Elite Learning Academy -Real Estate School

Joint and Several Liability - a creditor can demand full repayment from any and all of those who have borrowed, each borrower is liable for the full debt, not just the prorated share.

Joint Tenancy - ownership of realty by two or more persons, each of whom has an undivided interest.

Joint Venture - an agreement between two or more persons who invest in a single business or property.

Judgment - a decree of a court stating that one individual is indebted to another and fixing the amount of the indebtedness.

Judgment Creditor - one who has received a court decree or judgment for money due from a debtor.

Judgment Lien - the claim upon the property of a debtor resulting from recording a judgment.

Judicial Foreclosure - having a defaulted debtor's property sold where the court ratifies the price paid.

Jumbo Loan - A loan larger than the maximum allowed by conforming loans. The threshold amount has traditionally been adjusted more or less on an annual basis and has been in the low $200,000's. Banks and mortgage brokers can quote the current threshold. They are typically available at interest rates slightly higher than those of conforming loans and typically require the same underwriting standards as conforming loans. (see definition of "conforming loan" above).

Junior Mortgage - a mortgage whose claim against the property will be satisfied only after prior mortgages have been repaid.

Kicker - A payment required by a mortgage in addition to normal principal and interest. 

Lien - A claim on a property of another as security for money owed. Examples of types of liens would include judgments, mechanic's liens, mortgages and unpaid taxes.

Land Contract - see Contract for Deed.

Land Lease - see Ground Lease.

Land Trust - A revocable, living trust primarily used to hold title to real estate for privacy and anonymity. Also known as an Illinois Land Trust or Nominee Trust. The land trustee is a nominal title holder, with the beneficiaries having the exclusive right to direct and control the actions of the trustee.

Landlocked - condition of a lot that has no access to public thoroughfare except through an adjacent lot.

Lease - a contract in which, for a rent payment, the one entitled to the possession of the real property (lessor) transfers those rights to another (lessee) for a specified period of time.

Lease Option - a lease combined with an option agreement that gives the lessee (tenant) the right to purchase the property under specified conditions.

Lease Purchase - a lease combined with a purchase agreement that obligates the lessee (tenant) to purchase the property under specified conditions.

Leasehold - the interest or estate on which a lessee (tenant) of real estate has a lease.

Leasehold Estate - A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Legal Blemish - Blemishes on a piece of property, such as a zoning violation or fraudulent title claim.

Legal Description - legally acceptable identification of real estate by government survey, metes and bounds, or recorded plat.

Lessee - a person to whom property is rented under a lease.

Lessor - one who rents property to another under a lease.

Let - to rent a property to a tenant.

Letter of Intent - written expression of desire to enter into a contract without actually doing so.

Liabilities - a person's debts or financial obligations. Liabilities include long-term and short-term debt, as well as potential losses from legal claims.

Liability Insurance - insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party. See also homeowners insurance.

Lien Theory State - Texas is a Lien Theory State, where legal title of mortgaged property resides with the mortgagor (borrower), with the mortgage as a lien against the property. Contrast with title theory state.

Life Estate - an interest in property that terminates upon the death of a specified person.

Life Tenant - one who is allowed to use property for life or the lifetime of another designated person.

Lifetime Cap - The highest amount over the initial interest rate that an adjustable mortgage can be raised. Lifetime caps are typically in the range of 5.0% - 7.0%. If the initial interest rate is 5.25% and the lifetime cap is 6.0%, the highest interest rate a borrower could pay during the course of the loan would be 11.25% (5.25% + 6.0%).

Like-Kind Property - property having the same nature.

Limited Partnership - one in which there is at least one partner who is passive and limits liability to the amount invested and at least one partner whose liability extends beyond monetary investment.

Line Of Credit - an agreement by a lender to extend credit up to a certain amount for a certain time without the need for the borrower to file another application.

Liquidated Damages - an amount agreed upon in a contract that one party will pay the other in the event of a breach of contract.

Liquidity - ease of converting assets to cash.

Lis Pendens - Latin for "suit pending", recorded notice of the filing of a lawsuit, the outcome of which may affect title to real property.

Listing - written agreement between a principal and an agent authorizing the agent to perform services for the principal involving the principal's property.

Loan Application (1003) - A loan application that is required for conforming loans. It has become the standard application for most residential loans, even non-conforming loans.

Loan Origination Fee - Most lenders charge borrowers an origination fee--or points--for processing a loan. A point is 1 percent of the total loan amount.

