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Abstract Of Title
A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews an abstract
of title to determine whether there are any title defects which must be
cleared before a buyer can purchase clear, marketable, and insurable
title.
Acceleration Clause
Condition in a mortgage that may require the balance of the loan to become
due immediately, if regular mortgage payments are not made or for breach
of other conditions of the mortgage.
Agreement of Sale
Known by various names, such as contract of purchase, purchase agreement,
or sales agreement according to location or jurisdiction. A contract in
which a seller agrees to sell and a buyer agrees to buy, under certain
specific terms and conditions spelled out in writing and signed by both
parties.
Amortization
A payment plan which enables the borrower to reduce his debt gradually
through monthly payments of principal.
Appraisal
An expert judgment or estimate of
the quality or value of real estate as of a given date.
Assumption of Mortgage
An obligation undertaken by the
purchaser of property to be personally liable for payment of an existing
mortgage. In an assumption, the purchaser is substituted for the original
mortgagor in the mortgage instrument and the original mortgagor is to be
released from further liability in the assumption, the mortgagee's consent
is usually required.
The original mortgagor should
always obtain a written release from further liability if he desires to be
fully released under the assumption. Failure to obtain such a release
renders the original mortgagor liable if the person assuming the mortgage
fails to make the monthly payments.
An "Assumption of
Mortgage" is often confused with "purchasing subject to a
mortgage." When one purchases subject to a mortgage, the purchaser
agrees to make the monthly mortgage payments on an existing mortgage, but
the original mortgagor remains personally liable if the purchaser fails to
make the monthly payments. Since the original mortgagor remains liable in
the event of default, the mortgagee's consent is not required to a sale
subject to a mortgage.
Both "Assumption of
Mortgage" and "Purchasing Subject to a Mortgage" are used
to finance the sale of property. They may also be used when a mortgagor is
in financial difficulty and desires to sell the property to avoid
foreclosure.
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 binder secures the right to purchase real estate
upon agreed terms for a limited period of time. If the buyer changes his
mind or is unable to purchase, the earnest money is forfeited unless the
binder expressly provides that it is to be refunded.
Building Line of 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.
Certificate of Title
A certificate issued by a title
company or a written opinion rendered by an attorney that the seller has
good marketable and insurable title to the property which he is offering
for sale. A certificate of title offers no protection against any hidden
defects in the title which an examination of the records could not reveal.
The issuer of a certificate of title is liable only for damages due to
negligence. The protection offered a homeowner under a certificate of
title is not as great as that offered in a title insurance policy.
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 the price
of the property and are items prepaid at the closing day. 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 which adversely affects the marketability of title.
Commission
Money paid to a real estate agent
or broker by the seller as compensation for finding a buyer and completing
the sale. Usually it is a percentage of the sale price--6 to 7 percent on
houses, 10 percent on land.
Condemnation
The taking of private property
for public use by a government unit, against the will of the owner, but
with payment of just compensation under the government's power of eminent
domain. Condemnation may also be a determination by a governmental agency
that a particular building is unsafe or unfit for use.
Contractor
In the construction industry, a
contractor is one who contracts to erect buildings or portions of them.
There are also contractors for each phase of construction: heating,
electrical, plumbing, air conditioning, road building, bridge and dam
erection, and others.
Conventional Mortgage
A mortgage loan not insured by
HUD or guaranteed by the Veterans' Administration. It is subject to
conditions established by the lending institution and State statutes. The
mortgage rates may vary with different institutions and between States.
(States have various interest limits.)
Cooperative Housing
An apartment building or a group
of dwellings owned by a corporation, the stockholders of which are the
residents of the dwellings. It is operated for their benefit by their
elected board of directors. In a cooperative, the corporation or
association owns title to the real estate. A resident purchases stock in
the corporation which entitles him to occupy a unit in the building or
property owned by the cooperative. While the resident does not own his
unit, he has an absolute right to occupy his unit for as long as he owns
the stock.
