Glossary of Terms

A

abstract of title:
A written history of ownership of a parcel of land, summarizing the material parts of any occurrence affecting title of said land.
accrued interest:
Interest earned for the period of time elapsed since interest was last paid.
add-on interest:
The full amount of interest calculated on the original principal for the term of the loan. This interest is added to the original principal, thereby becoming a part of the face amount of the promissory note.
alienation clause:
A type of acceleration clause that demands payment of the entire balance upon sale or other transfer of title; also called a "due-on-sale" clause.
all-inclusive trust deed (AITD):
A refinancing technique involving the creation of a new deed of trust that includes the balance due on the existing note plus new funds advanced; also known as a wrap-around mortgage.
amortization:
Repayment of a mortgage debt with equal periodic payments of both principal and interest, calculated to retire the obligation at the end of a fixed period of time.
annual percentage rate (APR):
A term defined in section 106 of the federal Truth in Lending Act (PL 90-321; 15 usc 1606), which expresses on an annualized basis the charge imposed on the borrower to obtain a loan (defined in the Act as "finance charges"), including interest, discount and other costs.
appraisal:
An opinion or estimate of value. Also refers to the process by which a value estimate is obtained.
appraiser:
One qualified by education, training, and experience to estimate the value of real and personal property.
arrears:
The situation in which mortgage interest and real estate taxes are paid at or after the end of the period for which they are levied. Late payment is also described as being in arrears.
assessed valuation:
The value that a taxing authority places upon real property that becomes the base for computing local property taxes.
assessment:
A value factory assigned to real property and used to determine real property taxes. The process of reaching the assessed valuation. Also, an add-on tax to raise money for special purpose.
assumption agreement:
A written agreement by one party to pay an obligation originally incurred by another.
assumption fee:
The amount paid a lender for the paperwork and processing of records necessary to approve and document a new debtor.
assumption mortgage:
A buyer's acceptance of primary liability for payment of an existing note secured by a mortgage or deed of trust. The seller remains secondarily liable, unless specifically released by the lender.

B

balloon mortgage:
A mortgage with periodic installments of principal and interest that do not fully amortize the loan. The balance of the mortgage is due in a lump sum at a specified date, usually at the end of the term.
balloon payment:
A scheduled payment of a mortgage that is larger than other, periodic payments, usually the un-amoritized final payment.
binder:
Temporary hazard or title insurance granted prior to the issuance of a permanent policy. In real estate, a preliminary agreement between a buyer and seller which includes the price and terms of the contract.
bi-weekly mortgage:
A mortgage with payments due every two weeks, totaling 26 payments a year.
buy-down mortgage:
A mortgage with a below-market interest rate made by a lender in return for an interest rate subsidy in the form of additional discount points paid by the builder, seller, or buyer.

C

certificate of completion:
A document issued by an architect or engineer stating that construction is completed in accordance with the terms, conditions, approved plans and specifications.
chain of title:
A chronology of documents which have transferred title to a parcel of real property from the original owner to the present owner.
clear title:
Unencumbered title to real property, free of liens or defects. Also, "free and clear."
closing statement:
A financial disclosure giving an account of all funds received and expected at closing, including escrow deposits for taxes, hazard insurance and mortgage insurance. All FHA, VA and most conventional-financed loans use a uniform settlement statement called the "HUD-1
co-mortgagor:
A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor's income, assets and debts are combined with the mortgagor's for underwriting and ratio analysis purposes. The co-mortgagor's name must appear on the FHA Certificate of Commitment and the mortgage or deed of trust. For full guarantee under the VA's program, the co-mortgagor must either be a spouse or another eligible veteran.
comparables:
Properties used for comparative purposes in the appraisal process that have similar characteristics to the subject property.
conduit:
An entity which issues mortgage-backed securities backed by mortgages which were originated by other lenders.
contract of sale:
A contract between a purchaser and seller of real property to convey title after certain conditions have been met and payments have been made.
conveyance:
The document, such as a deed, lease or mortgage, used to effect a transfer.
credit rating:
A rating given to a person or company that establishes creditworthiness based upon present financial condition, experience and past credit history.
credit report:
A report to a prospective lender on the credit standing of a prospective borrower, used to aid in the determining of creditworthiness.