Loan Package - The organized group of documents that contains all of the information required to obtain an underwriting decision of loan approval or loan denial. Depending on the type of loan and the particular lender, a package may contain some or all of the following as well as other documents: loan application, statement of use of funds, statement of net worth, P & L statements, tax returns, pay stubs, statements from various types of banking and investment accounts, property appraisal, letters of explanation, credit report, verification of employment, verification of housing payments, purchase agreement, etc. (See definition of "underwriting" below.)

Loan-to-Value (LTV) - The ratio of the size of the loan to the value of the property. If the loan is $80,000 and the value of the property is $100,000 the LTV is 80% ($80,000 / $100,000).

Lot and Block - method of identifying legal description of property, see Legal Description.

Lot Line - a line bounding a lot as described in a property survey.

Low-Documentation Loan - A mortgage that requires only minimal verification of income and assets

Low-Down-Payment loan - A home loan that requires the borrower to make only a small down payment before obtaining the financing needed to purchase a house.

Management Agreement - a contract between the owner of property and someone who agrees to manage it.

Margin - A constant (fixed) amount over an index that determines a lender's yield on an adjustable rate loan. The interest rate of an adjustable rate loan is determined by adding a margin to an index. The size of the margin is typically a function of the index used and the credit worthiness of the borrower. Typical margins on a Prime Rate based loan would be 0.0 to 5.0 so that if the Prime Rate were 8.25% and the margin were 2.0 (typical for an "average" borrower), the interest rate would be 10.25% (8.25 + 2.0). (See definition of "index" above.).

Marketable Title - a title free from defect.

Master Lease - a controlling lease.

Maturity - The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable

Maximum Financing - A loan amount within 5 percent of the highest loan-to-value ratio allowed for a property.

Mechanic's Lien - a lien given by law upon a building or other improvement upon land as security for the payment of labor and materials furnished for improvement.

Merged Credit Report - A report that draws information from the Big Three credit-reporting companies: Equifax, Experian, and Trans Union Corp.

Minimum Payment - the minimum amount that must be paid monthly on an account. On the HELOC product, the minimum payment is interest only during the draw period. On the Fixed Rate Second products, the minimum payment is principal and interest.

Monthly Mortgage Insurance (MI) Payment - portion of monthly payment that covers the cost of Private Mortgage Insurance.

Monthly Payment (P&I) - this is the monthly mortgage payment on a home loan, this includes principal and interest, but excludes any amounts that are applied to taxes and insurance.

Monthly Principal & Interest (P&I) Payment - portion of monthly payment that covers the principal and interest due on the loan.

Monthly Taxes & Insurance (T&I) Payment - portion of monthly payment that funds the escrow or impound account for taxes and insurance.

Mortgage - A lien against real property given by a borrower to a lender as security for money borrowed.

Mortgage (Open-End) - A mortgage that allows additional money to be borrowed (up to the original loan amount) without refinancing the loan or paying additional financing charges .

Mortgage Balance - see Principal Balance.

Mortgage Insurance Premium (MIP) - The payment made by a borrower of FHA insured mortgages to provide a reserve that protects lenders against losses from very high loan-to-value loans.

Mortgage Loan - A loan which is secured by a mortgage lien filed against real property.

Mortgage-Interest Deduction - The tax write-off that the Internal Revenue Service allows most owners to claim for annual interest payments made on real estate loans. mortgagee

Mortgagee - The entity to whom the mortgage is given; i.e., the lender.

Mortgagor - The entity who gives the mortgage; i.e., the borrower.

Multi-Dwelling Property - A property that contains individual units for several households but carries only one mortgage.

Needs-Based Pricing - A seller's asking price that is based on factors such as the required funds to pay off the mortgage, the cost of remodeling or the purchase of another house.

Negative Amortization - Some adjustable rate mortgages allow the interest rate to fluctuate independently of a required minimum payment. If a borrower makes the minimum payment it may not cover all of the interest that would normally be due at the current interest rate. In essence, the borrower is deferring the interest payment, which is why this is called "deferred interest." The deferred interest is added to the balance of the loan and the loan balance grows larger instead of smaller, which is called negative amortization.

Negotiation - The process of bargaining that precedes an agreement.

Net Cash Flow - Investment property that generates income after expenses such as principal, interest, taxes and insurance are subtracted

Net Operating Income (NOI) - From income producing property, the gross income minus the total of all expenses except for debt service. Cash flow is defined as NOI minus the total of all debt service payments.

No Cash-Out Refinance - The amount of the new mortgage covers the remaining balance of the first loan, closing costs, any liens and cash no more than 1 percent of the principal on the new loan.

