Abstract (Of Title)
A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews
an abstract of title to determine whether there are any title
defects which must be cleared before a buyer can purchase clear,
marketable, and insurable title.
Acceleration Clause
Condition in a mortgage that may require the balance of the loan
to become due immediately, if regular mortgage payments are not
made or for breach of other conditions of the mortgage.
Agreement of Sale
Known by various names, such as contract of purchase, purchase
agreement, or sales agreement according to location or jurisdiction.
A contract in which a seller agrees to sell and a buyer agrees
to buy, under certain specific terms and conditions spelled out
in writing and signed by both parties.
Amortization
A payment plan which enables the borrower to reduce his debt gradually
through monthly payments of principal.
Appraisal
An expert judgment or estimate of the quality or value of real
estate as of a given date.
Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally
liable for payment of an existing mortgage. In an assumption,
the purchaser is substituted for the original mortgagor in the
mortgage instrument and the original mortgagor is to be released
from further liability in the assumption, the mortgagee's consent
is usually required. The original mortgagor should always obtain
a written release from further liability if he desires to be fully
released under the assumption. Failure to obtain such a release
renders the original mortgagor liable if the person assuming the
mortgage fails to make the monthly payments. An "Assumption
of Mortgage" is often confused with "purchasing subject
to a mortgage." When one purchases subject to a mortgage,
the purchaser agrees to make the monthly mortgage payments on
an existing mortgage, but the original mortgagor remains personally
liable if the purchaser fails to make the monthly payments. Since
the original mortgagor remains liable in the event of default,
the mortgagee's consent is not required to a sale subject to a
mortgage. Both "Assumption of Mortgage" and "Purchasing
Subject to a Mortgage" are used to finance the sale of property.
They may also be used when a mortgagor is in financial difficulty
and desires to sell the property to avoid foreclosure.
Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money,
between a buyer and seller as an offer to purchase real estate.
A binder secures the right to purchase real estate upon agreed
terms for a limited period of time. If the buyer changes his mind
or is unable to purchase, the earnest money is forfeited unless
the binder expressly provides that it is to be refunded.
Building Line or 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 SELLER'S EXPENSESDocumentary Stamps on Notes
Cost of Abstract
Recording Deed and Mortgage Documentary Stamps on Deed
Escrow Fees Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Inspection Escrow Fees
Survey Charge Attorney's Fee
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.
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.)
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.)
Depreciation
Decline in value of a house due to wear and tear, adverse changes
in the neighborhood, or any other reason.
Downpayment
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 downpayment amount and will acknowledge receipt
of the downpayment. Downpayment is the difference between the
sales price and maximum mortgage amount. The downpayment may not
be refundable if the purchaser fails to buy the property without
good cause. If the purchaser wants the downpayment 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 downpayment and to pay interest and expenses
incurred by the purchaser.
Earnest Money
The deposit money given to the seller or his agent by the potential
buyer upon the signing of the agreement of sale to show that he
is serious about buying the house. If the sale goes through, the
earnest money is applied against the downpayment. If the sale
does not go through, the earnest money will be forfeited or lost
unless the binder or offer to purchase expressly provides that
it is refundable.
Encroachment
An obstruction, building, or part of a building that intrudes
beyond a legal boundary onto neighboring private or public land,
or a building extending beyond the building line.
Encumbrance
A legal right or interest in land that affects a good or clear
title, and diminishes the land's value. It can take numerous forms,
such as zoning ordinances, easement rights, claims, mortgages,
liens, charges, a pending legal action, unpaid taxes, or restrictive
convenants. An encumbrance does not legally prevent transfer of
the property to another. A title search is all that is usually
done to reveal the existence of such encumbrances, and it is up
to the buyer to determine whether he wants to purchase with the
encumbrance, or what can be done to remove it.
Equity
The value of a homeowner's unencumbered interest in real estate.
