The Mortgage-ese to English Dictionary. Your Way Home. copyright 2010 FloridaHomePath.com, LLC All Rights Reserved. Your Way Home.

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1 The Mortgage-ese to English Dictionary

2 Mortgage-ese to English Mortgage lingo is often used by many people without the consideration of translation. Below is a Mortgage-ese to English dictionary for some of the most commonly used terms used during the mortgage process. Loan-To-Value (LTV) - The ratio of the value of the loan compared to the value of the property or sales price whichever is less. Example, a purchase price of $100,000 and a loan for $95,000 would have a LTV of 95%. Debt-To-Income (DTI) - The ratio of the total monthly debt payments compared to the total gross monthly income. There are two DTI ratios that a lender will discuss. One is the frontend ratio which is the new housing payment compared to the total gross monthly income. The second is referred to as the back-end ratio which is all of the monthly debt payments, including the new housing payment, compared to the total gross monthly income. Primary Mortgage Insurance (PMI) - An insurance policy required any time the LTV is greater than 80%. PMI protects the lender, not the consumer. A PMI policy is paid out to a lender anytime a loss occurs on a mortgage that goes through foreclosure. PMI can be paid by the consumer on a up-front in one single payment, monthly over several years, or the fee can be paid by the lender. Lender-paid PMI is normally covered by the consumer accepting a higher interest rate on the entire loan. Qualifying score - The credit score used to approve the mortgage loan. Lenders will pull a credit score from Equifax, Experian, and Transunion. The middle score of all three is the qualifying score used to approve the loan. Reserves - The amount of money the consumer has in assets after closing measured in months of monthly payments. Example, if the new monthly housing payment is $1,000 and the consumer has $10,000 remaining in savings after closing, then the consumer has 10 months of reserves. Reserves are a very important underwriting factor reviewed for loan approval. Typically 2 months reserves are a requirement, 6 months or more is a strong, positive factor. Principle and Interest (P&I) - The actual mortgage payment without any other housing expense. Principle, Interest, Taxes and Insurance (PITI) - The actual mortgage payment with all other housing expenses included. If the property requires a Home-Owner s Association fee, then that fee would also be included in this payment total. PMI would also be included in the PITI. Hazard Insurance- Home-owner s insurance. Good Faith Estimate (GFE) - An estimate of all settlement charges involved in the transaction. For more information on GFEs click here.

3 The following pages include additional mortgage and real estate terminology sometimes used throughout the home buying process. A Acceleration Clause A common provision of a mortgage which allows the holder to demand the entire outstanding mortgage balance due and payable in the event of a breach of the mortgage contract. Addendum An agreement or list that is added to a contract, agreement or other document such as a letter of intent. FHA and VA require that an addendum be added to or incorporated in a sales contract, if it is written prior to the appraisal. Adjustable Rate Mortgage (ARM) Is a mortgage loan where the interest rate on the note is periodically adjusted based on a variety of indices.[1] Among the most common indices are the rates on 1-year constantmaturity Treasury (CMT) securities, the Cost of Funds Index (COFI), and the London Interbank Offered Rate (LIBOR). A few lenders use their own cost of funds as an index, rather than using other indices. This is done to ensure a steady margin for the lender, whose own cost of funding will usually be related to the index. Consequently, payments made by the borrower may change over time with the changing interest rate (alternatively, the term of the loan may change). This is not to be confused with the graduated payment mortgage, which offers changing payment amounts but a fixed interest rate. Other forms of mortgage loans include the interest only mortgage, the fixed rate mortgage, the negative amortization mortgage, and the balloon payment mortgage. Adjustable rates transfer part of the interest rate risk from the lender to the borrower. They can be used where unpredictable interest rates make fixed rate loans difficult to obtain. The borrower benefits if the interest rate falls and loses out if interest rates rise. Adjustable rate mortgages are characterized by their index and limitations on charges (caps). In many countries, adjustable rate mortgages are the norm, and in such places, may simply be referred to as mortgages. Adverse Action Steps taken by a lender to collect past due mortgage payments. Sometimes these steps lead to foreclosure. Adverse Possession The right by which someone occupying a piece of land acquires title against the real owner, if the occupant s possession has been actual, continuous, hostile, visible and distinct for a statutory period. Air Rights The ownership of the right to use, control or occupy the air space over a designated property, without the right to use the land surface. Air Space The space above the surface of land that is owned by the landowner and that may be divided and sold or leased to others.