No Income Verification Loan (NIV) - A type of loan generally limited to the self-employed that is underwritten based on the borrower's written representation of their annual income as stated on the loan application. No tax returns, operating statements or other verification of the income is required. Debt ratios are computed based on the stated income. The primary intent of these programs is to allow owners of small businesses to use their actual cash flows rather than the net incomes normally reported in tax filings. Higher interest rates on these products compensate lenders for their higher risks. (See definition of "debt ratio" above.)

Non-Assumption Clause - A loan provision that prohibits the transfer of a mortgage to another borrower without lender approval.

Non-Conforming Loan - A loan not meeting the underwriting requirements of Fannie Mae and Freddie Mac. I.e., the vast majority of loans.

Non-Disclosure Non-Compete (NDNC) - Common term used in commercial and multi-unit property listings. Sellers can require you to sign a NDNC prior to showing the property financials or scheduling an on-site visit.

Non-Qualifying - buyer is not required to qualify through traditional bank financing requirements

Non-Recurring Closing Costs - Costs that are one-time only fees for such items as an appraisal, loan points, credit report, title insurance and a home inspection

Note - A written promise to repay a certain sum of money on specified terms.

Note Broker - An individual who acts as an intermediary between a holder of an existing note and a prospective purchaser of the note.

Notice of Default - A lender's initial action when a mortgage payment is late and attempts to reconcile the issue out of court have failed.

Obligee - The person in whose favor an obligation is entered into.

Obligor - The person who binds himself or herself to another.

Option - the right to purchase or lease a property upon specified terms within a specified period of time

Ordinances - municipal rules governing the use of land

Origination Fee - A fee paid to either a broker or a lender for originating a loan. It may be the only compensation for their work in arranging and/or processing the loan or it may be only a portion of the compensation. Not every loan has an origination fee.

Originator - An individual who works with a borrower to start a loan. Usually an employee of a financial institution, an employee of a broker or an independent contractor affiliated with several brokers, the originator determines the type of loan a borrower probably qualifies for, helps complete an accurate application, gathers documents necessary to get an approval and acts as an intermediary between the borrower and the underwriter.

Other Real Estate Owned - OREO - Rrefers to real property owned by a bank that does generally have a "home lending dept" per se. Its a REO that is the result of foreclosure on a property Refers to real property owned by a bank that does generally have a "home lending dept" per se. It’s a REO that is the result of foreclosure on a property as a result of default by the borrower who used the property as collateral for the another type of loan.

Owner Financing (Seller Financing) - A method in which a buyer borrows from and makes payments to the seller instead of a bank. Sometimes you take over the seller's payments. Can be done when a buyer cannot qualify for a bank loan for the full amount. Also referred to as Seller's Financing.

Penalty - Money one will pay for breaking a law or violating part or all of the terms of a contract.

PITI - The shorthand way of stating the most usual elements of a residential mortgage payment which may consist not only of the Principal and Interest (PI) but the property taxes (T) and hazard insurance (I) as well. In the case where all four elements are part of the payment, the lender escrows the T and I and pays them on behalf of the borrower when they come due. Some loans are written such that the payment to the lender consists only of the P and I in which case the borrower pays the taxes and insurance directly.

Planned Unit Development (PUD) - A highly designed residential project that features relatively dense clusters of houses, which are usually surrounded by areas of commonly owned open space maintained by a nonprofit community association.

Points - Loan fees paid by the borrower. One point equals one percent of the loan amount.

Portfolio Loan - A non-conforming loan that is held by the original lender rather than being sold on the secondary market.

Prepayment Penalty - fee charged for paying off a loan within a relatively short period of time after the loan has closed, provision is currently found only in non-conforming products, time period during which it applies is usually one to three years

Principal Balance - outstanding dollar amount owed on a loan exclusive of accrued interest

Principal, Interest, Taxes, Insurance (PITI) - monthly payments required by an amortizing loan that includes escrow deposits for taxes and insurance in addition to the principal and interest

Private Mortgage Insurance (PMI) - insurance premium paid by a borrower to protect lenders against losses from loans with loan-to-value ratios higher than 80%, default insurance for lenders

Pro Forma - refers to the presentation of data, such as a balance of income statement, where certain amounts are hypothetical. For example, a pro forma balance sheet might show a debt issue that has been proposed but has not been consummated.

Probate - The process of establishing the validity of a will before a duly authorized court or person. Once validity is confirmed, the probate court then administers the sale of property as directed by the will or as authorized by the court to settle any financial obligations

Promissory Note - promise to pay a specified sum to a specified person under specified terms

Purchase Money Mortgage - a mortgage which secures a note written on a loan used in the purchase of real estate

Purchase Subject to Mortgage - a purchase in which a buyer agrees to make the monthly mortgage payments on an existing mortgage and the original borrower remains liable if the purchaser fails to make the payments as agreed.

