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ABSTRACT OF THE TITLE

A short history of a piece of land that lists any transfers in ownership, as well as any liabilities attached to it, such as mortgages.

ADJUSTABLE RATE MORTGAGE (ARM)

A mortgage loan with an interest rate that fluctuates in accordance with a designated market indicator--such as the weekly average of one-year U.S. Treasury Bills--over the life of the loan. To avoid constant and drastic fluctuations, ARMs typically limit how often and by how much the interest rate can vary.

ADVERSE POSSESSION

A means by which one can legally take another's property without paying for it. The requirements for adversely possessing property vary between states, but usually include continuous and open use for a period of five or
more years and paying taxes on the property in question.

AGENT

A person authorized to act for and under the direction of another person when dealing with third parties. The person who appoints an agent is called the principal. An agent can enter into binding agreements on the principal's behalf and may even create liability for the principal if the agent causes harm while carrying out his or her duties.

AMORTIZATION

Repayment of your loan amount through regular payments of both principal and interest, calculated to pay off the loan after a fixed period of time.

ANNUAL PERCENTAGE RATE (APR)

Charges imposed on the borrower to obtain a mortgage, expressed on an annualized basis as an interest rate. It includes the interest rate, loan fees and points.

APPRAISAL

A determination of the value of something, such as a house, jewelry or stock. A professional appraiser, a qualified, disinterested expert makes an estimate by examining the property, and looking at the initial purchase price and comparing it with recent ssales of similar property. Courts commonly order appraisals in probate, condemnation, bankruptcy or foreclosure proceedings in order to determine the fair market value of property. Banks and real estate companies use appraisals to ascertain the worth of real estate for lending purposes. And insurance companies require appraisals to determine the amount of damage done to covered property before settling insurance claims.

APPRECIATION

Increase in property value (opposite: depreciation).

ASSESSED VALUE

Property's taxable value according to your local tax assessor.

ATTRACTIVE NUISANCE

Something on a piece of property that attracts children but also endangers their safety. For example, unfenced swimming pools, open pits, farm equipment and abandoned refrigerators have all qualified as attractive nuisances.

BALLOON MORTGAGE

Loan with monthly payments of principal and interest that do not fully amortize the loan. The last payment is then made up of a lump sum of the remaining principal balance.

BALLOON PAYMENT

A large final payment due at the end of a loan, typically a home or car loan, to pay off the amount your monthly payments didn't cover. Many states prohibit balloon payments in loans for goods or services that are primarily for personal, family or household use, or require the lender to let you refinance the balloon payment before forcing collection.

BOND

(1) A written agreement purchased from a bonding company that guarantees a person will properly carry out a specific act, such as managing funds, showing up in court, providing good title to a piece of real estate or completing a construction project. If the person who purchased the bond fails at his or her task, the bonding company will pay the aggrieved party an amount up to the value of the bond. (2) An interest-bearing document issued by a government or company as evidence of a debt. A bond provides pre-determined payments at a set date to the bond holder. Bonds may be "registered" bonds, which provide payment to the bond holder whose name is recorded with the issuer and appears on the bond certificate, or "bearer" bonds, which provide payments to whomever holds the bond in-hand.

Bridge Loan

An interim (short term) loan offered by a lender for the purpose of securing the cash for the down payment and closing costs needed to purchase a property while another property having the equity to cover such expenses is listed for sale. Generally, this loan is offered at a much higher interest rate, and is for a period not to exceed 12 months.

CAP (INTEREST RATE)

Provision that limits how much an interest rate may increase or decrease at each

CAPITAL GAINS

The profit on the sale of a capital asset, such as stock or real estate. If you sell your primary residence, you can exclude $250,000 in profit from capital gains tax. A couple can exclude $500,000.

CASH-OUT

Converting all or a portion of the equity in your home to cash when refinancing.

CC&R

The restrictions governing the use of real estate, usually enforced by a homeowners' association and passed on to the new owners of property. For example, CC&Rs may tell you how big your house can be, how you must landscape your yard or whether you can have pets. If property is subject to CC&Rs, buyers must be notified before the sale takes place.

CLOSING

The time at which loan documents and funds are signed and delivered to finalize the funding of a loan. Sometimes called a settlement.