4 Alienation The transfer of title to real property from one owner to another. Alienation Clause A type of acceleration clause that demands payment of the entire balance upon sale or other transfer of title; also called a due-on-sale clause. Annual Percentage Rate (APR) A term defined in section 106 of the federal Truth in Lending Act (15 USC 1606), which expresses on an annualized basis the charges imposed on the borrower to obtain a loan (defined in the Act as finance charges ), including interest, discount and other costs. Appraisal Is an opinion or estimate of the value of a property. Example: My house appraised for $200, last year and today it appraised for $175, Appurtenance Anything belonging to or attached to land, such as a barn, garage or easement, that is part of the property and is therefore included in a sale or transfer. Assignment The transfer of ownership, rights or interests in property, as in a mortgage, lease or deed of trust. Mortgages and other security instruments are regularly assigned from one investor to another and commitments by HUD/FHA to insure mortgages may be assigned by one originating lender to another before insurance. Assumption of Mortgage A buyer s acceptance of primary liability for payment of an existing note secured by a mortgage or deed of trust. The seller remains secondarily liable, unless specifically released by the lender. Automatic Stay An action that enjoins collection efforts from proceeding. B Bankruptcy Court proceedings to relieve the debts of an individual or business unable to pay its creditors. An individual, firm or corporation who, through a court proceeding, is relieved from the payment of all debts. Bankruptcy may be declared under one of several chapters of the federal bankruptcy code: Chapter 7, which covers liquidation of individual or business assets; Chapter 11, which covers reorganization of bankrupt businesses; Chapter 12, which covers certain farm bankruptcies; and Chapter 13, which covers workouts of debts by individuals. Bargain and Sale Deed Deed which implies that the grantor has title to the property and the right to convey it, but does not contain any express covenants regarding the title s validity. C Closing In real estate, the delivery of a deed, the signing of a note, and the disbursement of funds necessary to consummate a sale or loan transaction. Commitment An agreement, often in writing, between a lender and a borrower, to loan money at a future

5 date, subject to specified conditions. In secondary marketing, an agreement, in writing, between a lender and an investor to buy and sell mortgages under specific terms. Commitment Fee Any fee paid by a potential borrower to a potential lender for the lender s promise to loan money at a specified date in the future. The lender may or may not expect to fund the commitment. In secondary marketing, a fee paid by the loan seller to the investor in return for the investor s promise to purchase a loan or package of loans at a future date. Community Property In some states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse. Community Reinvestment Act (CRA) Federal legislation which requires every financial institution to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. Co-mortgagor A second borrower who signs a mortgage loan with a mortgagor. The co-mortgagor s income, assets and debts are combined with the mortgagor s for underwriting and ratio analysis purposes. The co-mortgagor s name must appear on the FHA Certificate of Commitment and the mortgage or deed of trust. For full guarantee under the VA s program, the co-mortgagor must be either a spouse or another eligible veteran. Conforming Loan A mortgage that is equal to or less than the dollar amount established by the conforming loan limit set by Fannie Mae and Freddie Mac with their Federal regulator, the Federal Housing Finance Agency and meets the funding criteria of Freddie Mac and Fannie Mae. Controlled Business Arrangement (CBA) Business relationship in which a provider of settlement services receives a referral from an affiliated company in another settlement service business. Real estate brokerage and mortgage lenders that are commonly owned, controlled or franchised and refer settlement service business to each other are typical examples of such CBAs. Corporation A business entity owned by a group of owners, called stockholders. A corporation is considered an artificial person under law. Coupon Rate Annual interest rate on a debt. The coupon rate on a mortgage is the contract rate stated in the mortgage note. The coupon rate on a mortgage security is the rate stated on the face of the security, not the rate of the mortgages in the pool backing the security. Covenant A legally enforceable promise or restriction in a mortgage. For example, the borrower may covenant to keep the property in good repair and adequately insured against fire and other casualties. A breach of covenant in a mortgage usually creates a default as defined by the mortgage, and can be the basis for foreclosure. Custodian Usually a commercial bank which holds for safekeeping mortgages and related documents backing a mortgage-backed security. Custodians may be required to examine and certify documents.