D

deed of reconveyance:
The transfer of a legal title from the trustee to the trustor (the borrower) after the trust deed is paid in full deed of trust - A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the condition that the trustee shall reconvey the title upon the payment of the debt, and, conversely, will sell the land and pay the debt in the event of a default by the borrower. See mortgage.
demand note mortgage:
A note or mortgage that the lender can call due at any time and without prior notice.
disbursements:
Actual payment of monies. Used to describe construction loan draws.
disclosure:
Information relevant to specific transactions that is required by law.
down payment:
A portion of the sales price paid a seller by a buyer to close a sales transaction, with the understanding that the balance will be paid later. Also the difference between the sale price of real estate and the mortgage amount.
due-on-sale:
A clause in a mortgage stating that if the mortgagor sells, transfers or in any way encumbers the property, then the mortgagee has the right to implement an acceleration clause making the balance of the obligation due.

E

eminent domain:
The right of government bodies, public utilities and public service corporations to take private property for public use (e.g., schools and roads) upon payment of its fair market value. endorsement - A signature on a negotiable instrument by which title to property mentioned therein is assigned and transferred. Also, a notation added to an instrument after execution to change or clarify its contents. In insurance, coverage may be restricted or enlarged by endorsing a policy. In FHA loans, a notation placed in the note by the FHA indicating that the loan is insured under the National Housing Act.
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 deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. Also known as impounds or reserves.
escrow analysis:
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance and other bills when due.
escrow overage/shortage:
The difference, determined by escrow analysis, between escrow funds on deposit and escrow funds required to make a payment when it becomes due.
escrow payment:
That portion of a mortgagor's monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Also called impounds or reserves.
estoppel letter:
A statement that, in itself, prevents its issuer from later asserting different facts.
evidence of title:
Proof of ownership of property.

F

Federal Home Loan Bank Board (FHLBB):
The FHLBB was a regulatory and supervisory agency for federally-chartered savings institutions, and was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). It oversaw the operations of the Federal Savings and Loan Insurance Corporation and the Federal Home Loan Mortgage Corporation (FHLMC). 
Federal National Mortgage Association (FNMA):
The nation's largest mortgage investor. Created in 1968 by an amendment to Title Ill of the national Housing Act (12 USC 1716 etseq.), this stockholder-owned corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs. Also called Fannie Mae.
fixed-rate mortgage (FRM):
A mortgage in which the interest rate and payments remain the same for the life of the loan.

G

grace period:
A period of time (usually measured in days) after an obligation is due during which a borrower can perform without incurring a penalty and without being considered in default. 
grantor:
The person conveying an interest in real property.
ground rent:
Rent paid for land in accordance with the terms of a ground lease.

H

hazard insurance:
Insurance coverage which provides compensation to the insured in case of property loss or damage. 
home equity loan:
Mortgage financing that consists of a revolving line of credit secured by the appraised market value of the home. Usable for any purpose.
homeowner's policy:
A multiple-peril insurance policy available to owners of private dwellings which covers the dwelling and its contents, as well as personal liability.

I

impound:
See escrow.
income property:
Real estate developed or improved to produce income.
income property loan:
A loan secured by commercial real estate.
investor:
Any person or institution that invests in mortgages or mortgage-backed securities.

J

impound:
Form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship. 
jointly-owned property:
Property held in the name of more than one person.
judgment lien:
Lien upon the property of a debtor resulting from a decree of the court.
junior mortgage:
A mortgage that is subordinate to the claims of a prior lien or mortgage.

L

letter of intent:
A formal letter stating that a buyer or developer is interested in a property. The letter creates no legal obligation. 
liability insurance:
Insurance covering the risks related to the property and personal liability claims of other parties against the insured party.
loan guaranty certificate:
A VA document that states the portion of a loan that is guaranteed.
loan-to-value ratio:
The ratio of mortgage amount to appraised value or sales price of real property. Used by lenders to determine maximum loan amounts as set by law.
loss payable clause:
An insurance policy provision for payment of a claim to someone other than the insured, who holds an insurable interest in the insured property.
lot:
A measured parcel of land having fixed boundaries as shown on the recorded plat.