CLOSING COSTS

Expenses incurred to finance a home loan and/or transfer ownership of real estate.

CLEAR TITLE

Home ownership title without liens or claims against it.

COMMON AREAS

Areas in a condominium or townhouse development used by all residents and supported with owners' association fees.

CONIDERATION

Something of value (usually money) exchanged for the act or promise of another person; a required element in a legally enforceable contract, such as a home sales contract.

COUNTEROFFER

Rejection of an offer to buy, that includes a new offer to consider.

DEBT-TO-INCOME RATIO

Ratio of your monthly debt obligation to gross monthly income

ESCROW

The collection or deposit of documents and funds from the parties involved while a purchase loan is being processed that are held by a third party until all conditions are met to fund the loan.

COMBINATION RATE MORTGAGE

Loan that has a fixed rate for the first 2 or 3 years, then has an adjustable rate for the remaining years.

COMBINED LOAN-TO-VALUE (CLTV) RATIO

Comparison, in the form of a ratio, of the total outstanding loans against the real property to its appraised value or sales price.

CONDEMNATION

- See eminent domain -

CONTINGENCY

A provision in a contract stating that some or all of the terms of the contract will be altered or voided by the occurrence of a specific event. For example, a contingency in a contract for the purchase of a house might state that if the buyer does not approve the inspection report of the physical condition of the property, the buyer does not have to complete the purchase.

CO-SINGER

Person who agrees to make loan payments, if you cannot fulfill your financial commitment.

COVENANT

A restriction on the use of real estate that governs its use, such as a requirement that the property will be used only for residential purposes. Covenants are found in deeds or in documents that bind everyone who owns land in a particular development. See covenants, conditions and restrictions.

COVENANTS, CONDITIONS & RESTRICTIONS (CC&Rs)

CREDIT RATING

A rating given to a person that establishes creditworthiness based on credit history, experience and current financial condition.

CREDIT REPORT

A report run by an independent credit agency which verifies certain information concerning your credit standing.

DEDUCTION

In tax law, an amount that you can subtract from the total amount on which you owe tax. Examples of federal income tax deductions include mortgage interest, charitable contributions and certain state taxes. For example, if Aimee receives an income of $60,000 in 1998 and pays $12,000 in mortgage interest during that same year, she can deduct $12,000 when she fills out her federal tax return, leaving an amount of $48,000 upon which she must pay tax.

DEED

A document that transfers ownership of real estate.

DEED IN LIEU (OF FORCELOSER)

A means of escaping an overly burdensome mortgage. If a homeowner can't make the mortgage payments and can't find a buyer for the house, many lenders will accept ownership of the property in place of the money owed on the mortgage. Even if the lender won't agree to accept the property, the homeowner can prepare a quitclaim deed that unilaterally transfers the homeowner's property rights to the lender.

DEED OF TRUST

The most common method of financing real estate purchases in California (most other states use mortgages). The trust deed transfers the title to the property to a trustee often a title company who holds it as security for a loan. When the loan is paid off, the title is transferred to the borrower. The trustee will not become involved in the arrangement unless the borrower defaults on the loan. At that point, the trustee can sell the property and pay the lender from the proceeds.

DEFEASANCE

A clause in a deed, lease, will or other legal document that completely or partially negates the document if a certain condition occurs or fails to occur. Defeasance also means the act of rendering something null and void. For example, a will may provide that a gift of property is defeasable--that is, it will be void if the beneficiary fails to marry
before the willmaker's death.

DISCLOSURE

The making known of a fact that had previously been hidden; a revelation. For example, in many states you must disclose major physical defects in a house you are selling, such as a leaky roof or potential flooding problem.

DOMINANT TENEMENT

Property that carries a right to use a portion of a neighboring property. For example, property that benefits from a beach access trail across another property is the dominant tenement.

DOWN PAYMENT

A lump sum cash payment paid by a buyer when he or she purchases a major piece of property, such as a car or house. The buyer typically takes out a loan for the balance remaining, and pays it off in monthly installments over time.