6 D Deed The document by which title to real property is transferred or conveyed from one party to another. Deed-in-lieu A deed given by a borrower/mortgagor to a lender/mortgagee to satisfy a debt and avoid foreclosure. Deed of Trust A type of security instrument in which the borrower conveys title to real property to a third party (trustee) to be held in trust as security for the lender, with the provision that the trustee shall reconvey the title upon the payment of the debt and, conversely, will sell the land and pay the debt in the event of a default by the borrower. Also see MORTGAGE. Default The nonpayment of a mortgage or other loan in accordance with the terms as specified in the note. Defeasance Clause Clause in the security instrument which voids the mortgage upon repayment of the entire debt. Delinquency Failure of a borrower to make timely payments specified under a loan agreement. Disclosure Information relevant to specific transactions that is required by law. Due-on-sale Clause A clause in a mortgage stating that if the mortgagor sells, transfers or in any way encumbers the property, then the mortgagee has the right to implement an acceleration clause making the balance of the obligation due. E Easement A right to the limited use or enjoyment of land held by another, including, for example, an interest in land to enable sewer or other utility lines to be laid, or to allow access to a property. Eminent Domain The right of government bodies, public utilities and public service corporations to take private property for public use (e.g., schools and roads) upon payment of its fair market value. Encroachment An improvement that illegally violates another s property or right to use that property. Encumbrance Anything that affects or limits the fee simple title to property, such as mortgages, leases, easements or restrictions. Equal Credit Opportunity Act (ECOA) (Regulation B) A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs. (Considered to be one of the fair lending laws.) Escrow An item of value, money or documents, deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to

7 pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. In some parts of the country, escrows of taxes and insurance premiums are called impounds or reserves. Escrow Agent The person or organization having a fiduciary responsibility to both the buyer and seller (or lender and borrower) to see that the terms of the purchase/sale (or loan) are carried out. Also called escrow company or escrow depository. Escrow Analysis The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance and other bills when due. Escrow Payment That portion of a mortgagor s monthly payments held by a lender or servicer to pay taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Also called impounds or reserves in some states. Estate The ownership interest an individual has in real property. The sum total of all the real and personal property owned by an individual at the time of death. Estoppel Certificate A written statement setting forth certain facts which cannot later be repudiated (frequently given by a lender or a tenant relative to a loan or lease, respectively). F Fair Credit Reporting Act (FCRA) An Act designed to protect the privacy of credit report information and to guarantee that information is supplied by consumer reporting agencies (CRAs) is as accurate as possible. Fair Housing Act (FHAct) Federal statute designed to prohibit discrimination in the sale, rental, and financing of housing. (Considered to be one of the fair lending laws.) Fee Simple The greatest possible interest a person can have in real estate, including the right to dispose of the property or pass it on to one s heirs. Finance Charge A term defined in section 105 of the federal Truth-in-Lending Act (PL ; 15 USC 1605), which generally includes all charges payable as an incident to the extension of a loan. Financial Accounting Standards Board (FASB) A private entity created by the accounting profession to develop and promulgate financial accounting standards and practices. Its membership is composed of top-level accounting professionals from business, government and education professions. It derives its authority from official recognition by the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants (AICPA), and from the general support of corporate and investment communities. While SEC has the authority to regulate accounting standards, it nearly always defers to the FASB. Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) The law enacted to restructure the thrift industry. The Act created regulatory entities to oversee

