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Abstract of Title — A documented history of the title to a piece of real property, detailing the original grant and all subsequent conveyances, encumbrances and liens affecting the property, the results of which are reduced to a written summary and reviewed to prepare a title insurance commitment or binder subject to various conditions. An abstract of title can be a full abstract; an abstract of current owner; a date-down or bring-down, an update from a given date. The abstract will include a review of all documents associated with a real property.
Appraisal — a professional evaluation process used to estimate the value of a property; appraisals typically include recent sales of comparable properties in an area. Valuation methods for appraisals include sales comparables, income and cost-basis analyses.
Asbestos — A toxic substance once used to produce insulation, fireproofing and sound damping materials for buildings. Asbestos has been banned and is no longer used, due to its links to certain types of lung diseases, but many older homes may still contain asbestos.
Assumable Mortgage — A mortgage loan that can be taken over by a buyer at the time of sale of the property. If the mortgage contains a due-on-sale clause, no assumption of the mortgage may occur without the lender╒s consent, or the loan becomes due in full at the time of sale.
Assumption of Mortgage — The purchase of a mortgaged property where the buyer accepts (assumes) responsibility for the existing debt; lenders often charge an assumption fee for an assumption of mortgage.
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Balloon Mortgage — A mortgage which does not fully amortize over the term of the note and which becomes due at maturity. Often based on a 30-year amortization schedule, the unpaid balance becomes due in a lump sum payment at the end of a specific period (often 5 or 7 years).
Bank owned — Properties in which the highest bid at auction was the lender╒s opening bid and which have now become property of the bank that placed the opening bid. Also known as REO, or Real Estate Owned.
Bankruptcy — A legal declaration of an individual or organization’s inability to pay their creditors. This legal declaration severely impacts a persons credit and their ability to borrow money. Protections, in the case of homeowner bankruptcy filings, place automatic stays on all debt collection actions, including foreclosure. Bankruptcy does not stop foreclosure, it does delay the sale of the property until the homeowner resolves the debt, or in most cases, the lender gets approval from the bankruptcy court to continue the sale (see Order Granting Motion for Relief From Stay). As a secured debt, the lender has the right to take the security (property) if the homeowner lacks the ability to pay the debt as agreed. Bankruptcy is only an effective tool against foreclosure if the homeowner will have sufficient income to pay their home loan and make up past due amounts once the bankruptcy plan is completed.
Binder Clause — A preliminary report issued by a title insurance company outlining the condition of title and the conditions under which a title insurance policy may be issued. Also called a preliminary certificate.
Bridge Loan — A short-term loan, typically associated with properties for sale, secured using a borrower╒s current property of which the proceeds can be applied to the building of or closing on a new property before the current property sale is complete.
Building Code — Local regulations establishing minimum acceptable levels of safety, production standards and construction requirements for the construction and occupancy of buildings; designed to protect public health and general welfare as related to the construction and occupancy of structures.
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Capacity — The ability of a borrower to make mortgage payments. Capacity is determined by income, income stability (job history and security), assets, savings and the monthly income remaining after all debts and obligations are met.
Capitalization rate — Cap Rate. Used to evaluate the income of a property, this is the measure of the ratio between net operating income (rent less repairs, utilities, vacancies and other operating expenses) divided by the original value of the property, typically expressed in a percentage.
Chain of Title — Starting with the earliest existing and ending with the most recent, documents, the history of recorded documents transferring title to a real property as recorded in the county in which the property resides. Chain of title relies on record dates to determine chain order.
Closing Agent — A person or entity responsible for the coordination of the various closing activities of a transaction including the preparation and recordation of documents and disbursement of funds. Title companies, escrow companies or attorneys typically conduct closing.
Closing Costs — Costs, excluding the price of the property, associated with the transfer of ownership in real estate transactions, including, but not limited to: loan origination fees, title examination and insurance, surveys, appraisals, attorney╒s fees, and prepaid items, such as escrow deposits. Closing costs vary regionally and between lenders.
Closing Statement — A final, detailed accounting of the closing costs of a mortgage transaction including: sales price, down payment and total additional settlement costs required from the buyer and seller. Also known as HUD-1 Settlement Statement.
Clouded Title — Circumstances or conditions associated with a title that call into question the validity of property ownership, such as unreleased liens, release of interest documentation or absent satisfaction of mortgage documentation.
Co-borrower — Any additional borrower other than the first borrower whose name appears on the application and mortgage note and whose income and credit history are used in the qualification of the loan. All listed borrowers share jointly the obligation and liability for the note.
Collateral — In mortgage and deed of trust agreements, property pledged or provided as security for repayment of a loan. Real property security offers protection to a lender in the event of default, as a breach will constitute a forfeiture of the pledged security.
Collateral Estoppel — a common law doctrine which prevents a party involved in prior judgment from a lawsuit on a different cause of action from the re-litigation of those matters in a subsequent lawsuit.
Commission — fee for or payments to a party for services rendered or products sold, often calculated as a percentage of the goods sold, such as the fee a real estate agent earns from the sale of a property.
Commitment Letter — A formal, binding offer from a lender explicitly detailing the terms of a mortgage agreement, including the amount of the mortgage, the interest rate, the repayment terms and time period for the loan.
Common Area — Amenities, portions of buildings or land owned and held in common by a planned unit development (PUD) or condominium project used, cared for and maintained, in common, by all unit owners. Common areas may include corridors, means of ingress and egress, recreational facilities and parking areas.