EASEMENT

A right to use another person's real estate for a specific purpose. The most common type of easement is the right to travel over another person's land, known as a right of way. In addition, property owners commonly grant easements for the placement of utility poles, utility trenches, water lines or sewer lines. The owner of property that is subject to an easement is said to be "burdened" with the easement, because he or she is not allowed to interfere with its use. For example, if the deed to John's property permits Sue to travel across John's main road to reach her own home, John cannot do anything to block the road. On the other hand, Sue cannot do anything that exceeds the scope of her easement, such as widening the roadway.

EASEMENT BY PRESCRIPTION

A right to use property, acquired by a long tradition of open and obvious use. For example, if hikers have been using a trail through your backyard for ten years and you've never complained, they probably have an easement by prescription through your yard to the trail.

EFFUXION OF TIME

The normal expiration of a lease due to the passage of time, rather than due to a specific event that might cause the lease to end, such as destruction of the building.

EGRESS

An exit, or the act of exiting. The most famous use of this word was by P.T. Barnum, who put up a large sign in his circus tent saying "This Way to the Egress." Thinking an egress was some type of exotic bird, people eagerly went though the passage and found themselves outside the circus tent. - Compare ingress.

EMINENT DOMAIN

The power of the federal or state government to take private property for a public purpose, even if the property owner objects. The Fifth Amendment to the United States Constitution allows the government to take private property if the taking is for a public use and the owner is "justly compensated" (usually, paid fair market value) for his or her loss. A public use is virtually anything that is sanctioned by a federal or state legislative body, but such uses may include roads, parks, reservoirs, schools, hospitals or other public buildings. Sometimes called condemnation, taking or expropriation.

ENCROACHMENT

The building of a structure entirely or partly on a neighbor's property. Encroachment may occur due to faulty surveying or sheer obstreperousness on the part of the builder. Solutions range from paying the rightful property owner for the use of the property to the court-ordered removal of the structure.

EQUITY

Difference between your home's current value and how much you owe on your home loan

EXPROPRIATION

See eminent domain

FANNIE MAE

Federal National Mortgage Association. A government-sponsored private corporation that buys home loans from lenders and sells them to investors.

FHA

Federal Housing Administration. An agency within the Department of Housing and Urban Development that provides mortgage insurance for home loans and sets standards for construction and underwriting.

FIXED RATE MORTGAGE

A mortgage loan that has an interest rate that remains constant throughout the life of the loan, so that the amount you pay each month remains the same over the entire mortgage term, typically 15, 20 or 30 years.

FOR SALE BY OWNER (FSBO)

Selling your house without a real estate broker. Doing so can save you a commission but requires that you devote time and energy not only to marketing and showing the house but also to learning and following the legal rules controlling sales of real estate in your area. The acronym, FSBO is pronounced "fizzbo."

FORECLOSURE

The forced sale of real estate to pay off a loan on which the owner of the property has defaulted.

FORFEITURE

The loss of property or a privilege due to breaking a law. For example, a landlord may forfeit his or her property to the federal or state government if the landlord knows it is a drug-dealing site but fails to stop the illegal activity. Or, you may have to forfeit your driver's license if you commit too many moving violations or are convicted of driving under the influence of alcohol or drugs.

FSBO

See for sale by owner

FULLY INDEXED RATE

Index rate plus the lender's margin, which are used to establish the interest rate on a loan.

GIFT FUNDS

Funds used for a down payment or closing costs that were a gift from a relative.

GRANT DEED

A deed containing an implied promise that the person transferring the property actually owns the title and that it is not encumbered in any way, except as described in the deed. This is the most commonly used type of deed. Compare quitclaim deed.

HAZARD INSURANCE

Insurance coverage that compensates the insured for physical damage to the mortgaged property.

HOME WARRANTY

A service contract that covers a major housing system for example, plumbing or electrical wiring for a set period of time from the date a house is sold. The warranty guarantees repairs to the covered system and is renewable.

HOME IMPROVEMENT LOAN

A loan used to pay for permanent improvements to a home.

HOMEOWNERS' ASSOCIATION

An organization comprising neighbors concerned with managing the common areas of a subdivision or condominium complex. These associations take on issues such as salting and sanding a subdivision when it snows and collecting dues from residents. The homeowners' association is also responsible for enforcing any covenants, conditions & restrictions that apply to the property.

HOMEOWNERS INSURANCE

Hazard insurance plus provisions to protect against personal liability and damage or loss to the personal property inside the home.

