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Glossary of Terms
Adjustable Rate Mortgage (ARM) » A mortgage with an interest rate that is periodically adjusted up or down depending on a specific financial index.

Agency » A relationship between two or more persons whereby one is authorized to act for another.

Amortization » Payment of principal and interest at stated periods for a stated time until debt is paid off.

Annual Percentage Rate (APR) » The finance charges for a loan, including points and other loan fees, that are in addition to interest on the loan.

Appraisal » A professional opinion of the market value of a property required by a lender prior to lending.

Appreciation » An increase in the value of a house due to changes in market conditions or other causes.

Assessed Value » The value of property for taxation purposes.

Assumption of a Mortgage (or Deed of Trust) » An agreement in which the buyer accepts liability for payment of a seller’s existing promissory note secured by a mortgage or deed of trust.

Balloon Payment » Final installment payment larger than preceding installment payments on a promissory note.

Beneficiary » One for whose benefit a trust is created such as a lender whose loan is secured by a deed of trust.

Cap Provision » A provision in an Adjustable Rate Mortgage limiting how much the interest rate or mortgage payments may increase.

Close of Escrow » Actual transfer of title from seller to buyer.

Commitment » A pledge, promise, or firm agreement such as lender’s commitment to lend.

Condominium » A form of property ownership in which the homeowner holds title to an individual dwelling unit plus an interest in common areas of a multi-unit project.

Contingency » A condition that must be met before a contract is legally binding (financing, inspections, etc.).

Contract of Sale » An agreement entered into for the sale and purchase of real property commonly referred to as the purchase agreement.

Conventional Mortgage » Any mortgage that is not insured or guaranteed by the federal government.

Convertible ARM » An adjustable rate mortgage that can be converted to a fixed rate mortgage under specific conditions.

Convey »
To transfer title to property from one to another under The Independent Administration of

Cooperative (Co-Op) » A form of common property ownership in which the residents of an apartment building do not own their units, but rather own shares in the corporation that owns the property.

Covenant » A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

Deed » A written document transferring ownership of land from one to another.

Deed of Trust » A three-party security document conveying title to land secured by the performance of an obligation such as the repaying of a loan. It is also called a Trust Deed.

Default » Omission or failure to fulfill a duty or promise, discharge an obligation, or perform an agreement such as the loan payment.

Depreciation » A decline in the value of property; the opposite of "appreciation."

Due on Sale Clause » A clause in a promissory note or deed of trust calling for automatic maturity and payoff of the loan in the event of a sale or transfer of title to real property.

Earnest Money » Money, such as a deposit, given as
a part of the purchase price to bind a bargain.

Easement » A limited right or interest in the land of another entitling the easement holder to some use, privilege or benefit.

Encroachment » The extension of an improvement onto the land of another.

Equity » The value of the property actually owned by the property owner, often calculated by adding together the purchase price, appreciation and value of improve-ments and then subtracting the amount of all mortgages and liens on the property.

Escrow » A transaction in which an impartial third party acts as an agent for both seller and buyer, or both the borrower and lender, in carrying out instructions, delivering papers and documents and disbursing funds. Usually handled by a title company.

Estates Act (IAEA) » The estate representative may, without prior court approval, enter into "an exclusive authorization and right to sell" listing contract with a broker for a period not to exceed 90 days to market and sell the real property without court confirmation. Regardless of the method used to probate the estate, real property is always sold “as is”.

Fee simple » Absolute ownership of real property.

FHA Loan »
A mortgage that is insured by the Federal Housing Administration.

Fiduciary » One acting in a relationship of trust regarding financial transactions.

Fixture » Personal property that is considered a part of the real property because it has been affixed in a manner that to remove it would cause damage to the property, such as light fixtures and window treatments.

Foreclosure Sale » The sale of real property to obtain performance of an obligation after the obligation has been breached.

Grantee » The person/entity acquiring title to real property by a deed.

Grantor » The person/entity transferring real property by a deed.

Hazard Insurance » Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner's Warranty » A type of insurance that covers repairs to specified part of a house for a specific period of time.

Interes » The cost of borrowing money, usually expressed as a percentage over time.