Community Property — a property ownership regime, in common law jurisdictions, where property (excepting gifts and inheritances) acquired during a marriage is owned jointly by both spouses and is divided equally upon divorce, annulment or death.
Concession — An item or action given up or agreed to during the negotiation of a contract; carpet and paint allowances, home warranties or the coverage of closing costs are common concessions during the negotiation of the sale of a property.
Condominium (Commercial/Residential) — Ownership in a commercial or residential property where individual units of a larger, multi-unit facility or complex are purchased rather than rented. Owners of condominium units own the units themselves and have the right, along with other owners, to utilize, as well as the obligation (through condominium association fees) to maintain, common areas but does not own common elements such as exterior walls, floors or ceilings nor structural systems beyond the unit itself.
Conventional Loan (Mortgage) — A conforming loan or a lender agreement not insured or guaranteed by the federal government or one of its agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS).
Conversion Option — A provision of mortgages that permits a borrower to change from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice-versa at specified time after loan origination and/or after certain stipulations are met.
Convertible ARM — An adjustable-rate mortgage (ARM) that permits a borrower to change from an adjustable-rate-mortgage (ARM) to a fixed-rate mortgage at specified time after loan origination and/or after certain stipulations is met.
Cooperative (Co-Op) Project — A residential or mixed-used development for which a corporation or trust holds title to the property, selling shares to buyers representative of the value of a single unit, who in turn receive a proprietary lease as evidence of their title.
Counter-offer — In negotiations, an offer made in response to a previous offer, representing requested concessions or a differing price from the previous offer. Counterclaim In civil court proceedings, a claim presented by a defendant in a pending lawsuit against the plaintiff in opposition to the plaintiff’s claim, to reduce implications or amounts of said claim. Claims and counterclaims will be settled in a single suit, unless severed.
Cram down — A forced reduction in the amount of a secured claim, based on the value of the property at the time the bankruptcy plan is confirmed, which allows a debtor to avoid the unsecured portion of an under secured claim. Also known as Lien Stripping.
Credit Bid — Used by a secured lender at auction to ensure that the collateral for sale is not sold for less than the face value of the debt it secures, even if the claim amount exceeds the amount of the value of the collateral.
Credit Report — Information provided by credit bureaus detailing the credit history of an individual consumer or corporation used to determine creditworthiness, typically requested by institutions considering an extension of credit to a consumer.
Credit Score — A numerical expression ranking a borrower’s credit worthiness at a given time. Based on a statistical analysis of a consumer’s credit files, lenders use credit scores to evaluate the potential risk of lending money and determine interest rates, and limits in relation to these scores.
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Debt-to-Income Ratio (DIR) — Used by lenders to qualify a borrower’s loan, the percentage of gross monthly income allotted for monthly expenses (including housing, child support, etc.), installment debts, and payments on revolving debts, such as credit cards.
Deed in Lieu (of Foreclosure) — The transfer of a property title from a property owner in default to the lender or beneficiary to satisfy the mortgage debt and avoid foreclosure. Commonly referred to as a voluntary conveyance.
Deed of Trust — A legal document, equivalent to a mortgage, used in some jurisdictions to transfer title of a property to a third party (trustee) to hold as security for the lender. The document establishes the trustee’s fiduciary responsibility to both the borrower (to hand over the deed if paid in full) and the lender (to foreclose in the event of default). Also known as Trustee’s Deed.
Deficiency Judgment — A judgment lien against a borrower allowing a lender to collect the balance of a debt when the sale of the property at foreclosure auction is insufficient to cover the mortgage. Judgments can only occur with recourse loans.
Department of Housing & Urban Development (HUD) — A cabinet-level department of the U.S. Federal Government established in 1965 to create opportunities and execute policy associated with cities and affordable housing. Branches of HUD include the Federal Housing Administration (FHA), which insures loans to parties otherwise unable to qualify for mortgage financing.
Discount Point — A one-time fee paid by a borrower, usually at closing, to compensate the lender for the difference between the current market interest rate and the rate applied the borrower’s terms. A point is equal to one percent of the principal amount.
Dismissal with Prejudice — A judgment rendered in a case, based on its merits, barring the plaintiff from refilling another suit against the same defendant again. In a bankruptcy court, an order dismissing a bankruptcy case and prohibiting the debtor from filing another bankruptcy petition, without rescission or amendment, until after a specified time.
Dragnet Clause — A mortgage loan provision in which multiple properties are pledged as collateral on a loan. A default on any of the pledged properties constitutes a default, and may trigger foreclosure, on all of the properties encompassed in the dragnet clause. Also known as a Spreader clause.
Due on Sale Clause — A provision in a mortgage or deed of trust that permits the lender to demand repayment, in full, of the remaining balance of a debt in the event the property securing said debt is sold.
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Earnest Money — In property negotiations, a deposit furnished by a buyer to demonstrate genuine intent in completing the purchase of a property. This deposit can, if the offer is accepted, be held by the seller’s representative and applied to the buyer’s portion of the remaining costs. Conversely, the earnest deposit will be returned to the buyer should the offer not be accepted or if certain agreed upon contingencies are not met. Deposit amounts can vary depending on regions and markets. Also called earnest payment or good-faith deposit.
Encumbrance — Any claim on any real property, such as a lien, mortgage, building code, easement, mechanic’s liens, etc. which limit the title of a property. Easements and zoning regulations are non-money encumbrances affecting the use of the land; liens, both voluntary and involuntary, are money encumbrances.
