Terminology

Terms and definitions

Abstract of title- condensed history of a title to a specific piece of property consisting of a summary of the ownerships and conveyances and any liens or encumbrances affecting the poperty

ADA- American Disabilities Act which has specific duties for landlords.

Amortization- payment schedule of a loan which includes interest and principal required to pay the loan off over the contracted term.

Appreciation- increase in value of a property over time

ARM- Adjustable Rate Mortgage

Asbestos-a mineral once used in buildings which has been shown to cause respiratory ailments. Federal law requires strict guidelines be followed to remove it from a property.

Assignment-the transfer in writing of an interest in a contractual agreement such as a purchase contract, mortgage, or lease.

Birddogging- hiring persons to look for properties to purchase and paying a fee for them.

Building code-local authority sets standards for occupancy that must be followed.

Capitalization rate- a mathematical formula to estimate the rate of return on investment a property will produce.

Closing-the finalization of a property purchase, usually done in an attorney’s office or title company, where deeds are given to the buyer and seller receives sales proceeds.

Collateral- real property of value pledged incase of default on a loan.

debt service- mortgage payments including both principal and interest.

Deed-a written instrument which conveys title to or an interest in real estate.

Default- nonperformance on an obligation or failure to meet an obligation when due.

Due diligence-checking the financial records, all inspections, and information gathering to make the most informed decision when buying investment property.

Earnest money (good faith deposit)-money deposited by the buyer to be forfeited if the buyer defaults, but credited to the buyer at closing.

Escrow- closing of a property through a third party, or use of a third party to hold funds for future payments such as taxes or insurance.

Eviction the legal process to forcibly remove persons from possession of real estate.

Fair Housing Act-federal law which prohibits discrimination based on any of the protected classes including race, religion, color, sex, handicap, familial status and national origin.

Foreclosure- the legal process where a property pledged as collateral is sold to satisfy the debt in the event of loan default.

Functional obsolescence- loss of value of property due to functional problems due to age, poor design, or changes in styles and trends.

HUD- Department of Housing and Urban Development, The federal agency that administers GNMA loans and the Fair Housing Act

Land contract (contract for deed or installment contract) seller financing where the purchaser has possession and use of the property, but the seller retains the deed until the payment terms are met.

Landlord -Tenant Act- local ordinances specifying the rights and responsibilities of landlords and tenants.

Lease option an agreement to lease a property for a specified period of time with the right to purchase the property at a future date per a purchase agreement.

Lis pendens- a recorded legal document giving constructive notice that an action, such as foreclosure, has been initiated in court.

LLC- Limited Liability Company is a
form of business organization offering flexible management structures and limiting of personal liability. Each state has varying rules for LLC formations and operation.

LTV- Loan to Value ratio used by lenders to determine the amount of a loan, usually offered as a percentage of the appraised value.

Marketable title- after title examination determines there are no liens or encumbrances on a property the title is deemed clean and marketable.

Mechanic’s lien a lien placed against a property for services provided by contractors, laborers and materialmen in the building or repair of a property.

Mortgagee-holder of a mortgage, ie the lender

Mortgagor-giver of a mortgage, ie the borrower

Notice of eviction ( seven day letter) notice to a tenant that eviction proceedings will initiated based on non performance of the tenant of duties per the lease agreement.

Optionee-person receiving an option to purchase real property at a later date with agreed upon terms.

Optionor-person giving someone the right to purchase real property at agreed upon terms at a future date.

PITI Principal, Interest, Taxes and Insurance- the four parts of most mortgage payments

Plat map a map usually done by the developer and retained in the planning and zoning department showing information on home lots.

Promissory note a financing instrument which outlines the terms of the agreement and is signed by the maker and may be sold or transferred by the owner.

Quit claim deed a legal conveyance transferring interest in a property to another party without warranty or obligation.

RESPA-Real Estate Settlement Procedures Act, a federal law requiring certain disclosures to consumers about mortgage loan settlements and prevents payment of kickbacks.

Sheriff’s sale or commissioner’s sale where properties in default either through foreclosure or non payment of taxes are sold to pay the debt.

Title search- the process of examination of the public records relating to a piece of real estate to determine the current state of the ownership and verify there are no liens or encumbrances.

Warranty deed- general warranty deed provides the greatest protection, where the deed is warranted for all owners and is fully insurable, a special warranty deed only warrants against title defects during the time the grantor held the deed and may not be fully insurable, or have a delay period for title insurance.