Deed
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
Like a mortgage, a security
instrument whereby real property is given as security for a debt. However,
in a deed of trust there are three parties to the instrument: the
borrower, the trustee, and the lender, (or beneficiary). In such a
transaction, the borrower transfers the legal title for the property to
the trustee who holds the property in trust as security for the payment of
the debt to the lender or beneficiary. If the borrower pays the debt as
agreed, the deed of trust becomes void. If, however, he defaults in the
payment of the debt, the trustee may sell the property at a public sale,
under the terms of the deed of trust. In most jurisdictions where the deed
of trust is in force, the borrower is subject to having his property sold
without benefit of legal proceedings. A few States have begun in recent
years to treat the deed of trust like a mortgage.
Default
Failure to make mortgage payments
as agreed to in a commitment based on the terms and at the designated time
set forth in the mortgage or deed of trust. It is the mortgagor's
responsibility to remember the due date and send the payment prior to the
due date, not after. Generally, thirty days after the due date if payment
is not received, the mortgage is in default. In the event of default, the
mortgage may give the lender the right to accelerate payments, take
possession and receive rents, and start foreclosure. Defaults may also
come about by the failure to observe other conditions in the mortgage or
deed of trust.
Depreciation
Decline in value of a house due
to wear and tear, adverse changes in the neighborhood, or any other
reason.
Documentary Stamps
A State tax, in the forms of
stamps, required on deeds and mortgages when real estate title passes from
one owner to another. The amount of stamps required varies with each
State.
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 purchaser wants the down payment to be refundable, he should
insert a clause in the agreement of sale specifying the conditions under
which the deposit will be refunded, if the agreement does not already
contain such clause. If the seller cannot deliver good title, the
agreement of sale usually requires the seller to return the down payment
and to pay interest and expenses incurred by the purchaser.
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
downpayment. 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 Rights
A right-of-way granted to a
person or company authorizing access to or over the owner's land. An
electric company obtaining a right-of-way across private property is a
common example.
Encroachment
An obstruction, building, or part
of a building that intrudes beyond a legal boundary onto neighboring
private or public land, or a building extending beyond the building line.
Encumbrance
A legal right or interest in land
that affects a good or clear title, and diminishes the land's value. It
can take numerous forms, such as zoning ordinances, easement rights,
claims, mortgages, liens, charges, a pending legal action, unpaid taxes,
or restrictive convenants. An encumbrance does not legally prevent
transfer of the property to another. A title search is all that is usually
done to reveal the existence of such encumbrances, and it is up to the
buyer to determine whether he wants to purchase with the encumbrance, or
what can be done to remove it.
Equity
The value of a homeowner's
unencumbered interest in real estate. Equity is computed by subtracting
from the property's fair market value the total of the unpaid mortgage
balance and any outstanding liens or other debts against the property. A
homeowner's equity increases as he pays off his mortgage or as the
property appreciates in value. When the mortgage and all other debts
against the property are paid in full the homeowner has 100% equity in his
property.
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.
Foreclosure
A legal term applied to any of
the various methods of enforcing payment of the debt secured by a
mortgage, or deed of trust, by taking and selling the mortgaged property,
and depriving the mortgagor of possession.
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.
Grantee
That party in the deed who is the
buyer or recipient.
Grantor
That party in the deed who is the
seller or giver.
Interest
A charge paid for borrowing
money.
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.)
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.
Mortgage Commitment
Written notice from the bank or
other lending institution saying it will advance mortgage funds in a
specified amount to enable a buyer to purchase a house.
Mortgage Insurance Premium
The payment made by a borrower to
the lender for transmittal to HUD to help defray the cost of the FHA
mortgage insurance program and to provide a reserve fund to protect
lenders against loss in insured mortgage transactions. In FHA insured
mortgages this represents an annual rate of one-half of one percent paid
by the mortgagor on a monthly basis.