Escrow Account — Assets or documents deposited in the care of a neutral third party to be delivered upon the fulfillment of certain conditions. Mortgage servicers establish escrow accounts on behalf of borrowers to pay taxes, insurance premiums, or other charges.
Eviction — A legal action and process to gain possession of real property, by the party entitled to possession of property, by the removal of another party from the property. Also known as Forcible Entry and Detainer (FED) or Unlawful Detainer.
Exclusive Agency Listing — A listing agreement which allows an agent to list a property and guarantees a commission if the house sells through any real estate agent or company but also allows the owner to seek out their own buyers and not pay a commission. Typically includes a limited range of broker services to the owner.
Exclusive Right-to-Sell Listing — A listing agreement that gives the contracted broker the right to collect a commission if the property is sold by anyone, including the owner, during the term of the agreement. Typically includes the full range of real estate brokerage services.
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Fair Debt Collection Practices Act (FDCPA) — A federal statute of the Consumer Credit Protection Act which establishes guidelines under which debt collectors may conduct business; established to eliminate abusive practices in consumer debt collection, promote fair debt collection, define the rights of consumers involved with debt collection, and prescribe penalties and remedies for violations of the Act.
Fair Market Value (FMV) — the estimated value of a property based on what a willing buyer and willing seller would pay, based on all pertinent details and an assessment of the overall market conditions at the time of sale.
Federal Housing Administration (FHA) — A branch of the United States Office of Housing and Urban Development which provides mortgage insurance for single-family, multifamily, manufactured homes and hospital loans made by FHA-approved lenders. Established in 1934 to stabilize the housing market.
Federal National Mortgage Association (FNMA/Fannie Mae) — A government-sponsored enterprise (GSE), established in 1938 and chartered by Congress in 1968 to provide liquidity and stability to the U.S. housing and mortgage markets through investments in the secondary mortgage market. A private, chartered, shareholder company publicly traded on the New York Stock Exchange.
FHA-Insured Loan — A loan insured by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD) available in urban and rural areas for single family homes, for 2, 3, and 4-unit properties and condominiums. Down payment requirements are lower than for conventional loans, with interest rates generally at market rates. With FHA-insured mortgages, extra payments can be made toward the principal and the balance can be paid off at any time.
FHLMC (Federal Home Loan Mortgage Corp.) — A share holder owned corporation, chartered by Congress in 1970, that supplies funds to mortgage lenders through the securitizing and investing in home mortgages. (Also called “Freddie Mac”)
Financing Statement — Document, standardized under the Uniform Commercial Code, filed with a lender that provides details of personal property taken as collateral to secure a loan. The document is filed with a designated public official with a time stamp, note of filing date and file number thus securing the lender’s claim to the assigned collateral.
First Mortgage — A legal document establishing the primacy of a lien against a property, and establishing the priority of the lien over all subsequent (junior) liens against the property except those imposed by law.
First-Time Home Buyer — A party with no ownership interest in a principal residence during the three-year period ending on the date of purchase of a security property. Other qualifications for first-time home buyers include: single parents who have only owned a principal residence property with a former spouse while married; displaced homemakers who have only owned with a spouse; individuals only owning a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations; and individuals who have only owned a property found not in compliance with State, local or model building codes and which cannot be brought into compliance for less than the cost of constructing a permanent structure.
Fixed-Period Adjustable-Rate Mortgage — Mortgages with an initial fixed-rate period, after which time the rate adjusts either upwards or downwards, based on the cap structure and the chosen index, annually or at a specified period for the remainder of the term. Also called a Hybrid Loan.
Flood Certification Fee — An assessment fee charged by flood determination companies to identify properties located in designated flood zones, typically included in the closing costs on the sale of a property.
Flood Insurance — Insurance that compensates for physical property damage resulting from flooding, which is typically not covered under standard hazard insurance, and is required for properties situated in federally designated flood hazard zones.
FNMA (Federal National Mortgage Assn.) — A government-sponsored enterprise (GSE), established in 1938 and chartered by Congress in 1968 to provide liquidity and stability to the U.S. housing and mortgage markets through investments in the secondary mortgage market. A private, chartered, shareholder company publicly traded on the New York Stock Exchange.
Foreclosure — A legal process through which a lender may sell a real property, pledged as security for a mortgage or deed of trust, at auction, to recover the value of the mortgage, when the borrower is found delinquent of mortgage payments or is otherwise in breach of an established loan contract.
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General Contractor — The person hired to oversee a home improvement or construction project who handles all aspects of the project including scheduling workers, hiring specialized subcontractors (plumbers, electricians, carpenters, etc.) and ordering supplies.
Gift Letter — A letter included in a loan application verifying that a certain amount of money, typically for a down payment, was given as a gift to the homebuyer, without the requirement of repayment and that the donor is not involved with the sale of the property (i.e. seller, broker, real estate agent, loan officer, builder, etc.).
Good-Faith Estimate — A standard form provided by a mortgage lender or broker, as required by the Real Estate Settlement Procedures Act (RESPA), disclosing the estimated and itemized amount of fees and associated costs likely to be incurred in connection with a mortgage transaction including: closing costs, inspections, title insurance, taxes and other charges. Used to compare lender or broker quotes, this form must be provided within three business days of applying for a loan.