HOMESTEAD

(1) The house in which a family lives, plus any adjoining land and other buildings on that land. (2) Real estate, which is not subject to the claims of creditors as long as it is occupied as a home by the head of the household. After the head of the family dies, homestead laws often allow the surviving spouse or minor children to live on the property for as long as they choose. (3) Land acquired out of the public lands of the United States . The term "homesteaders" refers to people who got their land by settling it and making it productive, rather than purchasing it outright.

HOMESTEAD DECLARATION

A form filed with the county recorder's office to put on record your right to a homestead exemption. In most states, the homestead exemption is automatic that is, you are not required to record a homestead declaration in order to claim the homestead exemption. A few states do require such a recording, however.

HOUSING EXPENSE

Any and all housing costs, i.e., rent or mortgage payment, including principal, interest, taxes, and hazard insurance.

HOUSE CLOSING

The final transfer of the ownership of a house from the seller to the buyer, which occurs after both have met all the terms of their contract and the deed has been recorded.

HOUSING AND URBAN DEVELOPMENT (HUD)

The U.S. Department of Housing and Urban Development. This is
the agency responsible for enforcing the federal Fair Housing Act.

HUD

See Housing and Urban Development

IMPOUND OR ESCROW ACCOUNT

Account consisting of a portion of monthly payments collected and distributed by a lender to pay for taxes, insurance and other expenses.

Index

Published economic indicator, which lenders use to establish interest rates

INGRESS

entrance, or the act of entering.

INITIAL INTEREST RATE

Introductory interest rate on an ARM. Often offered for 1, 2, 3, or 5 years.

INTEREST RATE CAP OR CEILING

Maximum interest rate allowed on an ARM. Sometimes called a Lifetime Cap.

INVITEE

A business guest, or someone who enters property held open to members of the public, such as a visitor to a museum. Property owners must protect invitees from dangers on the property. In an example of the perversion of legalese, social guests that you invite into your home are called "licensees."

JOINT TENANCY

A way for two or more people to share ownership of real estate or other property. When two or more people own property as joint tenants and one owner dies, the other owners automatically own the deceased owner's share. For example, if a parent and child own a house as joint tenants and the parent dies, the child automatically becomes full owner. Because of this right of survivorship, no will is required to transfer the property; it goes directly to the surviving joint tenants without the delay and costs of probate.

LEASE

An oral or written agreement (a contract) between two people concerning the use by one of the property of the other. A person can lease real estate (such as an apartment or business property) or personal property (such as a car or a boat). A lease should cover basic issues such as when the lease will begin and end, the rent or other costs, how payments should be made, and any restrictions on the use of the property. The property owner is often called the "lessor," and the person using the
property is called the "lessee."

LEASE OPTION

A contract in which an owner leases her house (usually for one to five years) to a tenant for a specific monthly rent, and which gives the tenant the right to buy the house at the end of the lease period for a price established in advance. A lease option is often a good arrangement for a potential homebuyer because it lets him move into a house he may buy without having to come up with a down payment or financing at that time.

LIEN

The right of a secured creditor to grab a specific item of property if you don't pay a debt. Liens you agree to are called security interests, and include mortgages, home equity loans, car loans and personal loans for which you pledge property to guarantee repayment. Liens created without your consent are called nonconsensual liens, and include judgment liens (liens filed by a creditor who has sued you and obtained a judgment), tax liens and mechanics liens (liens filed by a contractor who worked on your house but wasn't paid).

LIMITED EQUITY HOUSING

An arrangement designed to encourage low-and moderate-income families to purchase housing, in which the housing is offered at an extremely favorable price with a low down payment. The catch is that when the owner sells, she gets none of the profit if the market value of the unit has gone up. Any profit returns to the organization that built the home, which then resells the unit at an affordable price.

LIS PENDENS

(1) Latin for "a suit pending." The term may refer to any pending lawsuit. (2) A written notice that a lawsuit has been filed concerning real estate, involving either the title to the property or a claimed ownership interest in it. The notice is usually filed in the county land records office. Recording a "lis pendens" against a piece of property alerts a potential purchaser or lender that the property's title is in question, which makes the property less attractive to a buyer or lender. After
the notice is filed, anyone who nevertheless purchases the land or property described in the notice takes subject to the ultimate
decision of the lawsuit.

