortgage agreement.

Mortgagee Policy

Also called a “Loan Policy”. A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalidity or unenforceability of a lien, or loss of priority of the mortgage or deed of trust.

Mortgagor

The borrower in a mortgage agreement.

Multiple Listing Service (MLS)

The pooling in a central bureau of listings of properties for sale. These listings are held individually by members of a group of real estate brokers, with the agreement that any member of the group may sell the properties and, in the case of a sale, the commission will be divided between the broker making the sale and the broker who filed the listing.

Muniments of Title

Written evidence (documents) that an owner possesses to prove his or her title to property.

 

Negative Amortization

A gradual increase in the mortgage debt caused by unpaid interest that is added to the mortgage principal because the payment is not sufficient to cover the full amount of interest due.

Non-Conforming Loans

Loans that exceed the conforming loan limits. Generally, loans above $214,600 (Jumbo).

Note

Also called ììPromissory Note.îî A written promise to pay a sum of money, usually at a specified interest rate, at a stated time to a named payee.

 

Origination Fee

A Fee charged to the borrower to reduce the interest rate; this fee is usually stated as a percentage; see “Discount Points”

Ownerís Policy

A policy of title insurance insuring the owner of real estate against loss occasioned by defects in, liens, against, or unmarketability of the ownerís title.

 

PITI

Abbreviation for principal, interest, taxes, and insurance, all of which are lumped together in the monthly mortgage payment

Plat

A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land and easements.

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.

Premium

The amount payable for an insurance policy.

Prepaid Items

Items that generally must be paid for at the time of closing and are generally recurring charges. Prepaid items may include the following:

ï First year premiums for hazard, flood and mortgage insurance.
ï Prorated interest.
ï Any special assessments which must be prepaid (i.e.; water/sewer connection, etc.). Escrow account for any of the above.

Prepayment

Payment of mortgage loan, or part of it, before its 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.

Prescriptive Easement

A right to use anotherís property that is not inconsistent with the owner’s rights and that is acquired by an open, notorious, adverse and continuous use for the statutory period, for example 20 years.

Principal

(1) A sum of money owed as a debt on which interest is payable. (2) The person having prime responsibility for an obligation as distinguished from one who acts as a surety or endorser.

Private Mortgage Insurance or PMI

Insurance coverage that lenders require the borrower to obtain to protect the lender against loss in the event of a mortgage default for higher LTV mortgages.

Purchase Money Mortgage

A mortgage given by a purchaser to a seller on the subject property to secure payment of a part of the purchase price.

 

Qualifying Ratios

The percentage of payment to income (P/I) and debt-to-income (D/I) that is used to measure the borrower’s capacity to repay the mortgage debt

Quitclaim Deed

A deed which transfers whatever interest a maker of the deed may have in a particular parcel of land. A quitclaim deed is often given to clear the title when the grantor’s interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has. (See also Deed)

 

Rate & Term Refinance

A refinance of any mortgage in which the new mortgage amount is limited to the unpaid principal balance of the existing first mortgage plus any closing costs.

Real Estate

Also called “Real Property”. (1) Land and anything permanently affixed to the land, such as buildings, fences and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items that would be personal property if not attached. (2) May refer to rights in real property as well as the property itself.

Real Estate Broker

A middleman or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Recording

The noting in a public office of the details of a legal document ññ such as a deed or mortgage ññ affecting the title to real estate. When such an instrument is properly recorded, it is considered to be a matter of public record. Legally, that means that all subsequent purchasers are deemed to have constrictive knowledge of that information.

Refinancing

The process of the same mortgagor paying off one loan with the proceeds from another loan.

Release

A writing or an oral statement manifesting an intention to discharge another from an existing or asserted duty.

Restrictive Covenants

Restrictive covenants are private restrictions limiting the use of real property. They 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)

Revolving Debt

A debt that does not have a fixed payment, although repayment is usually a percentage of the outstanding balance and made at regular intervals; most types are common are credit cards issued by banks and department stores.

Riparian Rights

The rights of owners of lands bordering watercourses which relate to the water and its use.

 

Sales Agreement

A contract entered into between a buyer and seller, setting forth the terms, provisions, and conditions of a sale of real estate.

Sale and Leaseback

The sale of an asset to a buyer who immediately leases it back to the seller.

Search

A comprehensive exploration and perusal of the public records in an effort to find all recorded instruments relating to a particular chain of title.