Government Mortgage — A mortgage loan insured by the Federal Housing Administration (FHA), or guaranteed by the U.S. Department of Veterans Affairs (VA), or the Rural Housing Service (RHS), as opposed to a Conventional Mortgage.
Government National Mortgage Association (GNMA) — A government-owned corporation (popularly know as “Ginnie Mae”) within the Department of Housing and Urban Development (HUD) that provides guarantees of mortgage backed securities that are federally insured or guaranteed by other government agencies.
Grace Period — A loan or contract provision that allows a party to fulfill an obligation after a deadline has expired without incurring a penalty. During a grace period, no late fees are charged, and the late payment does not result in default or cancellation of the contract.
Graduated Rate Loan — A loan in which the interest rate starts low and increases according to a predetermined schedule. Once payments have reached a specified level the rate becomes fixed for duration of the loan.
Grant Deed — A deed used in various states and jurisdictions to transfer the title of real property and establishing that the grantor has the right to convey said property and that the grantor of the deed has made full disclosure of all encumbrances on the property. If the grant deed is proven defective, the grantee may hold the grantor liable.
Gross Monthly Income — The total income earned each month before taxes and other deductions; may also include rental income, alimony, child support, public assistance payments, retirement benefits and self-employed income.
Gross Rent Multiplier — The ratio of total gross rent (before expenses such as property taxes, insurance, utilities, repairs or other expenses) to the purchase price of a property, or the number of years it would take for a property to pay for itself in gross rent. The lower ratio, the better the opportunity.
Ground Rent — Regular payments to the owner of a leasehold property for the use of the land; payments for a long-term lease on a piece of real property where the use may include the construction and habitation of a structure or agricultural production, etc.
Growing Equity Mortgage (GEM) — A fixed rate mortgage in which the monthly payments increase over time, according to a set schedule, with the additional payments being applied to the principal on the loan, thus reducing the mortgage term.
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Holder in Due Course — A party who purchases a negotiable instrument (a check, note, draft, etc.) for value in good faith, free of any claims to or any defense of a party to it, but is not the original payee or a beneficiary of the instrument.
Home Equity Conversion Mortgage (HECM) — loan option for current homeowners, 62 years of age or older, developed by the Federal Housing Administration (FHA) and designed to release equity in a property as one lump sum or a series of payments with the loan repayment obligation being deferred until the owner dies, the property is sold or the owner leaves. Also called a Reverse Mortgage.
Home Equity Line of Credit (HELOC) — A variable-rate loan secured through equity in a borrower’s property in which a lender agrees to lend a maximum percentage of the property equity for an agreed upon period to a borrower for use at the borrower’s discretion. Similar to a line of credit, the borrower is not granted a lump sum, but may borrow, during the established draw period, sums up to the total amount of the promised advance and is only required to repay the amount drawn plus interest on this amount.
Homeowner’s Insurance — A policy that protects a lender’s interests and compensates homeowners for damages sustained to a structure from fire, flood or other event; for liabilities from injuries to visitors and for damage or theft of personal property including appliances, furniture, clothing or equipment.
Homeowner’s Warranty (HOW) — Insurance offered by a seller to cover costs for certain home repairs, systems, fixtures or appliances for a specified period after the purchase of a home. Also a warranty offered by new home builders to original homeowners against major structural defects, with the builder being held financially responsible for repairs.
Homeowners Association — A private organization comprised of homeowners residing within a particular area whose principal purpose is to enforce the Covenants, Conditions and Restrictions of residency in the area and to ensure the provision and maintenance of community amenities and services for the common benefit of the residents.
Homestead Exemption — Legislation established by state statute, designed to protect an individual’s principal dwelling from creditors, property tax actions and forced sale by the recorded declaration of homestead. Homestead exemptions are automatic in some states.
Housing Expense Ratio — Used by lenders to qualify prospective loan buyers, the percentage of gross monthly income allocated towards paying for actual or proposed household expenses including: principal, interest, taxes, insurance (PITI), and association dues. Often referred to as a Front-End Ratio, typically 28 percent.
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Index — A number representative of a change in value, statistically rendered from an aggregate set of securities and used to compute interest rates for adjustable-rate mortgages. Commonly used indices include the Standard & Poor’s 500, the Down Jones Industrial Average and the Nasdaq Composite.
Initial Interest Rate — The introductory interest rate applied to an adjustable rate mortgage (ARM), which is fixed for a period and then adjusts to reflect prevailing market rates. Known sometimes as the start rate or teaser rate, this rate can be below market rates.
Injunction — A writ, legal postponement or court order requiring a party to proceed, or restraining a party from, proceeding with a certain action. Bankruptcy filings trigger automatic injunctions (stays) from debt collection, prohibiting lenders from pursuing foreclosure, which is considered a collection action against the bankrupt borrower.
Inquiry — A request to a credit-reporting agency, by a lender or business, for a copy of an individual’s credit report typically made at a request for credit. Specific and/or numerous credit inquiries can harm an individual’s credit score.
Institutional Lenders — Intermediary agents of the capital and debt markets who provide financial services to clients and members. Commercial banks, credit unions, life insurance companies, etc., as opposed to private or individual lenders. Institutional lenders are highly regulated by federal and state agencies.
Inter-Pleader — A legal action allowing a third party holding contested funds to transfer custody of disputed assets to the court to decide at the court’s discretion how the value of the assets are divided among disputing parties, thereby absolving the third party from any liability. Disputes over the division of a trustee’s sale overbid between junior lien-holders are often decided through a Bill of Inter-Pleader.
