Bear Real Estate - Terms
Common Real Estate Terms and Their Definitions
To help you with your Big Bear Bear Real Estate Purchase:
ABSTRACT OF TITLE. Summarized history of the legal
title to property, shows changes of title, records of liens and
ALTA OWNERS POLICY. (American Land Title Association)
An owner .s extended coverage policy that provides buyers and owners
the same protection the ALTA policy gives to lenders.
ALTA TITLE POLICY. A type of title insurance policy
issued by title insurance companies which expands the risks normally
insured against under the standard type policy to include unrecorded
mechanics’ liens; unrecorded physical easements; facts a physical
survey would show; water and mineral rights; and rights of parties
in possession, such as tenants and buyers under unrecorded instruments.
AMORTIZATION. The liquidation of a financial obligation
on an installment basis; also, recovery over a period of cost or
AMORTIZED LOAN. A loan to be repaid, interest and
principal, by a series of regular payments that are equal or nearly
equal, without any special balloon payment prior to maturity. Also
called a Level Payments Loan.
ANNUAL PERCENTAGE RATE. The relative cost of credit
as determined in accordance with Regulation Z of the Board of Governors
of the Federal Reserve System for implementing the Federal Truth
in Lending Act.
ANNUITY. A sum of money received at fixed intervals,
such as a series of assured equal or nearly equal payments to be
made over a period of time, or it may be a lump sum payment to be
made in the future. The installment payments due to the landlord
under a lease is an annuity. So are the installment payments due
to a lender.
APPRAISAL. An estimate of the value of property
resulting from an analysis of facts about the property. An opinion
APPRAISER. One qualified by education, training
and experience who is hired to estimate the value of real and personal
property based on experience, judgment, facts, and use of formal
ASSESSED VALUATION. A valuation placed upon a piece
of property by a public authority as a basis for levying taxes on
ASSESSMENT. The valuation of property for the purpose
of levying a tax or the amount of the tax levied. Also, payments
made to a common interest subdivision homeowners- association for
maintenance and reserves.
ASSESSOR. The official who has the responsibility
of determining assessed values.
ASSIGNMENT OF RENTS. A provision in a deed of trust
(or mortgage) under which the beneficiary may, upon default by the
trustor, take possession of the property, collect income from the
property and apply it to the loan balance and the costs incurred
by the beneficiary.
ASSIGNMENT. A transfer to another of any property
in possession or in action, or of any estate or right therein. A
transfer by a person of that person’s rights under a contract.
BALLOON PAYMENT. An installment payment on a promissory
note -usually the final one for discharging the debt - which is
significantly larger than the other installment payments provided
under the terms of the promissory note.
BASIS. (1) Cost Basis. The dollar amount assigned
to property at the time of acquisition under provisions of the Internal
Revenue Code for the purpose of determining gain, loss and depreciation
in calculating the income tax to be paid upon the sale or exchange
of the property. (2) Adjusted Cost Basis. The cost basis after the
application of certain additions for improvements, etc., and deductions
for depreciation, etc.
BUYER’S MARKET. The condition which exists
when a buyer is in a more commanding position as to price and terms
because real property offered for sale is in plentiful supply in
relation to demand.
CAL-VET PROGRAM. A program administered by the
State Department of Veterans Affairs for the direct financing of
farm and home purchases by eligible California veterans of the armed
CAPITAL GAIN. At resale of a capital item, the
amount by which the net sale proceeds exceed the adjusted cost basis
(book value). Used for income tax computations. Gains are called
short or long term based upon length of holding period after acquisition.
Usually taxed at lower rates than ordinary income.
CAPITALIZATION RATE. The rate of interest which
is considered a reasonable return on the investment, and used in
the process of determining value based upon net income. It may also
be described as the yield rate that is necessary to attract the
money of the average investor to a particular kind of investment.
In the case of land improvements which depreciate, to this yield
rate is added a factor to take into consideration the annual amortization
factor necessary to recapture the initial investment in improvements.
This amortization factor can be determined in various ways. (1)
straight-line depreciation method, (2) Inwood Tables and (3) Hoskold
Tables. (To explore this subject in greater depth, the student should
refer to current real estate appraisal texts.)
CAPITALIZATION. In appraising, determining value
of property by considering net income and percentage of reasonable
return on the investment. The value of an income property is determined
by dividing annual net income by the Capitalization Rate.
CC&Rs. Covenants, conditions and restrictions.