Equity is computed by subtracting from the property's fair market
value the total of the unpaid mortgage balance and any outstanding
liens or other debts against the property. A homeowner's equity
increases as he pays off his mortgage or as the property appreciates
in value. When the mortgage and all other debts against the property
are paid in full the homeowner has 100% equity in his property.
Escrow
Funds paid by one party to another (the escrow agent) to hold
until the occurrence of a specified event, after which the funds
are released to a designated individual. In FHA mortgage transactions
an escrow account usually refers to the funds a mortgagor pays
the lender at the time of the periodic mortgage payments. The
money is held in a trust fund, provided by the lender for the
buyer. Such funds should be adequate to cover yearly anticipated
expenditures for mortgage insurance premiums, taxes, hazard insurance
premiums, and special assessments.
Foreclosure
A legal term applied to any of the various methods of enforcing
payment of the debt secured by a mortgage, or deed of trust, by
taking and selling the mortgaged property, and depriving the mortgagor
of possession.
General Warranty Deed
A deed which conveys not only all the grantor's interests in and
title to the property to the grantee, but also warrants that if
the title is defective or has a "cloud" on it (such
as mortgage claims, tax liens, title claims, judgments, or mechanic's
liens against it) the grantee may hold the grantor liable.
HUD
U.S. Department of Housing and Urban Development. Office of Housing/Federal
Housing Administration within HUD insures home mortgage loans
made by lenders and sets minimum standards for such homes.
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 (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.
Mortgage Commitment
A 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.
Mortage 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.
Points
Sometimes called "discount points." A point is one percent
of the amount of the mortgage loan. For example, if a loan is
for $25,000, one point is $250. Points are charged by a lender
to raise the yield on his loan at a time when money is tight,
interest rates are high, and there is a legal limit to the interest
rate that can be charged on a mortgage. Buyers are prohibited
from paying points on HUD or Veterans' Administration guaranteed
loans (sellers can pay, however). On a conventional mortgage,
points may be paid by either buyer or seller or split between
them.
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.
Purchase Agreement
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.
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 Covenants
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.
Special Assessments
A special tax imposed on property, individual lots or all property
in the immediate area, for road construction, sidewalks, sewers,
street lights, etc.
Special Lien
A lien that binds a specified piece of property, unlike a general
lien, which is levied against all one's assets. It creates a right
to retain something of value belonging to another person as compensation
for labor, material, or money expended in that person's behalf.
In some localities it is called "particular" lien or
"specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys title to the grantee and agrees
to protect the grantee against title defects or claims asserted
by the grantor and those persons whose right to assert a claim
against the title arose during the period the grantor held title
to the property. In a special warranty deed the grantor guarantees
to the grantee that he has done nothing during the time he held
title to the property which has, or which might in the future,
impair the grantee's title.
Survey
A map or plat made by a licensed surveyor showing the results
of measuring the land with its elevations, improvements, boundaries,
and its relationship to surrounding tracts of land. A survey is
often required by the lender to assure him that a building is
actually sited on the land according to its legal description.
Title
As generally used, the rights of ownership and possession of particular
property. In real estate usage, title may refer to the instruments
or documents by which a right of ownership is established (title
documents), or it may refer to the ownership interest one has
in the real estate.
Title Insurance
Protects lenders or homeowners against loss of their interest
in property due to legal defects in title. Title insurance may
be issued to a "mortgagee's title policy." Insurance
benefits will be paid only to the "named insured" in
the title policy, so it is important that an owner purchase an
"owner's title policy", if he desires the protection
of title insurance.
Title Search or Examination
A check of the title records, generally at the local courthouse,
to make sure the buyer is purchasing a house from the legal owner
and there are no liens, overdue special assessments, or other
claims or outstanding restrictive convenants filed in the record,
which would adversely affect the marketability or value of title.
Trustee
A party who is given legal responsibility to hold property in
the best interest of or "for the benefit of" another.
The trustee is one placed in a position of responsibility for
another, a responsibility enforceable in a court of law.
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