Interest Rate Cap — The maximum amount the interest or mortgage payment of an adjustable- (ARM) or variable-rate mortgage may increase, as specified in the mortgage note. Also known as Cap Rate or Interest Rate Ceiling.
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Judicial Foreclosure — The sale of real property, which was held as security for a mortgage found in default, processed through formal court proceedings and resulting in the lender recovery of lost equity through the sale of the property at auction (referred to as a Sheriff’s Sale). As opposed to non-judicial foreclosure.
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Land Contract — An agreement between the buyer and seller of real property in which the seller retains the property title and provides financing to purchase the property, while the buyer takes possession of the property and repays the loan under agreed upon terms.
LIBOR-Index — London Interbank Office Rate reference rate, used to determine interest rate changes for adjustable- or variable-rate mortgages. Roughly equivalent to the U.S. Federal Funds rate and based on the interest rates banks borrow unsecured funds from the London Interbank Market.
Lis Pendens — Litigation (lawsuit) pending. A pending lawsuit placed on a court docket or the notice of pending litigation to secure a claim on real property through court action. Associated with the Judicial Foreclosure process.
Lis Pendens Notice — A publically recorded notice of a pending lawsuit involving real estate, advising concerned parties that the title to a real property is in question and potentially subject to judgment.
Listing Agreement — A contract between a seller and a listing real estate broker establishing conditions, commissions and exceptions and granting the broker the right to offer the property for sale under the established terms.
Loan Origination — The loan process from the application phase to the disbursement of funds including application processing and underwriting and the closing of the loan. Loan servicing follows the disbursement of funds after origination.
Loan-To-Value (LTV) Ratio — A percentage, used in lender risk and loan assessment practices, which accounts for the relationship between a loan amount and the value of a property being offered as security for the loan (typically the lowest appraised or purchase price value). The higher the LTV ratio, the more risk the lender assumes and the more the borrower pays for the loan, if accepted; loans with higher LTV ratios may also require mortgage insurance.
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Margin — An amount, expressed as a percentage, added to the index of an adjustable-rate mortgage (ARM) to establish the interest after each adjustment; the purchase of securities utilizing other securities as collateral; a lender’s profit on a loan.
Mechanic’s Lien — A claim against real property by a contractor or subcontractor for a property owner╒s failure to make payment for improvement or repairs performed on a property. These liens can have priority over previously recorded liens, depending upon the date the work was started, the nature of the work performed and State law.
Mortgage Broker — A licensed individual or firm that serves as an intermediary between borrowers and various lenders in the sale of mortgage loans. Mortgage brokers typically accept loan applications; provide state and local disclosures and process loan documents, which they submit to a lender. Mortgage brokers provide consumer assistance until the time a mortgage is obtained by the borrower.
Mortgage Insurance (MI) — Lenders Mortgage Insurance (LMI), Private Mortgage Insurance (PMI). Insurance policy payable to a lender as an offset to losses incurred through a mortgagor’s default on a loan and the inability to recover costs after proceeds from a foreclosure auction. Typically required on mortgages in which a down payment is less than 20 percent of the sale price or appraised value of real property.
Mortgage Insurance Premium (MIP) — A fee paid by a borrower, to an insuring agency such as the Federal Housing Administration (FHA) or a private mortgage insurance (PMI) company, for mortgage insurance. Premiums are paid once at closing and on a monthly basis until a threshold of approximately 80 percent loan-to-value is reached or for a set period.
Mortgage Lender — An institution or individual providing funds for a mortgage. Lenders review the credit and financial information of borrowers, appraise and evaluate the property offered as security for the loan and process the loan application through closing. Lenders may work with outside mortgage brokers in the early phases of loan origination.
Mortgage Life Insurance — Insurance policies established to pay off mortgage debts in the event of a borrower’s death while the loan is outstanding and the insurance is in force. Policies are designed to pay the outstanding debt and are structured to terminate upon final repayment of the mortgage.
Motion Granting Relief from Stay — The pleading of a creditor involved in a bankruptcy case, requesting a court order that, when granted, will allow a lender to proceed with actions and pursue remedies to recover a debt.
Motion to Strike — A legal procedural device requesting that a presiding judge removes from an opposing party’s pleading any insufficient, redundant, immaterial, impertinent or scandalous matter or testimony.
Mutual Agreement — the most common foreclosure postponement reason; it simply indicates that the homeowner and the lender have agreed to postpone the sale. This may be the result of a phone call where the homeowner has requested a little more time, or a more formal agreement like forbearance. Many homeowners do not realize when they enter a forbearance agreement that the foreclosure process continues and if they miss an agreed upon payment the property can be sold on the next scheduled sale date with no further notice.
Mutual Funds — A collective investment vehicle, managed by a professional investment firm that pools investor money to purchase an array of securities, allowing small investors access to a diversified portfolio.
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Non-Judicial Foreclosure — The foreclosure of real property, processed without court supervision or action filing. As mandated by state legislation, the procedure involves notification to interested parties (by personal service and/or publications and postings) and the final sale of the property at auction. Unless petitioned by the mortgagor, the court provides no supervision of the process, however, non-judicial foreclosures can be accompanied by further civil actions (including deficiency proceedings) involving the court. Non-judicial foreclosures are supported by a Deed of Trust or a Power of Sale clause in mortgage contracts.