Purchase-Money Mortgage (PMM) - A mortgage obtained by a borrower as partial payment for a property.

Qualifying Ratio - A ratio calculated by a lender to determine how much a potential buyer can borrow.

Quiet Enjoyment - right of an owner or any other person legally entitled to possession to the use of the property without interference.

Quiet Title Action - a suit in court to remove a defect or cloud on the title, establishes legal ownership.

Quitclaim Deed - a deed that conveys only the grantor's rights or interest in a property, without stating the nature of the rights or interest and with no warranties of ownership.

Quitclaim Deed - A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

Rate Cap - The maximum interest rate charge allowed on the monthly payment of an adjustable rate mortgage during an adjustment period.

Rate-Improvement Mortgage - A loan with a clause that entitles a borrower to a one-time interest rate cut without going through refinancing.

Real Estate Owned (REO) - property acquired through a lender through foreclosure and held in inventory.

Real Property - the rights to use real estate.

Realtor - designation given to licensed real estate agents who are members of the National Association of Realtors.

Recission Period - a federally mandated period of three business days (beginning on the day after a loan closes) during which the borrower may cancel the new loan, waiting period only applies to loans which are to be secured by a mortgage on a personal residence for which the borrower is in title at the time of loan origination, right to cancel does not apply to loans used for the purchase of property.

Recourse - ability of lender to make claims against borrower personally in addition to the collateral.

Redemption Period - period during which a former owner can reclaim foreclosed property.

Refinance - process of a borrower paying off one loan with the proceeds from another.

Regression - The principle that the value of a better-quality property is adversely affected by the proximity of a lesser-quality property.

Regulation Z - federal regulation requiring creditors to provide full disclosure of the terms of a loan.

Residential Service Contract - home warranty or insurance contract, generally for one year, covering plumbing, electrical, and mechanical systems of the home.

Residual - Value or income remaining after deducting an amount necessary to meet fixed obligations.

Reverse Mortgage - A type of mortgage designed for elderly homeowners with substantial equity by which a lender pays a periodic payment to the borrower; the loan balances increase with interest and payments causing negative amortization.

Right of First Refusal - opportunity of a party to match the terms of a proposed contract before the contract is executed.

Sale Leaseback - sale of property by seller and simultaneous leasing of the same property by seller.

Sandwich Lease - lease held by a lessee (tenant) who becomes a lessor (landlord) by subletting to another lessee (subtenant), typically the sandwich leaseholder is neither the owner nor the user of the property.

Seasoning - loan which has been in force for a period of time thus establishing the borrower's payment history, loans are tyically deemed to be seasoned after either six months or one year.

Second Mortgage - mortgage recorded after another mortgage has already been recorded and not yet released, subordinated lien.

Section 1031 - section of the Internal Revenue Code dealing with tax-free exchanges of like-kind property.

Section 8 - privately owned rental dwelling units participating in the low-income rental assistance program created by 1974 amendments to Section 8 of the 1937 Housing Act.

Security Deposit - cash payment required by landlord to be held during the term of the lease to offset damages incurred due to actions of the tenant.

Seller Financing - also known as Owner Financing.

Settlement Statement - also known as Closing Statement or HUD-1.

Short Sale - 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

Special Warranty Deed - deed in which the grantor limits the title warranty given to the grantee, does not warrant against title defects arising from conditions that existed before grantor owned the property.

Specific Performance - legal action in which the court requires a party to a contract to perform the terms of the contract.

Subject To - buyer takes title to mortgaged real property but is not personally liable for the payment of the amount due, buyer must make payments in order to keep the property.

Subordination - a clause or document that permits a mortgage recorded at a later date to take priority over an existing lien.

Survey - process by which a parcel of land is measured and its area ascertained.

Tax and Insurance Escrow - account required by a mortgage lender to fund annual property tax assessments and hazard insurance premiums, funded through monthly contributions by the mortgagor

Tax Lien - a debt attached to the property for failing to pay taxes

Teaser Rate - contract interest rate charged on an adjustable rate mortgage for the initial adjustment interval that is significantly lower than the fully indexed rate at the time

Terms - conditions and arrangements specified within a contract

Time is of the Essence - a phrase that, when inserted in a contract, requires that all references to specific dates and times of day noted in the contract be interpreted exactly, in its absence extreme delays might be acceptable

Title - evidence of ownership, evidence of lawful possession

Title Defect - an unresolved claim against the ownership of property, prevents seller from providing buyer clear title to the property

Title Insurance - an insurance policy that protects the holder from loss sustained by defects in the title

Title Search - an examination of the public records to determine the ownership and encumbrances affecting real property

Title Theory State - the system in which the lender has legal title to the mortgaged property and the borrower has equitable title. Texas is not a title theory state. Contrast with lien theory state.

