FREE Dictionary of Real Estate Terms

401(k)/403(b)
An employer’s sponsored investment plan that allows individuals to set aside tax-deferred income for retirement or emergency purposes. Employers that are private corporations provide 401(k) plans. Employers that are not for profit organizations provide 403(b) plans.

401(k)/403(b) loan
Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans. Loans against 401K plans are an acceptable source of down payment for most types of loans.

Abstract
A title abstract is the notes made by a title examiner based on his examination of the land records. These notes are a concise summary of the transactions affecting the property. The title agency produces a Binder from the information in the abstract.


Acknowledgment
As a verb, the confirmation by a party executing a legal document that this is his signature and voluntary act. This confirmation is made to an authorized officer of the Court or notary public who signs a statement also called an acknowledgment.

Acre
43,560 square feet of land.

Adjustable-rate Mortgage (ARM)
A mortgage in which the interest changes periodically, according to corresponding fluctuations in an index. All ARMs are tied to indexes.


Administrator
A person appointed by the Court to settle the estate of a person who dies without a will. The feminine form is Administratrix. Compare, Executor.

Adverse Possession
A claim made against land titled in another person based on open, notorious and hostile possession and use of the land to the exclusion of the titled owner.

Amortization
The periodic principal pay down of a loan. The loan payment consists of a portion, which will be applied to pay the accruing interest on a loan, with the remainder being applied to the principal. Over time, the interest portion decreases as the loan balance decreases, and the amount applied to principal increases so that the loan is paid off (amortized) in the specified time.


Amortization Schedule
A table which shows how much of each payment will be applied toward principal and how much toward interest over the life of the loan. It also shows the gradual decrease of the loan balance until it reaches zero.


Annual Percentage Rate (APR)
This is not the note rate on your loan. It is a value created according to a government formula intended to reflect the true annual cost of borrowing, expressed as a percentage. It works sort of like this, but not exactly, so only use this as a guideline: deduct the closing costs from your loan amount, then using your actual loan payment, calculate what the interest rate would be on this amount instead of your actual loan amount. You will come up with a number close to the APR. Because you are using the same payment on a smaller amount, the APR is always higher than the actual not rate on your loan.


Appraised Value
An opinion of a property's fair market value, based on an appraiser's knowledge, experience, and analysis of the property. Since an appraisal is based primarily on comparable sales, and the most recent sale is the one on the property in question, the appraisal usually comes out at the purchase price.

Appreciation
The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Approved Attorney
An attorney authorized by a title insurance company to handle closings and render opinions on their behalf.

Appurtenance
Anything attached to the land or used with it that will pass to the new owner on conveyance of the land.


Assignee
One who receives an assignment or transfer of rights. An assignment of a contract transfers the right to buy property.

Assignment
When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.


Assignor
The one who assigns to another person.

Assumable Mortgage
A mortgage that can be assumed by the buyer when a home is sold. Usually, the borrower must "qualify" in order to assume the loan.

Assumption
The term applied when a buyer assumes a seller’s loan and becomes personally liable for the repayment. Compare, Subject To.


Attachment
Seizure of property through Court process to repay a debt.


Attorney in Fact
A type of agency relationship where one person holds a Power of Attorney allowing him to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal.

Augmented Estate
To prevent a party from purposely disinheriting a spouse, the surviving spouse can claim a portion of the decedent's augmented estate. The augmented estate includes property given away during life and property sold under terms that were not bone fide and supported by consideration.

Balloon Mortgage
A mortgage loan that requires the remaining principal balance be paid at a specific point in time. For example, a loan may be amortized as if it would be paid over a thirty-year period, but requires that at the end of the tenth year the entire remaining balance must be paid.

Balloon Payment
The final lump sum payment that is due at the termination of a balloon mortgage.


Bankruptcy
A provision of Federal Law whereby a debtor surrenders his assets to the Bankruptcy Court and is relieved of the future obligation to repay his unsecured debts. A Trustee in Bankruptcy administers the assets, selling them to pay as much of the debt as possible. If your seller is in bankruptcy, the Trustee in Bankruptcy owns the property and is the party to sign the contract and make decisions. After bankruptcy, the debtor is discharged and his unsecured creditors may not pursue further collection efforts against him. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor.

Beneficiary
A person named to receive a benefit from a Trust. A contingent beneficiary has conditions attached to these rights, usually that someone else must die first.


Bill of Sale
A written document that transfers title to personal property. For example, when selling an automobile to acquire funds, which will be used as a source of down payment or for closing costs, the lender will usually require the bill of sale (in addition to other items) to help document this source of funds.

Binder
A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder. The binder is delivered to the lender and the settlement attorney.