The basic rules establishing the rights and obligations of owners
(and their successors in interest) of real property within a subdivision
or other tract of land in relation to other owners within the same
subdivision or tract and in relation to an association of owners
organized or the purpose of operating and maintaining property commonly
owned by the individual owners.
CHAIN OF TITLE. A history of conveyances and encumbrances
affecting the title from the time the original patent was granted,
or as far back as records are available, used to determine how title
came to be vested in current owner.
CLOSING COSTS. Charges paid at settlement to obtain
a mortgage loan and transfer real estate title, usually in addition
to the price of the home. Be sure your sales contract clearly states
who-buyer or seller-will pay closing costs and what they will be.
CLOSING DAY. The date on which the title to the
property passes from the seller to the buyer and/or the date on
which the borrower signs the mortgage loan agreement.
CLOSING STATEMENT. An accounting of funds made
to the buyer and seller separately. Required by law to be made at
the completion of every real estate transaction.
CLOSING. (l) Process by which all the parties to
a real estate transaction conclude the details of a sale or mortgage.
The process includes the signing and transfer of documents and distribution
of funds. (2) Condition in description of real property by courses
and distances at the boundary lines where the lines meet to include
all the tract of land.
CLOUD ON TITLE. A claim, encumbrance or condition
which impairs the title to real property until disproved or eliminated
as for example through a quitclaim deed or a quiet title legal action.
COMMON INTEREST SUBDIVISION. Subdivided lands which
include a separate interest in real property combined with an interest
in common with other owners. The interest in common may be through
membership in an association. Examples are condominiums and stock
COMMUNITY PROPERTY. Property acquired by husband
and/or wife during a marriage when not acquired as the separate
property of either spouse. Each spouse has equal rights of management,
alienation and testamentary disposition of community property.
COMPARABLE SALES. Sales which have similar characteristics
as the subject property and are used for analysis in the appraisal
process. Commonly called comparables, they are recent selling prices
of properties similarly situated in a similar market.
COMPARISON APPROACH. A real estate comparison method
which compares a given property with similar or comparable surrounding
properties; also called market comparison.
CONDOMINIUM. An estate in real property wherein
there is an undivided interest in common in a portion of real property
coupled with a separate interest in space called a unit, the boundaries
of which are described on a recorded final map, parcel map or condominium
plan. The areas within the boundaries may be filled with air, earth,
or water or any combination and need not be attached to land except
by easements for access and support.
CONVENTIONAL MORTGAGE. A mortgage securing a loan
made by investors without governmental underwriting, i.e., which
is not FHA insured or VA guaranteed. The type customarily made by
a bank or savings and loan association.
DEED. Written instrument which when properly executed
and delivered conveys title to real property from one person (grantor)
to another (grantee).
DEFAULT. Failure to fulfill a duty or promise or
to discharge an obligation; omission or failure to perform any act.
DEFERRED MAINTENANCE. Existing but unfulfilled
requirements for repairs and rehabilitation. Postponed or delayed
maintenance causing decline in a building’s physical condition.
DEPRECIATION. Loss of value of property brought
about by age, physical deterioration or functional or economic obsolescence.
The term is also used in accounting to identify the amount of the
decrease in value of an asset that is allowed in computing the value
of the property for tax purposes.
DISCOUNT POINTS. The amount of money the borrower
or seller must pay the lender to get a mortgage at a stated interest
rate. This amount is equal to the difference between the principal
balance on the note and the lesser amount which a purchaser of the
note would pay the original lender for it under market conditions.
A point equals one percent of the loan.
DUAL AGENCY. An agency relationship in which the
agent acts concurrently for both of the principals in a transaction.
DUE ON SALE CLAUSE. An acceleration clause granting
the lender the right to demand full payment of the mortgage upon
a sale of the property.
EARNEST MONEY. A sum paid by a potential buyer
to demonstrate that the buyer is serious about buying. If a contract
is executed, the earnest money is credited toward the purchase price
at closing. Make sure you know the terms of your contract.
EASEMENTS. Rights of way granted to persons or
companies authorizing access to or over the owner's land. For example,
utility companies may have easement rights to install pipes or wire
on or over your land.
ENCROACHMENT. An unlawful intrusion onto another’s
adjacent property by improvements to real property, e.g. a swimming
pool built across a property line.
ENCUMBRANCE. Anything which affects or limits the
fee simple title to or value of property, e.g., mortgages or easements.