Mortgage Note
A written agreement to repay a
loan. The agreement is secured by a mortgage, serves as proof of an
indebtedness, and states the manner in which it shall be paid. The note
states the actual amount of the debt that the mortgage secures and renders
the mortgagor personally responsible for repayment.
Mortgage (Open-End)
A mortgage with a provision that
permits borrowing additional money in the future without refinancing the
loan or paying additional financing charges. Open-end provisions often
limit such borrowing to no more than would raise the balance to the
original loan figure.
Mortgagor
The borrower in a mortgage
agreement.
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
A point is one percent of the
amount of the mortgage loan.
Prepayment
Payment of mortgage loan, or part
of it, before due date. Mortgage agreements often restrict the right of
prepayment either by limiting the amount that can be prepaid in any one
year or charging a penalty for prepayment. The Federal Housing
Administration does not permit such restrictions in FHA insured mortgages.
Principal
The basic element of the loan as
distinguished from interest and mortgage insurance premium. In other
words, principal is the amount upon which interest is paid.
Quitclaim Deed
A deed which transfers whatever
interest the maker of the deed may have in the 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.
Real Estate Broker
A middle man 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.
Refinancing
The process of the same mortgagor
paying off one loan with the proceeds from another loan.
Restrictive Convents
Private restrictions limiting the
use of real property. Restrictive covenants are created by deed and may
"run with the land," binding all subsequent purchasers of the
land, or may be "personal" and binding only between the original
seller and buyer. The determination whether a covenant runs with the land
or is personal is governed by the language of the covenant, the intent of
the parties, and the law in the State where the land is situated.
Restrictive covenants that run with the land are encumbrances and may
affect the value and marketability of title. Restrictive covenants may
limit the density of buildings per acre, regulate size, style or price
range of buildings to be erected, or prevent particular businesses from
operating or minority groups from owning or occupying homes in a given
area. (This latter discriminatory covenant is unconstitutional and has
been declared unenforceable by the U.S. Supreme Court.)
Special Assessments
A special tax imposed on
property, individual lots or all property in the immediate area, for road
construction, sidewalks, sewers, street lights, etc.
Special Lien
A lien that binds a specified
piece of property, unlike a general lien, which is levied against all
one's assets. It creates a right to retain something of value belonging to
another person as compensation for labor, material, or money expended in
that person's behalf. In some localities it is called
"particular" lien or "specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor
conveys title to the grantee and agrees to protect the grantee against
title defects or claims asserted by the grantor and those persons whose
right to assert a claim against the title arose during the period the
grantor held title to the property. In a special warranty deed the grantor
guarantees to the grantee that he has done nothing during the time he held
title to the property which has, or which might in the future, impair the
grantee's title.
Survey
A map or plat made by a licensed
surveyor showing the results of measuring the land with its elevations,
improvements, boundaries, and its relationship to surrounding tracts of
land. A survey is often required by the lender to assure him that a
building is actually sited on the land according to its legal description.
Title
As generally used, the rights of
ownership and possession of particular property. In real estate usage,
title may refer to the instruments or documents by which a right of
ownership is established (title documents), or it may refer to the
ownership interest one has in the real estate.
Title Insurance
Protects lenders or homeowners
against loss of their interest in property due to legal defects in title.
Title insurance may be issued to a "mortgagee's title policy."
Insurance benefits will be paid only to the "named insured" in
the title policy, so it is important that an owner purchase an
"owner's title policy", if he desires the protection of title
insurance.
Title Search
A check of the title records,
generally at the local courthouse, to make sure the buyer is purchasing a
house from the legal owner and there are no liens, overdue special
assessments, or other claims or outstanding restrictive convenants filed
in the record, which would adversely affect the marketability or value of
title.
Trustee
A party who is given legal
responsibility to hold property in the best interest of or "for the
benefit of" another. The trustee is one placed in a position of
responsibility for another, a responsibility enforceable in a court of
law. (See deed of trust.)
Zoning Ordinances
The acts of an authorized local
government establishing building codes, and setting forth regulations for
property land usage.
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