Non-Recourse Loan — Loan agreements in which the lender has no legal right to collect the “deficiency” from the borrower following the sale of a property at auction. The lender can only use the proceeds from the sale of the collateral (property), which secured the loan in default, to satisfy the debt. Regardless of the difference between the debt owed and the money recovered from the sale, the borrower is not held liable.
Notary Public — A public officer licensed by the state and granted the power to serve the public in the administration of oaths and affirmations, the taking of affidavits and declarations, the witness and authentication of the execution of documents and the performance of other duties as defined by the jurisdiction in which they serve.
Notice of Default — Notification furnished to a borrower advising them that proper payments have not been made by a predetermined deadline on a loan secured against real property and that if the money owed, plus fees, is not paid in a given time, a foreclosure proceeding against the property will be initiated. This is the initial step in the foreclosure process.
Notice of Publication — Publication in the newspaper of an official notification in order to process the serving of defendants who cannot be located. Notice of publication must follow specifically legislated guidelines as to format and process.
Notice of Trustee Sale — Legally required notification and description establishing the date of sale for a default property to be sold at auction. The officially recorded notice details the date, time, auction location and total debt due on the property for sale, establishing the final date of the foreclosure process. Also known as Notice of Sale.
Novation — An agreement between all parties to replace one obligation with another, or to substitutes one party to a contract with a new one, releasing the original party from the transferred contractual obligation.
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Operation of Law — fairly rare, but used when a court orders the postponement of the sale. The most likely reasons for a court to make such an order would be in cases where there is a plausible allegation of fraud against the lender, or there are questions of material fact around the right of the lender to foreclose.
Origination Fee — Charges paid by a borrower to a lender or broker for the processing of a loan application, typically stated as points and equivalent to a percentage of the mortgage amount. One point equals approximately one percent of the mortgage amount. Also Loan Origination Fee.
Owner Financing — A transaction in which a property seller carries all or part of the financing of a buyer’s purchase of a property. Owner financing agreements must consider Due on Sale clauses associated with outstanding loans on the property being sold. As monthly premiums for owner-financed mortgages are frequently interest-only, these arrangements often involve a balloon mortgage payment. Also known as Seller Take-Back or Owner Carry Back.
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Partial Reconveyance — A mortgage or deed of trust provision specifying that a portion of a real property held as collateral is to be released from serving as collateral prior to the satisfaction of the mortgage obligation.
Payment Change Date — The date on which a new monthly payment amount takes effect on an adjustable-rate or graduated-payment mortgage, generally occurring in the month immediately following the adjustment date.
PITI Reserves — A specific amount of cash that a borrower must have available, after making a down payment and paying all closing costs for the purchase of a home, equal to the amount a borrower would pay for principal, interest, taxes and insurance (PITI) for a predefined number of months.
Postponement — The rescheduling of a sale of real property at auction; postponements can occur for a variety of reasons including: bankruptcy, mutual agreement, beneficiary request, trustee’s discretion or operation of law.
Power of Attorney — The legal, documented authorization of a person to act on another person’s behalf. Power of attorney can grant limited or complete authority and can be established for fixed periods of time.
Pre-Approval — A lender’s process for determining the potential credit-worthiness of a borrower and an indication to the borrower of the amount they may be eligible to borrow based on the borrower’s credit worthiness, income, assets and debts.
Pre-Approval Letter — A letter from a mortgage lender assuring that the income and credit of a party has been checked and that the party could qualify for a loan of a specified amount, establishing a buyer as viable and potentially able to finance the purchase of real property.
Pre-Qualification — An initial and cursory assessment by a lender to determine the loan amount a potential borrower may qualify to borrow, based on a debt to income ratio and not underwritten by the guidelines of the prequalifying institution.
Pre-Qualification Letter — Written documentation from a mortgage lender stating that an initial and cursory analysis of a borrower’s eligibility to borrow a specified amount has been conducted but not confirmed.
Predatory Lending — The practices, often deceptive, of lenders in which mortgage loans are made to individuals without the resources to repay, and loans which are structured to negate a borrower’s ability to seek recourse in the defense of repeated and systematic abuses.
Preliminary Report (Prelim) — An initial report on real property containing information on documents recorded in association with the property that may impact title. Typically produced prior to the issuance of title insurance or the start of escrow, preliminary reports are essential for the buyer of a property but should not be considered and Abstract of Title, which details all recorded instruments associated with a real property and exceptions under which a title company will furnish title insurance.
Principal — An amount of money borrowed or still owed to a lender, not including the interest paid to borrow the money. The principal, unpaid or outstanding balance is the initial amount owed on a loan minus the amount already applied towards repayment of the initial balance.
Published Bid — The published bid in the notice of trustee sale. Typically represents the total amount owned on the loan as of the original sale date. May be discounted when the lender sets the opening bid.
Purchase and Sale Agreement — A document detailing the specific terms and conditions of a transaction. In property transactions, a purchase and sale agreement is developed through a series of negotiations between buyer and seller and may include details regarding: property disclosures, final sale price, down payment and earnest money deposits, terms of financing, closing and occupancy dates, contingencies and timeframes for completion of the offer.
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Qualifying Ratios — Calculations used by lenders to determine a borrower’s loan eligibility, typically an analysis of debt and recurring monthly obligations to gross monthly income. Ratios can vary with market conditions and are influenced by other risk factors associated with a mortgage.