Bond
An amount of money, often posted with the Court, to guarantee against loss as a result of a possible claim. For example, if there is a Mechanic's Lien against the property, the owner may post a bond and the lien is removed from the property and the parties argue over the money rather than the property.

Bridge Loan
Not used much anymore, bridge loans are obtained by those who have not yet sold their previous property, but must close on a purchase property. The bridge loan becomes the source of their funds for the down payment. One reason there are more and more second mortgage lenders now that will lend at a high loan to value. In addition, sellers often prefer to accept offers from buyers who have already sold their property.


Building Restriction Line
A required setback within which no building may take place. This restriction may appear in the original plat of subdivision, restrictive covenants or by building codes and zoning ordinances.

Caveat Emptor
Buyer beware. The buyer must inspect the property and satisfy himself it is adequate for his needs. The seller is under no obligation to disclose defects but may not actively conceal a known defect or lie if asked.

Certificate of Satisfaction
A document signed by the Noteholder and recorded in the land records evidencing release of a Deed of Trust or other lien on the property.

Certificate of Title
A written opinion by an attorney setting forth the status of title to the property. Certificates of title are no longer in common use.

Chain of Title
An analysis of the transfers of title to a piece of property over the years. The series of transactions from Grantor to Grantee as evidenced in the land records.

Clear Title
A title that is free of liens or legal questions as to ownership of the property.

Closing
This has different meanings in different states. In some states a real estate transaction is not consider "closed" until the documents record at the local recorders office. In others, the "closing" is a meeting where all of the documents are signed and money changes hands.


Closing Costs
Closing costs are separated into what ̧ are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate, which they must issue to the borrower within three days of receiving a home loan application.

Closing Statement
See Settlement Statement.


Cloud on Title
Any conditions revealed by a title search that adversely affect the title to real estate. Usually clouds on title cannot be removed except by deed, release, or court action.

Co-borrower
An additional

Coinsurance
When more than one insurance company shares the risk of a particular transaction or series of transactions. Lenders may require co-insurance on large commercial projects.

Collateral
Something of value pledged to secure a loan. In a home loan, the property is the collateral. The borrower risks losing the property if the loan is not repaid according to the terms of the mortgage or deed of trust.

Condemnation
Taking of private property for a public use through exercise of the power of Eminent Domain. The Constitution protects against taking without fair compensation.

Condominium
A system of individual Fee Simple ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas. Each individual may sell or encumber his own unit. Compare, Cooperative.

Conservator
Also called a Commitee or Guardian, a person designated by the Court to protect and preserve the property of someone who is not able to manage his or her own affairs. Examples include the mentally incompetent, minors and incarcerated persons.

Construction loan
A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.


Contingency
A condition that must be met  before a contract is legally binding. For example, home purchasers often include a contingency that specifies that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualified home inspector.


Contract
An oral or written agreement to do or not to do a certain thing.

Contract for Deed
A method of financing where title remains in the Seller's name until the Buyer has paid the full purchase price. A Contract for Deed will normally trigger the Due on Sale Clause in a Deed of Trust but Veterans Administration regulations specifically allow Contracts for Deed without invoking the Due on Sale Clause.

Conventional Mortgage
Refers to home loans other than government loans (VA and FHA).

Cooperative
A system of individual ownership of stock in a corporation that in turn, owns the structure. Each owner has an exclusive right to use his individual unit and must pay his portion of the debt encumbering the entire building. Compare, Condominium.


Co-tenancy
Ownership in the same land by more than one person. See, Tenancy in Common, Joint Tenants, Tenancy by the Entireties.

Covenant
A written agreement or restriction on the use of land or promising certain acts. Homeowner Associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner's association.

Deed
The written legal document conveying title to a property.

Deed-in-lieu
Short for "deed in lieu of foreclosure," this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.

Deed of Trust
A voluntary lien to secure a debt. Some states, like California, do not record mortgages. Instead, they record a deed of trust, which is essentially the same thing. Compare, Mortgage.

Deficiency Judgment
If the foreclosure sale does not bring sufficient proceeds to pay the costs of sale and pay the note in full, the holder of the note may obtain a judgment against the maker for the difference.

Delivery
Final, irrevocable, unconditional and absolute transfer. The Grantor must deliver a Deed to the Grantee. A Deed, signed but held by the Grantor, does not pass title.

Dower
A spouse's interest in the property of a deceased spouse.


Down payment
The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Due on Sale Clause or Provision
A clause or provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage. The FNMA/FHLMC Deed of Trust also prohibits a long-term lease or a lease with an option to buy.

Earnest Money Deposit
A deposit made by the potential homebuyer to show that he or she is serious about buying the house.

Easement
The right to use the land of another for a specific limited purpose. Examples include utility lines, driveways, and Ingress and Egress. Easements can be temporary or permanent.