Interest Rate Cap » A provision in an Adjustable Rate Mortgage limiting how much interest rates may increase per adjustment period and for the life of the loan.

Lien » A charge against real property in order to secure payment or satisfaction of a debt or other obligation.

Legal Description » A description of real property sufficient to locate it on the ground by reference to surveys or approved recorded maps.

Lis Pendens » A recorded notice of a pending lawsuit.

Multiple Listing Service (MLS) » A service providing member real estate licensees with information about properties listed for sale or lease.

Negative Amortization » Monthly payments that are not sufficient to pay principal and interest on a loan each month. Interest not paid is added to the principal balance thereby increasing the principal balance each month.

Notice of Default » A recorded notice of a borrower's failure to perform the obligations in a deed of trust.

Ordinance » A legislative enactment of a city or county.

Party Wall » A wall located on a boundary line of real property and used by the owners of the property on each side.

PITI » The amount of principal, interest, taxes and insurance which are the basis for a monthly mortgage payment.

Point » One percent of the loan principal charged in part or in multiples to obtain a loan. This fee is in addition to interest and other fees.

Pre-approval » Loan approval based on lender receipt of the following: credit report, income, and verification of assets and liabilities. (The loan is further subject to a property appraisal).

Preliminary Title Report » Shows present ownership, liens, and easements on a property prior to a sale or loan transaction.

Pre-qualification » The process of determining how much money a prospective home buyer will be eligible to borrow from a given lender.

Pre-Payment clause » A clause in a loan contract which imposes a charge by a lender for payment of a
debt before its due date.

Principal » 1) Amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage. 2) Person who gives authority to an agent or attorney.

Private Mortgage Insurance (PMI) » Insurance provided by non-government insurers that protects lenders against loss if a borrower defaults. Usually required with less than 20% down payment.

Probate » A period during which the court has jurisdiction over the administration of the estate of a deceased person including the sale of real property. The buyer usually pays the transfer tax. When administered under The Independant Administration of Estates Act (IAEA) the estate representative may, without prior court approval, enter into "an exclusive authorization and right to sell" listing contract with a broker for a period not to exceed 90 days to market and sell the real property without court confirmation. Regardless of the method used to probate the estate, real property is always sold "as is".

Promissory Note » A written promise, signed by the borrower, to repay a loan.

Prorate » To divide or assess proportionately.

Purchase and Sale Agreement » A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Ratification » Mutual acceptance of price and terms.

Real Property » Immovable property such as land and improvements on it such as buildings.

Real Estate Settlement Procedures Act » A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Reconveyance » A document, executed when obligations in a deed of trust have been met, that removes the lien on the title to a property which was created by a deed of trust.

Recording » The act of filing documents in the office of the County Recorder.

Request for Reconveyance » A written instruction by a beneficiary under a deed of trust acknowledging that the obligations in the deed of trust have been met, and directing that the lien on title to the property created by the deed of trust be removed. PITI The amount of principal, interest, taxes and insurance which are the basis for a monthly mortgage payment.

Rescission » The act of canceling the effect of a document.

Rider » A supplement, addition or endorsement to a document.

Settlement Sheet » The computation of costs payable at closing which determines the seller's net proceeds and the buyer's net payment.

Statute of Frauds » A law requiring certain agreements to be in writing in order to be enforceable, including an agreement for the sale of real property.

Survey » The act of measuring and specifying the legal boundaries of a property.

Tenancy in Common (T.I.C.) »
A form of ownership that can be divided into any number of interests. Frequently used in San Francisco to share ownership in multiple units.

Title » A legal document establishing the right of ownership.

Title Company » One that specializes in insuring title to property, and customarily handles escrows.

Title Insurance or Title Policy » A contract indemnifying the policy holder against loss resulting from a defect in the title to real property.

Title Search » The steps required to complete the chain of title to a parcel of real property.

Transfer Tax » State or local tax payable when title passes from one owner to another. Customs vary from county to county.

Trustee » The entity designated to hold titile to real property for the benefit of another.

Usury » The exaction of a greater payment or return for a loan of money than is permitted by law.

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