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Ratification of Bankruptcy Plan — A court order approved and enforced by a bankruptcy court confirming a debtor’s plan to pay the debts owed to creditors as of the date of the bankruptcy petition filing. Also known as Confirmation of Bankruptcy Plan.
Ratified Sales Contract — A contract signed by all parties establishing that both the buyer and the seller agree to the sale of the property at the specified terms. The sales contract may include contingencies for inspections, repairs, closing dates, mortgage terms and types, etc.
Real Estate Owned (REO) — Real property listed in the portfolio of a bank or lending institution that has reverted to the beneficiary institution because it was not sold at a trustee auction. Also see Bank Owned.
Real Estate Settlement Procedures Act (RESPA) — A U.S. Housing and Urban Development (HUD) consumer protection statute, designed to assist consumers in shopping for the lowest cost mortgages and to avoid costly or harmful loan offers, requiring that lenders and mortgage brokers provide standard disclosures at various times in a transaction and outlawing kickbacks that increase the cost of settlement services. Standard good faith estimates provided by a mortgage lenders or brokers disclose the estimated and itemized amount of fees and associated costs likely to be incurred in connection with a mortgage transaction including: closing costs, inspections, title insurance, taxes and other charges; this estimate must be provided within three business days of applying for a loan.
Recourse Loan — Loans in which, if a property held as collateral is sold at auction as a result of loan default, the borrower is liable for any deficiency in the balance, if the proceeds of the collateral sale are insufficient to fully pay the debt.
Redemption Right — The right of a borrower to recover mortgaged property lost in a foreclosure on repayment of the loan amount, in full plus costs, thereby releasing the lender’s claim on the property. IRS tax laws also permit the redemption of property used to secure a Federal tax lien.
Rehabilitation Mortgage — A mortgage loan that covers the costs of repairing or improving real property; some rehabilitation mortgages allow for the costs of home purchases and rehabilitation to be rolled into a single loan.
Res Judicata — A guiding principal of common law establishing that once a final judgment has been handed down on a case, the case is no longer subject to appeal or further claim. This doctrine also applies to judgments of previously identical cases and the issuance of identical judgments.
Rescission — The cancellation or annulment of a contract or transaction by operation of law or mutual consent. Borrowers retain certain rights to rescission on certain mortgage refinance and home equity transactions within three business days after closing, or for up to three years in certain instances.
Right of First Refusal — An agreement requiring that the owner of a property grant another party the first opportunity to purchase or lease the property before offering it for sale or lease to others.
Rural Housing Service (RHS) — A U.S. Department of Agriculture (USDA) agency which operates a range of programs to: facilitate home ownership options to individuals; provide housing rehabilitation and preservation funding; provide rental assistance to tenants of multi-family housing complexes; provide farm labor housing; develop multi-family housing projects or apartment buildings for elderly and disabled assisted living; and develop community facilities, such as libraries, child care centers, schools, and municipal buildings for Indian groups, nonprofit organizations, communities and local governments. Known as Rural Development Housing and Community Facilities Programs.
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Securities — A negotiable instrument or certificate establishing the ownership of a share or shares in an organization or denotes a loan of money to an entity or government organization; commonly referred to as stocks (shares) and bonds (loans).
Service Members Civil Relief Act — Federal legislation designed to ease the economic and legal burdens on military personnel which protects active duty military personnel from the enforcement of civilian debt, including, but not limited to: mortgage relief, termination of leases, eviction protection, stay of proceedings and the reopening of default judgments. Passed in December 2003, the Service Members Civil Relief Act restates and renames of the Soldiers and Sailors Relief Act of 1940.
Service of Process — The verifiable procedural delivery of writs, summonses or other court documents to the party to whom the documents ought to be delivered which enables the party respond to the proceedings associated with the documents.
Servicer — A firm that performs mortgage the servicing functions for lenders, including the collection of mortgage payments, payment of the borrower’s taxes and insurance management of borrower escrow accounts.
Servicing — Tasks lenders perform in the management and protection of mortgage investments, including the collection of payments, tax and insurance payments, escrow account management and delinquency mitigation.
Short Sale — The sale of a real property in which the proceeds of the sale fall short of the balanced owed on the loan(s) secured by the property. In a short sale, lenders agree to discount the loan balance and accept a short sale offer based on financial hardship of the mortgagor.
Single-Family Properties — Real property, classified under applicable state laws as intended for occupancy by one family, including: detached homes, townhouses, condominiums and manufactured homes affixed to permanent foundations.
Soldiers and Sailors Relief Act of 1940 — Passed in December 2003, the Service Members Civil Relief Act restates and renames of the Soldiers and Sailors Relief Act of 1940. See Service Members Civil Relief Act.
Special Defense — Facts found to be consistent with allegations of a plaintiff complaint but establish that the plaintiff has no remediable cause of action; any material facts that would repute the establishment, validity or enforcement of a claim.
Standing Mortgage — An interest-only loan with no amortization of the principal balance during the life of the loan; the interest is paid over the term of the loan and the principal balance becomes due in a balloon payment upon maturity.
Streamlining — The refinancing of an FHA insured loan with a minimum of documentation, underwriting and costs. Eligible mortgages must be current; the refinance must result in a lower monthly principal and interest rate payment, and cannot be used for equity cash-outs. No cost streamlining constitutes no out-of-pocket expenses to the borrower but a higher interest rate; closing costs can be added to the principal balance if it is determined that sufficient equity exists.