M

maturity:
The date on which an agreement expires; termination of a mortgage note. 
MIP:
See mortgage insurance premium.
mortgage:
A pledge of property, especially real property, as security for debt. By extension, the document evidencing the pledge. In many states this document is a deed of trust. The document may contain the terms of repayment of debt. By further extensions, "mortgage" is used to describe both the mortgage proper and the separate promissory note evidencing the debt and providing the terms of the debt's repayment.
mortgage insurance premium (MIP):
The amount paid by a mortgagor for mortgage insurance to FHA. (Also see PMI)
mortgage note:
A group of mortgage loans with similar characteristics that are combined to form mortgage-backed securities.
mortgage pool:
A measured parcel of land having fixed boundaries as shown on the recorded plat.
mortgagee:
The lender in mortgage transaction.
mortgagee clause:
A clause that may be attached to an insurance policy stipulating that the lender will receive a portion of insurance proceeds sufficient to satisfy the unpaid amount of a loan in the event of a loss.
mortgagor:
The borrower in a mortgage transaction who pledges property as a security for a debt.

N

note:
A general term for any kind of paper or document signed by a borrower that is an acknowledgment of the debt, and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagees are named as the payee. 

O

origination:
The process of creating both commercial and residential mortgages. 
origination fee:
The lender's fee charged a borrower to prepare documents, make credit checks, inspect and sometimes appraise a property. Usually stated as a percentage of the face value of loan. 
originator:
A person who solicits builders, brokers, and others to obtain applications for mortgage loan. Often called a loan officer. 

P

point:
An amount equal to one percent of the principal amount of a mortgage. Loan discount points are one a one-time charge assessed at closing by the lender to increase the yield on the mortgage loan to a competitive position with other types of investments.
prepaid interest:
Mortgage interest that is paid in advance of when it is due to obtain tax advantages.
prepayment:
The payment of all or part of a mortgage debt before it is due.
prepayment penalty:
A charge the mortgagor pays the mortgagee for the privilege to prepay to its maturity.
principal:
The original balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest.
private mortgage insurance (PMI):
Insurance written by a private company protecting the mortgage lender against financial loss occasioned by a borrower defaulting on the mortgage.
promissory note:
A written promise to pay a specific amount at a specific time.
purchase agreement:
A written agreement between a buyer and a seller of real property, setting forth the price and terms of a sale.

Q

quitclaim deed:
A deed relinquishing all interest, title, or claim an owner has in a property. A quitclaim deed implies no warranty.

R

reconveyance:
An instrument used to transfer title from a trustee to the equitable owner of real estate, used when the performance of debt is satisfied under the term of a deed of trust. 
recording:
The filing of documents or details of a legal document to make them a matter of public record. Usually requires the witnessing and notarizing of the document or instrument to be recorded.
release of liability:
An agreement by a lender to terminate personal obligation of a mortgagor in connection with payment of a debt.
release of lien:
An instrument discharging secured property from a lien.

S

satisfaction of mortgage:
The recorded instrument the lender provides to evidence payment in full of the mortgage debt. 
seasoned mortgage:
A mortgage on which payments have been made regularly for a year or longer.
settlement:
The closing of a mortgage loan. Also, the delivery of a loan or security to a buyer.
settlement costs:
Money paid by borrowers and sellers to effect the closing of a mortgage loan, including payments for title insurance, survey, attorney fees, and such prepaid items as taxes and insurance escrow.
subordination:
The act of a party acknowledging, by written record, that a debt is inferior to the interest of another in the same property. Subordination may apply not only to mortgages, but to leases, real estate rights, and any other types of debt instruments.

T

tax lien:
A claim against property for unpaid taxes. 
tax sale:
The sale of property by a taxing authority, an officer of the court acting on a judgment to satisfy the payment of delinquent taxes.
title:
Written evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift, or through foreclosure of mortgage.
title insurance policy:
A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee, or otherwise.
trust deed:
The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee to ensure the borrower's fulfillment of an obligation. A mortgage.

U

unimproved land:
Raw land. 
 

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