EQUITY. The value in excess of all indebtedness
against the property.
ESCROW. A system or document of transfer in which
a deed, bond or fund is delivered to a third party to hold until
all conditions in a contract are fulfilled.
EXCLUSIVE AGENCY LISTING. A listing agreement employing
a broker as the sole agent for the seller of real property under
the terms of which the broker is entitled to a commission if the
property is sold through any other broker, but not if a sale is
negotiated by the owner without the services of an agent.
EXCLUSIVE RIGHT TO SELL LISTING. A listing agreement
employing a broker to act as agent for the seller of real property
under the terms of which the broker is entitled to a commission
if the property is sold during the duration of the listing through
another broker or by the owner without the services of an agent.
FANNIE MAE An acronymic nickname for Federal National
Mortgage Association (FNMA), or Fannie Mae. A quasi-public agency
converted into a private corporation whose primary function is to
buy and sell FHA and VA mortgages in the secondary market.
FEDERAL HOME LOAN MORTGAGE CORPORATION. Aka Freddie
Mac. An independent stock company which creates a secondary market
in conventional residential loans and in FHA and VA loans by purchasing
FEDERAL HOUSING ADMINISTRATION. (FHA) An agency
of the federal government that insures private mortgage loans for
financing of new and existing homes and home repairs.
FHA (Federal Housing Administration): This federal
agency established by Congress in 1934, insures mortgage loans made
by FHA-approved lenders on homes that meet FHA standards in order
to make mortgages more desirable investments for lenders.
FIXTURES. Appurtenances attached to the land or
improvements, which usually cannot be removed without agreement
as they become real property; examples. plumbing fixtures, store
fixtures built into the property, etc.
HUD. The Department of Housing and Urban Development,
which is responsible for the implementation and administration of
U.S. government housing and urban development programs.
IMPOUNDS. A trust type account established by lenders
for the accumulation of borrowers funds to meet periodic payment
of taxes, FHA mortgage insurance premiums, and/or future insurance
policy premiums, required to protect their security. Impounds are
usually collected with the note payment. The combined principal,
interest, taxes and insurance payment is commonly termed a PITI
INTEREST ONLY LOAN. A straight, non-amortizing
loan in which the lender receives only interest during the term
of the loan and principal is repaid in a lump sum at maturity.
INTEREST The cost paid by a borrower for use of
money borrowed to purchase a home.
JOINT TENANCY. Undivided ownership of a property
interest by two or more persons each of whom has a right to an equal
share in the interest and a right of survivorship, i.e., the right
to share equally with other surviving joint tenants in the interest
of a deceased joint tenant.
MORTGAGE COMMITMENT. A formal written communication
by a lender agreeing to make a mortgage on specific property, specifying
the loan's amount, length of time and conditions.
MORTGAGE/DEED OF TRUST. Pledge of property as security
for the payment of debt.
MORTGAGEE. The lender who has agreed to lend money
to the mortgagor.
MORTGAGOR. The homeowner (borrower), who has agreed
to repay a mortgage loan to the mortgagee.
NEGATIVE AMORTIZATION. Occurs when monthly installment
payments are insufficient to pay the interest accruing on the principal
balance, so that the unpaid interest must be added to the principal
PAYMENT CAP. With regard to an adjustable rate
mortgage, this limits the amount of increase in the borrower’s
monthly principal and interest at the payment adjustment date, if
the principal and interest increase called for by the interest rate
increase exceeds the payment cap percentage. This limitation is
often at the borrower’s option and may result in negative
POINTS. A point is a charge of one percent of the
mortgage value. Points are a one-time charge assessment by the lender
to increase the interest yield from the mortgage loan to a position
competitive with the interest yield from other types of investment.
Points are usually paid by the buyer or seller or split between
them. Points may be required by the lender, but these system arrangements
vary from state to state, so check into practices in your area.
PRINCIPAL. This term is used to mean the employer
of an agent; or the amount of money borrowed, or the amount of the
loan. Also, one of the main parties in a real estate transaction,
such as a buyer, borrower, seller, lessor.
PRINCIPLE. Amount of money borrowed in mortgage
loan, excluding interest and other charges.
PROMISSORY NOTE. Following a loan commitment from
the lender, the borrower signs a note, promising to repay the loan
under stipulated terms. The promissory note establishes personal
liability for its payment. The evidence of the debt.