Subject To — A purchase agreement in which a party agrees to sell a property to a buyer “subject to” existing financing without the assumption of any liability for existing liens. The buyer agrees to cure loans in default and to make regularly schedule loan payments until the property is refinanced or sold. A “subject to” agreement could violate a “due on sale” clause of the current owner’s loan.
Subordination Agreement — A document establishing the position of lien recorded at a later date of higher priority than a lien on real property recorded earlier; both parties with security in the property must agree to the subordination.
Summary Judgment — A determination by the court in a case without a full trial, used when there is no dispute of the material facts of the case and where the party is entitled to a judgment as a matter of law. Summary judgments may be used to simplify a case and may dispense with all or part of the claim or defense.
Summons — A legal document issued by a court or government agency notifying a party that a documented legal proceeding has been started against a party and announcing the date and time at which the party must appear in court or respond in writing to the court or opposing party.
Survey — An accurate determination of the relative position of real property by a licensed professional, to establish or confirm property dimensions, relative terrestrial location and boundaries of ownership.
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Taxes and Insurance — Property taxes and insurance associated with real property. If the property is held as security for a loan, generally, a lender will manage tax and insurance payments through an escrow arrangement and pay these taxes from the escrow account when due. If tax and insurance expenses are not managed through an escrow account the homeowner is responsible for prompt payment of required funds.
Termite Inspection — A visual inspection of a property, by a licensed professional, to determine the extent of, or potential for, the infestation of termites or other wood destroying organisms. Termite inspections are required in many parts of the country, prior to the sale of a property.
Title — A document establishing a party’s legal or equitable interest in a real property. Possession or occupancy of real property may accompany ownership, but is not sufficient to prove it unless by title or deed.
Title Search — A detailed review and compilation of public records to ensure that a seller has the legal right to sell a real property and to identify any liens, claims or encumbrances against the property. Types of title search include: Lot Book, Current Owner Abstract of Title, Preliminary Reports, Trustee Sale Guarantee, Full Abstract of Title and Abstract of Title Date Down/Bring Down.
Transfer Tax — A transaction fee charged on the passage of the title for a real property from one party to another, where there exists a legal requirement for the documented registration of the transfer.
Treasury Index — A fluctuating compilation of interest rates, based on the auction of U.S. Treasury bills and securities, commonly used to determine interest rate changes for certain adjustable-rate mortgages.
Trustee — In a Deed of Trust loan agreement, the legal term referring to the third party who, on behalf of the beneficiary, holds the title to real property as security for the repayment of a loan. In the event of default, the trustee has the right to foreclose on the secured property; the trustee has a fiduciary responsibility to the both the borrower (to hand over the deed if paid in full) and the lender (to foreclose in the event of default).
Trustee’s Sale Guarantee (TSG) — A title report for trustees, disclosing ownership, encumbrances and other pertinent details of the interests in a real property, specifying all parties who have recorded notification requests for any filings against a particular trust deed in foreclosure and lists of all the local publications that qualify to advertise the Notice of Trustee’s Sale. The TSG protects trustees and the beneficiaries from consequences resulting from title record errors associated with the foreclosure proceedings.
Truth-In-Lending Act (TILA) — Federal laws designed to assure meaningful disclosure of credit or lease terms to enable ready consumer comparison of various credit or lease terms to protect the consumer against inaccurate and unfair credit billing, credit card and leasing practices. The Act limits balloon payments in consumer leasing, enables comparison of lease terms with credit terms where appropriate, and assures meaningful and accurate disclosures of lease and credit terms in advertisements.
Two- to Four-Family Property — A residential property with a single deed of ownership but consisting of living space (dwelling units) for two to four families. These properties can qualify for single-family residential mortgages.
Two-Step Mortgage — A long-term mortgage loan with an initial (typically below market) interest rate for the fixed, often 5 to 7 year, period of time and another (prevailing market) interest rate for the remainder of the loan.
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Underwriting — The process used to assess overall risk and the eligibility of a consumer for a mortgage loan, involving an investigation and evaluation of a borrowers ability to repay a mortgage and the value of the property offered as security for the loan.
Uniform Consumer Credit (U-CCC) — Federal and state statutes designed to protect consumers who finance the purchase of goods or services on credit by mandating full disclosure of terms by creditors and by defining and limiting creditors╒ ability for recourse.
Uniform Residential Loan Application — The standard mortgage loan application used by all lenders, detailing the purpose of the loan, the property associated with the loan and the financial information of the borrower. Also called the HUD-1 or URL-1003.
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VA Guaranteed Loan — U.S. Department of Veterans Affairs (VA) guarantee loans made by private lenders to eligible veterans for the purchase of homes for personal occupancy. The VA guarantees a portion of a loan to the lender protecting the lender against loss up to the amount guaranteed, allowing veterans to obtain more favorable financing terms.
VA-Specified Bid — An opening bid at the Trustee Sale of a property used to secure a U.S. Department of Veterans Affairs loan. The VA specifies the opening bid amount at the trustee’s sale of the property.
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Winning Bid — The highest bid amount of a property sold at auction; in the event of no higher bids at auction this amount will be the same as Opening Bids and the property will be sold back to the bank.
Writ of Assistance — A court order directing a law enforcement officer, the sheriff (or other local official) to enforce relief granted to a party by the court. A writ of assistance would be used to order a party to turn over a deed or right of ownership or to evict someone from a property after a foreclosure. Also known as Writ of Restitution or Writ of Possession.
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