LOAN BROKER

A person who specializes in matching homebuyers with appropriate mortgage lenders. For a fee often paid by the lender a loan broker provides any easy and effective way to find the cheapest mortgage rates.

LOAN-TO-VALUE (LTV) RATIO

Ratio of the loan against the real property to its appraised value or sales price

MARGIN

Amount a lender adds to an index to establish an interest rate.

MECHANIC'S LIEN

A legal claim placed on real estate by someone who is owed money for labor, services or supplies contributed to the property for the purpose of improving it. Typical lien claimants are general contractors, subcontractors and suppliers of building materials. A mechanics' lien claimant can sue to have the real estate sold at auction and recover the debt from the proceeds. Because property with a lien on it cannot be easily sold until the lien is satisfied (paid off), owners have a great incentive to pay their bills.

MINERAL RIGHTS

An ownership interest in the minerals contained in a particular parcel of land, with or without ownership of the surface of the land. The owner of mineral rights is usually entitled to either take the minerals from the land himself or receive a royalty from the party that actually extracts the minerals.

MLS

See Multiple Listing Service.

MORTGAGE

A loan in which the borrower puts up the title to real estate as security (collateral) for a loan. If the borrower doesn't pay back the debt on time, the lender can foreclose on the real estate and have it sold to pay off the loan.

MULTIPLE LISTING SERVICE (MLS)

A book and computer service that provides realtors with detailed listings of most homes currently on the market. Access to this service is one of the advantages of working with a real estate professional.

NEGATIVE AMORTIZATION

Increase in the unpaid loan balance created when monthly payments do not cover both principal and interest and unpaid interest is added to the principal balance.

NUISANCE

Something that interferes with the use of property by being irritating, offensive, obstructive or dangerous.
Nuisances include a wide range of conditions, everything from a chemical plant's noxious odors to a neighbor's dog barking. The former would be a "public nuisance," one affecting many people, while the other would be a "private nuisance," limited to making your life difficult, unless the dog was bothering others. Lawsuits may be brought to abate (remove or reduce) a nuisance. - See quiet enjoyment, attractive nuisance.

ORDINANCE

A law adopted by a town or city council, county board of supervisors or other municipal governing board. Typically, local governments issue ordinances establishing zoning and parking rules and regulating noise, garbage removal, and the operation of parks and other areas that affect people who live or do business within the locality's borders.

OWNER-OCCUPANT

Borrower living in the mortgaged property as his or her primary residence.

PAYMENT CAP

Maximum monthly payment required on an ARM

PBGC

See Pension Benefit Guaranty Corporation.

POINTS

Upfront fee lenders charge to reduce an interest rate. Each point typically equals 1 percentage point of the total amount of the loan.

PMI

See private mortgage insurance.

PRIVATE MORTGAGE INSURANCE (PMI)

Insurance that reimburses a mortgage lender if the buyer defaults on the loan and the foreclosure sale price is less than the amount owed the lender (the mortgage plus the costs of the sale). A homebuyer who makes less than a 20% down payment may have to purchase PMI.

PREPAYMENT PENALTY

Fee borrowers pay if they pay off a loan during the early years of its term.

PRINCIPAL

The original amount of money borrowed not including interest owed.

PERSONAL PROPERTY

All property other than land and buildings attached to land. Cars, bank accounts, wages, securities, a small business, furniture, insurance policies, jewelry, patents, pets and season baseball tickets are all examples of personal property. Personal property may also be called personal effects, movable property, goods and chattel, and personality.

PURCHASE LOAN

A loan used to buy real property.

PURCHASE PRICE

Amount for which a property sells.

QUIET ENJOYMENT

The right of a property owner or tenant to enjoy his or her property without interference. Disruption of quiet enjoyment may constitute a nuisance. Leases and rental agreements often contain a "covenant of quiet enjoyment," expressly obligating the landlord to see that tenants have the opportunity to live undisturbed.

QUITCLAIM DEED

A deed that transfers whatever ownership interest the transferor has in a particular property. The deed
does not guarantee anything about what is being transferred, however. For example, a divorcing husband may quitclaim his interest in certain real estate to his ex-wife, officially giving up any legal interest in the property. - Compare grant deed.