PRORATION OF TAXES. To divide or prorate the taxes
equally or proportionately to time of use, usually between seller
QUITCLAIM DEED. A deed to relinquish any interest
in property which the grantor may have, without any warranty of
title or interest.
REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA).
A federal law requiring the disclosure to borrowers of settlement
(closing) procedures and costs by means of a pamphlet and forms
prescribed by the United States Department of Housing and Urban
RECORDING. The process of placing a document on
file with a designated public official for public notice. This public
official is usually a county officer known as the County Recorder
who designates the fact that a document has been presented for recording
by placing a recording stamp upon it indicating the time of day
and the date when it was officially placed on file. Documents filed
with the Recorder are considered to be placed on open notice to
the general public of that county. Claims against property usually
are given a priority on the basis of the time and the date they
are recorded with the most preferred claim going to the earliest
one recorded and the next claim going to the next earliest one recorded,
and so on. This type of notice is called. constructive notice or
RIGHT OF SURVIVORSHIP. The right of a surviving
tenant or tenants to succeed to the entire interest of the deceased
tenant; the distinguishing feature of a joint tenancy.
SALES CONTRACT. The contract between the buyer
and seller. The contract should explain, in detail, exactly what
your purchase includes, who is responsible for providing it, what
guarantees there are, when you can move in, what the "closing
costs" are, and what "outs" parties have in case
the contract is not fulfilled or if you cannot get a mortgage commitment
at the agreed-upon terms.
SEPARATE PROPERTY. Property owned by a married
person in his or her own right outside of the community interest
including property acquired by the spouse (1) before marriage, (2)
by gift or inheritance, (3) from rents and profits on separate property,
and (4) with the proceeds from other separate property.
SETTLEMENT EXPENSE. This is different from closing
costs, but also involves charges that a buyer or seller must pay
in closing a deal on a house. Settlement costs include insurance,
tax payments, special assessments for improvements to municipal
facilities and sales commissions.
SURVEY. On-site measurement of lot lines, dimensions
and position of house on lot, including determination of possible
encroachments or existing easements. A survey is often required
by the lender to assure him that a house is actually on the land
according to its legal description.
TITLE INSURANCE. Insurance to protect a real property
owner or lender up to a specified amount against certain types of
loss, e.g., defective or unmarketable title.
TITLE REPORT. A report which discloses condition
of the title, made by a title company preliminary to issuance of
title insurance policy.
TITLE SEARCH OF TITLE GUARANTY. Detailed review
of title records, generally at the local courthouse, to assure that
the property is bought from the legal owner and to determine if
any liens, special assessments, other claims or outstanding restrictive
covenants are on record.
TITLE. Evidence(usually in the form of a certificate
or "deed") of a person's legal right to the ownership
TRUST DEED. Just as with a mortgage this is a legal
document by which a borrower pledges certain real property or collateral
as guarantee for the repayment of a loan. However, it differs from
the mortgage in a number of important respects. For example, instead
of there being two parties to the transaction there are three. There
is the borrower who signs the trust deed and who is called the trustor.
There is the third, neutral party, to whom trustor deeds the property
as security for the payment of the debt, who is called the trustee.
And, finally, there is the lender who is called the beneficiary,
the one who benefits from the pledge agreement in that in the event
of a default the trustee can sell the property and transfer the
money obtained at the sale to lender as payment of the debt.
TRUSTEE. One who holds property in trust for another
to secure the performance of an obligation. Third party under a
deed of trust.
TRUSTOR. One who borrows money from a trust deed
lender, then deeds the real property securing the loan to a trustee
to be held as security until trustor has performed the obligation
to the lender under terms of a deed of trust.
VA (Veterans' Administration). A federal agency
which in 1944 established a loan guaranteed program to encourage
private lending agencies to give liberal mortgages to honorably-discharged
veterans or their widows. Check your local Veterans' Administration
office for information.
VARIABLE INTEREST RATE. (VlRs or VMRs, Variable
Mortgage Rates.) An interest rate in a real estate loan which by
the terms of the note varies upward and downward over the term of
the loan depending on money market conditions.
WRAP AROUND MORTGAGE. A financing device whereby
a lender assumes payments on existing trust deeds of a borrower
and takes from the borrower a junior trust deed with a face value
in an amount equal to the amount outstanding on the old trust deeds
and the additional amount of money borrowed.
ZONING. Classification or real property for varying
uses. Act of city or county authorities specifying type of use to
which property may be put in specific areas.