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.
Amortization
A payment plan which enables the borrower to reduce his or her 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.
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 or she 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.
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.
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.)
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 or she 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 or her 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.
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 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 or she 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 or
her 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.
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.
Interest
A charge paid for borrowing money. (See mortgage note.)
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 or her 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 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 .
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
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.
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.
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.
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. 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 Lien
A lien that binds a specified piece of property, unlike a general lien, which
is levied against all of 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 or she has done nothing during the time he or
she held title to the property which has, or which might in the future, impair
the grantee's title.
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 either the
mortgagor, as an "owner's title policy" or to the mortgagee, as 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 or she desires the
protection of title insurance.
Title Search/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. (See deed of trust.)
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