8 thrifts and established risk-based capital guidelines for Qualified Thrift Lenders (QTLs). The Act created the Office of Thrift Supervision (OTS), the Federal Housing Finance Board (FHFB) and the Resolution Trust Corporation (RTC); the Act dissolved the Federal Home Loan Bank Board (FHLBB) and the Federal Savings and Loan Insurance Corporation (FSLIC). Fixed Rate Mortgage Is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or float. Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, variable rate (such as adjustable rate mortgages and tracker mortgages), negative amortization mortgage, and balloon payment mortgage. Please note that each of the loan types above except for a straight adjustable rate mortgage can have a period of the loan for which a fixed rate may apply. A Balloon Payment mortgage, for example, can have a fixed rate for the term of the loan followed by the ending balloon payment. Terminology may differ from country to country: loans for which the rate is fixed for less than the life of the loan may be called hybrid adjustable rate mortgages (in the United States). This payment amount is independent of the additional costs on a home sometimes handled in escrow, such as property taxes and property insurance. Consequently, payments made by the borrower may change over time with the changing escrow amount, but the payments handling the principal and interest on the loan will remain the same. Fixed rate mortgages are characterized by their interest rate (including compounding frequency, amount of loan, and term of the mortgage). With these three values, the calculation of the monthly payment can then be done. Fixture Personal property that becomes real property upon being attached to real estate. Forbearance The act of refraining from taking legal action despite the fact that the mortgage is in arrears. It is usually granted only when a mortgagor makes satisfactory arrangements to pay the amount owed at a future date. Foreclosure A legal procedure in which a mortgaged property is sold in a legal process to pay the outstanding debt in case of default. Freehold (estate) Ownership interest in a property. G General Warranty Deed Deed in which grantor promises, represents, and warrants that he or she has good title to the property being conveyed; that there are no laws or encumbrances outstanding against the title not on record; and he or she will defend the title in the event of a title dispute. (Some states use a grant deed instead of a warrantee deed.) Good Faith Estimate (GFE) A document which tells borrowers the approximate costs they will pay at or before settlement, based on common practice in the locality. Under requirements of the Real Estate Settlement Procedures Act (RESPA), the mortgage banker or mortgage broker, if any, must deliver or mail the GFE to the applicant within three business days after the application is received.

9 Graduated Payment Mortgage Loan Often referred to as GPM, is a mortgage with low initial monthly payments which gradually increase over a specified time frame. These plans are mostly geared towards young men and women who cannot afford large payments now, but can realistically expect to do better financially in the future. For instance a medical student who is just about to finish medical school might not have the financial capability to pay for a mortgage loan, but once he graduates, it is more than probable that he will be earning a high income. It is a form of negative amortization loan. H Hardship Letter Is correspondence explaining a borrower s financial difficulties. Home-Equity Loan A consumer loan secured by a second mortgage, allowing home owners to borrow against their equity in the home. The loan is based on the difference between the homeowner s equity and the home s current market value. This type mortgage also may allow for tax deductible interest payments by the borrower. Also known as equity loan or second mortgage. Home Equity Line of Credit (HELOC) A home equity line of credit is a form of revolving credit in which your home serves as collateral. With a home equity line, you will be approved for a specific amount of credit, your credit limit, the maximum amount you may borrow at any one time under the plan. Many lenders set the limit on a home equity line by taking a percentage (say, 75 percent) of the home s appraised value and subtracting from that the balance owed on the existing mortgage. Home Mortgage Disclosure Act (HMDA) (Regulation C) Federal legislation which requires certain types of lenders to compile and disclose data on where their mortgage and home improvement loans are being made. Home Ownership and Equity Protection Act (HOEPA) Amendment to the Truth in Lending Act which protects consumers on high rate, high fee Section 32 refinancing and home equity installment loans. HUD-1 Uniform Settlement Statement Standard form used to disclose costs at closing. All charges imposed in the transaction, including mortgage broker fees, must be disclosed separately. I Interest Consideration in the form of money paid for the use of money, usually expressed as an annual percentage. Also, a right, share or title in property. Interest Rate Percentage paid for the use of money, usually expressed as an annual percentage. Interest Rate Cap A limit on interest rate increases and/or decreases during each interest rate adjustment (adjustment period cap) or over the term (life cap) of the mortgage. Interest Rate Floor On a floating rate instrument, the lowest the interest rate may go. Intestate Succession

