Frequently Used Terms

Chain of Title     An analysis of the transfers of title to a piece of property over the years.

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

Closing     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 that are paid just once as a result of buying the property or obtaining a loan. “Pre-paids” are items that 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 Disclosure (CD)     A form designed to provide disclosures that will be helpful to consumers in understanding all the costs of the transaction. Items that appear on the statement include real estate commissions, loan fees, points, and initial escrow (impound) amounts. The CD will provide totals for the seller’s net proceeds and the buyer’s net payment at closing. The lender is required to provide the CD to the borrower at least 3 days prior to the settlement.

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.

Common Area Assessments     In some areas they are called Homeowners Association Fees. They are charges paid to the Homeowners Association by the owners of the individual units in a condominium or planned unit development (PUD) and are generally used to maintain the property and common areas.

Common Areas     Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

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.

Deed     The legal document conveying title to a property

Deed of Trust     Some states, like Virginia, do not record mortgages. Instead, they record a deed of trust which pledges a property to the lender as security for payment of a debt.

Default     Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.

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

Earnest Money Deposit (EMD)      A sum of money that you put down with a contract. It is good a good faith deposit that shows the seller you are serious about closing the transaction.

Easement     A right of way giving persons other than the owner access to or over a property.

Eminent Domain     The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Encroachment     An improvement that intrudes illegally on another’s property.

Encumbrance     Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

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.

Escrow Account     Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.

Executor     A person named in a will to administer an estate. The court will appoint an administrator if no executor is named. “Executrix” is the feminine form.

Fixture     Personal property that becomes real property when attached in a permanent manner to real estate.

Flood Insurance     Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

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

Grantee     The person to whom an interest in real property is conveyed.

Grantor     The person conveying an interest in real property.

Hazard Insurance     Insurance coverage that, in the event of physical damage to a property from fire, wind, vandalism, or other hazards.

Home Inspection     A thorough inspection by a professional that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser.

Homeowners’ Association     An association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowner’s Insurance     An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

Homeowner’s Warranty     A type of insurance often purchased by homebuyers that will cover repairs to certain items, such as heating or air conditioning, should they break down within the coverage period. The buyer often requests the seller to pay for this coverage as a condition of the sale, but either party can pay.

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.

Judgment     A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

Legal Description   A property description, recognized by law, is sufficient to locate and identify the property without oral testimony.

Lender     A term that can refer to the institution making the loan or to the individual representing the firm.

Lien     A legal claim against a property that must be paid off when the property is sold. A mortgage or first trust deed is considered a lien.

Loan     A sum of borrowed money (principal) that is generally repaid with interest.
Loan Estimate – A form designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. The form must be provided to consumers no later than three business days after they submit a loan application.

Loan Officer     Also referred to by a variety of other terms, such as lender, loan representative, loan “rep,” account executive, and others. The loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution.

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

Mortgage Broker     A mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships.

Note     A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time.

Owner Financing     A property purchase transaction in which the property seller provides all or part of the financing.

Planned Unit Development (PUD)      A type of ownership where individuals actually own the building or unit they live in, but common areas are owned jointly with the other members of the development or association. In contrast with condominium, where an individual actually owns the airspace of his unit, but the buildings and common areas are owned jointly with the others in the development or association.

Power of Attorney     A legal document that authorizes another person to act on one’s behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.

Pre-approval     A loosely used term that is generally taken to mean that a borrower has completed a loan application and provided debt, income, and savings documentation which an underwriter has reviewed and approved. A pre-approval is usually done at a certain loan amount and making assumptions about what the interest rate will actually be at the time the loan is actually made, as well as estimates for the amount that will be paid for property taxes, insurance, and others. A pre-approval applies only to the borrower. Once a property is chosen, it must also meet the underwriting guidelines of the lender. Contrast with pre-qualification.

Pre-qualification     This usually refers to the loan officer’s written opinion of the ability of a borrower to qualify for a home loan, after the loan officer has made inquiries about debt, income, and savings. The information provided to the loan officer may have been presented verbally or in the form of documentation, and the loan officer may or may not have reviewed a credit report on the borrower.

Public Auction     A meeting in an announced public location to sell the property to repay a mortgage that is in default.

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

Purchase Money Transaction     The acquisition of property through the payment of money or its equivalent.

Real Estate Settlement Procedures Act (RESPA)    The federal Real Estate Settlement Procedures Act (RESPA) has provisions regarding the buyer’s right to choose the settlement agent and the provider of title services.

Real Property     Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

Recording     The noting in the registrar’s office of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage, or an extension of mortgage, thereby making it a part of the public record.

Refinance     The process of paying off one loan with the proceeds from a new loan using the same property as security.

Right of First Refusal     A provision in an agreement that requires the owner of a property to give another party the first opportunity to purchase or lease the property before he or she offers it for sale or lease to others.

Right of Ingress or Egress     The right to enter or leave designated premises.

Right of Survivorship     In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

Security    The property that will be pledged as collateral for a loan.

Subdivision     A housing development that is created by dividing a tract of land into individual lots for sale or lease.

Survey     A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments, and other physical features.

Tenancy in Common  As opposed to joint tenancy, when there are two or more individuals on title to a piece of property, this type of ownership does not pass ownership to the others in the event of death.

Title     A legal document evidencing a person’s right to or ownership of a property.
Title Company – A company that specializes in examining and insuring titles to real estate.

Title Insurance     Insurance that protects the lender (lender’s policy) or the buyer (owner’s policy) against loss arising from disputes over ownership of a property.

Title Search     A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transfer Tax     State or local tax payable when title passes from one owner to another.