Second Mortgage

A mortgage ranking in priority immediately below a first mortgage.

Self Employed Borrower

A borrower whose income is derived from a business source in which he/she has an ownership interest of 25% or more.

Servicing

The administration of a loan that includes, but is not limited to, the collection of the monthly payments, and/or related fees, and disbursement of the collections to the investor who owns the loan. Upon selling the loan, servicing may either be retained or released. If retained, the selling lender will be paid a fee for managing the loan account. If servicing is released, the seller is not responsible for the loan administration.

Settlement Costs

See “Closing Costs.”

Single Family Residence

A structure that is intended to house one family.

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 of an individual’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.

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

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.

Subordination

The act or process by which a personís rights are ranked below the rights of others. For example, a second mortgageeís rights are subordinate to those of the first mortgage.

Supplemental Income

Income derived from sources such as interest/dividends, capital gains, and rental properties; these incomes require tax returns to support the qualifying income.

Surety

(1) A person who agrees to be responsible for a debt or obligation of another. (2) The pledge or agreement by which one undertakes responsibility for the debt or obligation of another.

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.

Sweat Equity

The exchange of labor or services in lieu of paying cash for the purpose of receiving credit towards the down payment: this generally is not an eligible source of down payment.

 

Tax

As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Temporary Buy down

A loan on which the interest rate has been “bought down” for a temporary period of time at the beginning of the loan by escrowing funds at the time of closing, which funds will be applied to the total monthly mortgage payment as each becomes due.

Timeshare

A real estate development in which a buyer can purchase the exclusive right to occupy a unit for a specified period of time each year

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 Covenants

Covenants ordinarily inserted in conveyance and in transfers of title to real estate for the purpose of giving protection to the purchaser against possible insufficiency of the title received. A group of such covenants known as ììCommon Law Covenantsîî includes: covenants against encumbrances; covenants for further assurance (in other words, to do whatever is necessary to rectify title deficiencies); covenants of good right and authority to convey; covenants of quiet enjoyment; covenants of seisin; covenants of warranty. (See also Covenant or Warranty)

Title Defect

(1) Any possible or patent claim or right outstanding in a chain of title that is adverse to the claim of ownership. (2) Any material irregularity in the execution or effect of an instrument in the chain of title.

Title Insurance Policy

A contract of title insurance under which the insurer, in keeping with the terms of the policy, agrees to indemnify the insured against loss arising from claims against the insured interest.

Title Plant

A geographically filed collection of title information that helps in expediting title examinations, such as copies of previous attorneysí opinions, abstracts, tax searches and copies of take-offs of the public records.

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 covenants filed in the record, which would adversely affect the marketability or value of title.

Townhouse

An architectural type of construction; a row house on a small lot that has exterior limits common to other similar units; title to the unit and it’s lot is vested in the individual owner with a fractional interest in common areas.

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 also Deed of Trust)

Two-step ARM

An ARM that has a fixed interest rate for the first five or seven years of the mortgage term, then adjusts at the current market rate plus a predetermined margin, then remaining fixed at that rate for the remainder of the term.

Two-to-Four Family Properties

A structure that provides dwelling units for two, three or four families, although ownership is evidenced by a single deed.

 

Underwriter

An analyst who reviews the supportive documentation to determine the risk associated with the loan request. The person who gives final loan approval.

 

Variable Interest Rate

An interest rate that fluctuates as the prevailing rate moves up or down. In mortgages, there are usually maximums as to the frequency and amount of fluctuation.

Veterans Administration (VA) Loans

Housing loans to veterans by banks, savings and loans, or other lenders that are guaranteed by the Veterans Administration thereby enabling veterans to buy a residence with little or no down payment.

 

Waiver

The voluntary and intentional relinquishment of a known right, claim or privilege.

Warranty

In a broad sense, an agreement or undertaking by a seller to be responsible for present or future losses of the purchaser occasioned by deficiency or defect in the quality, condition or quantity of the thing sold. In a stricter sense, the provision or provisions in a deed, lease or other instrument conveying or transferring an estate or interest in real estate under which the seller becomes liable to the purchaser for defects in or encumbrances on the title. (See also Title Covenants)

Will

A testamentary disposition of property, usually in a form prescribed by law, that takes effect upon death.

 

Zoning

Laws passed by local governments regulating the size, type, structure, nature and use of land or buildings.

Zoning Ordinances

The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.