REAL ESTATE

Land and the property permanently attached to it, such as buildings, houses, stationary mobile homes, fences and trees. In legalese, real estate is also called real property.

real estate agent

A person performs tasks associated with selling real estate. An agent must have a state license and be supervised by a real estate broker. Most agents are completely dependent upon commissions from sellers for their income.

real estate broker

A real estate professional who has passed the state broker's exam and is eligible to work independently. Normally, a broker has more experience in all aspects of real estate and can supervise agents.

real property

Another term for real estate. It includes land and things permanently attached to the land, such as trees, buildings, and stationary mobile homes. Anything that is not real property is termed personal property.

Realtor®

Real estate professional adhering to the code of ethics of and participating as an active member in the National Association of Realtors.

right of survivorship

The right of a surviving joint tenant to take ownership of a deceased joint tenant's share of the property. - See joint tenancy.

rollover

A delayed tax that allows you to apply the profit you make selling your old house to pay for the new one without paying capital gains taxes on the profit. In order to rollover the profits, the new house must be more expensive than the old and the two sales must occur within two years of each other.

refinance loan

New loan obtained on a property that pays off its existing mortgage. May also be used to receive cash for the equity in your home

running with the land

A phrase used in property law to describe a right or duty that remains with a piece of property no matter who owns it. For example, the duty to allow a public beach access path across waterfront property would most likely pass from one owner of the property to the next.

servient tenement

Property that is subject to use by another for a specific purpose. For example, a beachfront house that has a public walkway to the beach on its premises would be a servient tenement.

setback

The distance between a property boundary and a building. A minimum setback is usually required by law.

shared equity mortgage

A home loan in which the lender gets a share of the equity of the home in exchange for providing a portion of the down payment. When the home is later sold, the lender is entitled to a portion of the proceeds.

short sale

(of house) A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.

spite fence

An unsightly fence erected for no other purpose than to irritate a neighbor. Such a fence may be illegal under local fence height and appearance regulations or state laws that specifically bar spite fences. Even if it doesn't violate regulation or laws, the fence may still be illegal if it was built with malicious intent.

succession

The passing of property or legal rights after death. The word commonly refers to the distribution of property under a state's intestate succession laws, which determine who inherits property when someone dies without a valid will. When used in connection with real estate, the word refers to the passing of property by will or inheritance, as opposed to gift, grant, or purchase.

taking

See eminent domain.

tenant

Anyone, including a corporation, who rents real property, with or without a house or structure, from the owner (called the landlord). The tenant may also be called the "lessee."

tenants in common

A way two or more people can own property together. Each can leave his or her interest upon death to beneficiaries of his choosing instead of to the other owners, as is required with joint tenancy. Also, unlike joint tenancy, the ownership shares need not be equal. In most states, each tenant in common may encumber only his share of the property, so that the other share is debt-free. In some states, two people are presumed to own property as tenants in common unless they've agreed otherwise in writing.

title

Evidence of ownership of real estate.

title company

A company that issues title insurance.

title insurance

Insurance issued by a title company that protects a property owner against loss if it is later discovered that title is imperfect.

trust deed

The most common method of financing real estate purchases in California (most other states use mortgages). The trust deed transfers the title to the property to a trustee--often a title company--who holds it as security for a loan. When the loan is paid off, the title is transferred to the borrower. The trustee will not become involved in the arrangement unless the borrower defaults on the loan. At that point, the trustee can sell the property and pay the lender from the proceeds.

variance

An exception to a zoning ordinance, usually granted by a local government. For example, if you own an oddly shaped lot that could not accommodate a home in accordance with your city's setback requirement, you could apply at the appropriate office for a variance allowing you to build closer to a boundary line.

view ordinance

A law adopted by some cities or towns with desirable vistas--such as those in the mountains or overlooking the ocean--that protects a property owner from having his or her view obstructed by growing trees. View ordinances don't cover buildings or other structures that may block views.

warranty deed

A seldom-used type of deed that contains express assurances about the legal validity of the title being transferred.

zoning

The laws dividing cities into different areas according to use, from single-family residences to industrial plants. Zoning ordinances control the size, location, and use of buildings within these different areas.