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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. Broker
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 price of the property
and are items prepaid at the closing day. This
is a typical list:
BUYER'S EXPENSES
-
Documentary Stamps on Notes
Recording Deed and Mortgage
Escrow Fees
Attorney's Fee
Title Insurance
Appraisal and Inspection
Survey Charge
SELLER'S EXPENSES
-
Cost of Abstract
-
Documentary Stamps on Deed
-
Real Estate Commission
-
Recording Mortgage
-
Survey Charge
-
Escrow Fees
-
Attorney's Fee
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.
Condominium
Individual ownership of a dwelling unit and an
individual interest in the common areas and
facilities which serve the multi-unit project.
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 down payment. 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 covenants.
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.
Hazard Insurance
Protects against damages caused to property by
fire, windstorms, and other common hazards.
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
A lien or claim against real property given by
the buyer to the lender as security for money
borrowed. Under government-insured or
loan-guarantee provisions, the payments may
include escrow amounts covering taxes, hazard
insurance, water charges, and special
assessments. Mortgages generally run from 10 to
30 years, during which the loan is to be paid
off.
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.
Mortgagee
The lender in a mortgage agreement.
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.
Tax
As applied to real estate, an enforced charge
imposed on persons, property or income, to be
used to support the State. The governing body in
turn utilizes the funds in the best interest of
the general public.
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
covenants 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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