Eminent Domain
The power of the state to take private property for public use upon payment of just compensation.

Encroachment
The physical intrusion of a structure or improvement on the land of another. Examples include a fence or driveway over the property line.

Encumbrance
Any lien, liability or charge against a property.

Equity
A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.


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.

Escheat
Property that reverts to the state when an individual dies with heirs and without a will.

Escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.

Escrow Account
An escrow account or impound account with a lender at the close of a purchase transaction. This means the payment each month includes an amount above what would be required paying only the principal and interest. The extra money is held in an impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due.


Escrow Analysis
Once each year a lender will perform an "escrow analysis" to make sure they are collecting the correct amount of money for the anticipated expenditures.

Escrow Disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance and other property expenses as they become due.

Executor
A person named in a will to carry out its terms and administer the estate. Depending upon the terms of the Will, the Executor may not have power to sell the real estate; that power may rest in the individual heirs. The feminine form is Executrix. Compare, Administrator.

Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fee Simple
The absolute total interest in real property. Compare, Life Estate, Reversion.

FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Along with VA loans, an FHA loan will often be referred to as a government loan.

Financing Statement
Lenders record financing statements to evidence personal property is subject to a lien. The company who finances a new furnace, siding or windows may record the financing statement as evidence they have not been fully paid for.

First Mortgage
The mortgage that is in first place among any loans recorded against a property. Usually refers to the date in which loans are recorded, but there are exceptions.

Fixed-rate Mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.

Fixtures
An item of personal property attached to real property so that it can not be removed without damage to the real property. It then becomes a part of the real property.

Foreclosure
The process by which a lender sells a property securing a loan in order to repay the loan. Under a Deed of Trust, foreclosure is by public auction after appropriate advertisement. A Mortgage may require the lender obtain Court approval prior to sale.

FSBO
Short for “For Sale By Owner.”

General Warranty Deed
The Grantor warrants title against all claims. Compare, Quit Claim Deed, Special Warranty Deed.

Government Loan
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.

Ground Lease
The owner grants a long-term lease of the land (usually 99 years) and allows the lessee to build and use the land as agreed. At the end of the term, the land and all improvements revert to the owner.

Guardian
One appointed by the Court to administer the affairs of a minor. A guardian ad litem is appointed to protect one's interest in a particular legal action. See, Conservator.

Hiatus
A gap or space left between two parcels of land and not included in the legal description of either parcel. Similar terms are Gaps and Gores.

Homestead Deed
A declaration filed in the land records that an individual is asserting his homestead exemption. That exemption allows one to protect up to $5,000 in assets (plus $500 per dependent) against the claims of creditors.

Ingress and Egress
Applied to Easements, meaning the right to go in and out over a piece of property but not the right to park on it.

Insurable Title
Title subject to a defect or claim, which a title insurance company is willing to insure against. Compare, Marketable Title.

Insured Closing Letter
An indemnity given to a lender from a title insurance company, agreeing to be responsible if the closing agent does not follow the lender's instructions or misappropriates the loan proceeds. Lenders usually require an insured closing letter be on file for each settlement.


Intestate
An estate without a Will. Compare, Testate.

Joint Ownership Agreement
An agreement between owners defining their rights and responsibilities. The agreement could be between an investor and an occupant or among occupants. If an investor is involved, the investor does not take depreciation deductions and none of the occupant's payment is deemed rent for tax purposes. Compare, Equity Sharing. We always recommend a written joint ownership agreement when unmarried parties acquire property.

Joint Tenancy
A form of ownership or taking title to property, which means each party, owns the whole property and that ownership is not separate. In the event of the death of one party, the survivor owns the property in its entirety. Compare, Tenants in Common, Tenants by the Entirety.

Judgment Lien
A judgment automatically becomes a lien against all real property owned by the judgment debtor in the county where the judgment is recorded.

Land Contract
See, Contract for Deed.

Lender's Title Insurance
A Title Insurance policy covering the lender for the loan amount. The coverage declines as the loan is paid down and when the loan is paid off, there is no further coverage.

Lien
A claim or charge against property. Property is said to be encumbered by a lien and the lien must be removed to clear title.

Life Estate
The right to use, occupy and own for the life of an individual. Compare, Fee Simple.


Mortgage Insurance Premium (MIP)
The amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

Majority
The age at which a person is entitled to handle his own affairs

Marketable Title
Title without defects or claims so as to be readily accepted without fair or reasonable doubt. Compare, Insurable Title.

Mechanic's Liens
The right of an unpaid contractor, laborer or supplier to file a lien against property to recover the value of his work.

Metes and Bounds
A means of describing land by directions and distances rather than reference to a lot number. Generally used when land has not been subdivided into lots.