Transactional Funding - Short term financing or a bridge loan you use to buy a property. Investor arranges for a short-term loan to fund the purchase and then resells the property to earn the profit margin, using the proceeds to repay the loan. Generally done within 45 days and issued in the name of a business entity. Generally less expensive than traditional hard money loans and costs of borrowing are assessed by paying points and processing fees.

Triple Net Lease - lease in which the tenant is to pay all operating expenses of the property so that the landlord receives net rent, frequently used to mean tenant pays taxes, insurance, and maintenance in addition to normal operating expenses

Trust - an arrangement whereby property is transferred to a trusted third party trustee by a grantor/trustor, trustee holds the property for the benefit of the beneficiary

Trust Deed - conveyance of real estate to a third party to be held for the benefit of another, commonly used in some states in place of mortgages that conditionally convey title to the lender, same as Deed of Trust

Trustee - one who holds property in trust for another to secure performance of an obligation, the neutral party in a trust deed transaction.

U.S. Department. of Housing and Urban Development (HUD) - A federal agency that oversees the Federal Housing Administration and a variety of housing and community development programs.

Underwriting - The act of applying formal guidelines that provide qualitative and quantitative standards for determining whether or not a loan should be approved.

Undivided Interest - an ownership right to use and possession of a property that is shared among co-owners, with no one co-owner having exclusive rights to any portion of the property.

Unencumbered Property - real estate that is owned free and clear.

Unilateral Contract - an obligation given by one party contingent on the performance of another party, but without obligating the second party to perform.

Unimproved Property - land that has received no development, construction, or site preparation (raw land).

Unrealized Gain - excess of current market value over cost for an asset that is not sold.

Unrecorded Deed - instrument that transfers title from one party (grantor) to another party (grantee) without providing public notice of the change in ownership.

Urban Renewal - process of redeveloping deteriorated sections of the city, often through demolition and new construction, may be privately funded, but most often associated with government renewal programs.

Usufruct - the right to use property--or income from property--that is owned by another.

Usury - charging a rate of interest greater than that permitted by state law.

Utility Easement - use of another's property for the purpose of laying gas, water, electric and sewer lines.

V.A. Loan - home loan guaranteed by the U.S. Veterans Administration under the Servicemen's Readjustment Act of 1944 and later to compensate lender in the event of default.

Valuation - The estimated worth or price. The act of valuation by appraisal.

Variable Interest Rate - amount of compensation to a lender that is allowed to vary over the maturity of a loan, typically governed by an appopriate index.

Variable Rate Mortgage - long-term mortgage loan applied to residences, under which the interest rate may be adjusted on a six month basis over the term of the loan, according to certain restrictions.

Vendee - a buyer of real estate.

Vendee's Lien - a lien against property under a contract of sale to secure the deposit paid by the purchaser.

Vendor - a seller of real estate.

Veneer - wood or brick exterior that covers a less attractive and less expensive surface.

Warehouse Fee - A closing-cost fee representing the lender's cost of holding a borrower's loan temporarily before it is sold on the secondary mortgage market.

Waiver - the voluntary renunciation, abandonment, or surrender of some claim, right or privilege.

Warranty Deed - deed that contains a covenant that the grantor will protect the grantee against any and all claims; usually contains covenants ensuring good title, freedom from encumbrances, and quiet enjoyment.

Wholesale - to contract a property with the intention of reselling it quickly at a higher price.

Wild Deed - An improperly recorded deed

Without Recourse - words used in endorsing a note to denote the note holder is not to look to the debtor personally in the event of nonpayment.

Wraparound Mortgage - loan arrangement in which an existing loan is retained and an additional loan is made that equals or exceeds the existing loan.

Writ of Execution - a court order which authorizes and directs the proper officer of the court (usually the sheriff) to carry into effect the judgment or decree of the court.

Yield - measurement of the rate of earnings of an investment.

Zero Lot Line - a form of cluster housing development in which individual dwelling units are placed on separately platted lots, but are attached to each other.

Zoning - legal mechanism for local governments to regulate the use of privately owned real estate to prevent conflicting land uses and promote orderly development.

 

 

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