Mortgage
A legal document that pledges a property to the lender as security for payment of a debt. Instead of mortgages, some states use First Trust Deeds. Compare, Deed of Trust.

Mortgagee
The lender in a mortgage agreement.

Mortgage Insurance (MI)
Insurance that covers the lender against some of the losses incurred as a result of a default on a home loan. Often mistakenly referred to as PMI, which is actually the name of one of the larger mortgage insurers. Mortgage insurance is usually required in one form or another on all loans that have a loan-to-value higher than eighty percent. Also, FHA loans and certain first-time homebuyer programs require mortgage insurance regardless of the loan-to-value.

Note
A written promise to pay a certain sum of money at a certain time. A negotiable note starts "Pay to the order of" and is transferable by endorsement similar to a check.

Notary Public
One authorized by law to acknowledge and certify documents and signatures.

Owner's Title Insurance
A policy of Title Insurance for the buyer insuring the full purchase price of the property.
The insurance premium is paid at settlement, and the coverage continues forever.

Partition
The forced division of land among parties who were formerly co-owners. A partition suit
may ask to divide the land or if that is not practical, sell the land and divide the proceeds.

Plat
A map showing the division of a piece of land with lots, streets and, if applicable,
common area.

Pipestem Lot
A lot connected to a public street by a narrow strip of land. Usually several adjacent pipestems are combined to form one driveway with each owner having a mutual-reciprocal easement to use and maintain the driveway to the street.

Power of Attorney
A written document authorizing another to act on his behalf as an Attorney in Fact. One does not need to be a licensed attorney to act as an attorney in fact.

Prepayment Penalty
An additional charge imposed by the lender for paying off a loan before the due date.

Purchase Agreement
A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Quiet Title Action
A suit brought to remove a claim or objection on title.

Quitclaim Deed
A deed releasing whatever interest you may hold in a property but making no warranty whatsoever. Compare, Special Warranty Deed and General Warranty Deed.

Re-issue Rate
A discounted rate for title insurance when the title was previously insured with an owner's title insurance policy issued within the last ten years.

Remainder
An interest in land that is postponed until the termination of some other interest such as a Life Estate. Compare, Fee Simple.

Reversion
A provision in a conveyance that the land will return to the grantor, or his heirs, upon the happening of an event or contingency. Compare, Fee Simple.


Riparian Rights
The rights of an owner of land adjacent to water.

Special Warranty Deed
The seller warrants he has done nothing to impair title but makes no warranty before his ownership. Builders, trustees and estates often grant by special warranty deed. This is not a concern so long as the buyer gets an Owner's Title Insurance Policy. Compare, General Warranty Deed and Quitclaim Deed.


Subdivision
Dividing land into lots and streets. The owner signs a Plat and Deed of Resubdivision, which is recorded among the land records. States and counties have strict requirements for subdivision of land.

Subject To
Taking title to property with a lien but not agreeing to be personally responsible for the lien. If the holder who forecloses the lien can take the property but may not collect any money from the owner who took "subject to." Compare, Assumption.

Tenants by the Entirety
A husband and wife own the property with the common law right of survivorship so, if one dies, the other automatically inherits. One may not sue the other to Partition the property. A creditor of one may not claim the property or the proceeds of sale. Compare, Tenant in Common, Joint Tenants.

Tenant in Common
Two or more persons own the property with no right of survivorship. If one dies, his interest passes to his heirs, not necessarily the co-owner. Either party, or a creditor of one, may sue to Partition the property. Compare, Tenants by the Entirety, Joint Tenants.

Testate
To die with a Will. Compare, Intestate.

Testator
One who makes out a last will and testament. The feminine form is Testatrix.

Title Insurance
Insurance against loss or damage as a result of defect in title ownership to a particular piece of property. Title insurance covers mistakes made during a Title Search as well as matters, which could not be found or discovered, in the public records such as missing heirs, mistakes, fraud and forgery.

Title Search
An examination of the public records, including court decisions, to disclose facts concerning the ownership of real estate. The title examiner prepares an Abstract and the title agent prepares a Binder.

Trust
A right to or in property held for the benefit of another. A trust may be written or implied. An implied trust is called a Constructive Trust.

Trustee
One who holds property in Trust for another. In Virginia, you may hold title to real property as Trustee without revealing the Beneficiary's identity provided; the Deed you receive grants you full trust powers to deal with the property.

Usury
Charging more than the maximum legally permitted rate of interest. There is no usury limit for loans secured by a first trust.

Wraparound
The debt secured includes an existing debt already on the property. The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment to the existing noteholder. Often used to avoid a Prepayment Penalty or a Due on Sale Clause. Can be used to refer to a wraparound Deed of Trust or Contract for Deed.

Zoning
Regulation of private land use and development by local government.