10 Transfer of a property that was owned by an individual who died without a will. Property passes according to the statutes of the jurisdiction in which the deceased was last domiciled or the place in which the property is located. Involuntary Conveyance Transfer of title which occurs contrary to the owner s intention. Examples of involuntary conveyance include eminent domain, adverse possession, foreclosure, and intestate succession. J Joint Tenancy Form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship. Judicial Foreclosure Type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court. Jumbo Mortgage Is a mortgage with a loan amount above the industry-standard definition of conventional conforming loan limits. This standard is set by the two largest secondary market lenders, Fannie Mae and Freddie Mac and their regulator the FHFA. Conforming loan amounts reflect average loan sizes nationwide. Jumbo mortgages apply when agency (FNMA and FHLMC) limits don t cover the full loan amount. Fannie Mae (FNMA) and Freddie Mac (FHLMC) are large agencies that purchase the bulk of residential mortgages in the U.S. They set a limit on the maximum dollar value of any mortgage they will purchase from an individual lender. A Jumbo Mortgage loan exceeds their loan limits. K Kickback A payment to a third party in return for the referral of a client, customer or business. L Lease A written document containing the conditions under which the possession and use of real and/ or personal property are given by the owner to another for a stated period and consideration. Leasehold (estate) An estate or interest in real property held by virtue of a lease. Lien A legal hold or claim of a creditor on the property of another as security for a debt. Liens may be against real or personal property. Lien Theory A doctrine in which the borrower does not lose title to mortgaged property; rather, the property is deemed to create a security interest in favor of the lender s lien. Life Estate A freehold estate, terminated upon the death of the beneficiary, giving a beneficiary all property rights except the right to sell.

11 Limited Partnership A form of business ownership that consists of one or more general partners who are fully liable, and one or more limited partners who are liable only for the amount of their investment. Lock-in Period The number of days during which a lender guarantees a borrower a specific interest rate and terms on a mortgage. Loss Payable Clause An insurance policy provision for payment of a claim to someone other than the insured, who holds an insurable interest in the insured property. M Mandatory Commitment An agreement between buyer and seller for the purchase and sale of specified mortgage product in which both parties are obligated to perform. Mortgage A temporary, conditional pledge of property to a creditor as security for performance of an obligation or repayment of a debt. A contract or deed specifying the terms of a mortgage and the claim of a mortgagee upon mortgaged property. Mortgage-Backed Security (MBS) An investment instrument backed by mortgage loans as security. Ownership is evidenced by an undivided interest in a pool of mortgages or trust deeds. Income from the underlying mortgages is used to pay interest and principal on the securities. Mortgagee The lender in a mortgage transaction. Mortgage Loan Is a loan secured by real property through the use of a note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan. Mortgage Modification Mortgage modification is a process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e mortgagor and mortgagee). In general, many loans can be modified. In the normal progression of a mortgage, payments of interest and principal are made until the mortgage is paid in full (or paid-off). Typically, until the mortgage is paid, the lender holds a lien on the property and if the borrower sells the property before the mortgage is paid-off, the unpaid balance of the mortgage is remitted to the lender to release the lien. Generally speaking, any change to the mortgage terms is a modification, but as the term is used it refers a change in terms based upon either the specific inability of the borrower to remain current on payments as stated in the mortgage, or more generally government mandate to lenders. Types of modification Mortgages are modified to the benefit of the borrower in one or more of the following ways: Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed Reduction in principal

12 Reduction in late fees or other penalties Lengthening of the loan term Capping the monthly payment to a percentage of household income The borrower can be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly. There may be modifications made at the discretion of the lender. The lender is motivated to offer better terms to the borrower because of the expectation that the borrower might be able to afford a lower payment, and that a performing loan (i.e. one in which payments are current) will be more valuable ultimately than the proceeds obtained from a foreclosure sale. The state and federal government may structure a mortgage modification program as voluntary on the part of the lender, but may provide incentives for the lender to participate. A mandatory mortgage modification program requires the lender to modify mortgages meeting the criteria with respect to the borrower, the property, and the loan payment history. Mortgage Note A written promise to pay a sum of money at a stated interest rate during a specified term. A mortgage note is secured by a mortgage. Mortgagor The borrower in a mortgage transaction who pledges property as a security for a debt. Mortgage Servicer The Mortgage Servicer is YOUR mortgage company. It is the company that handles the day-today tasks associated with managing your loan. Their duties include but are not limited to: Collecting and remitting loan payments Responding to borrower inquiries Making advances when required Accounting for principal and interest Holding funds for payment of property taxes and hazard insurance (also called Managing your escrow account) Making any physical inspections of the property Counseling delinquent mortgagors Supervising foreclosures and property dispositions in case of defaults After your mortgage loan closed, your lender more than likely outsourced the job of managing your loan to another company called a MORTGAGE SERVICER. WHY DO YOU NEED TO KNOW THE IDENTITY OF YOUR MORTGAGE SERVICER? There are three reasons why you must always keep track of the identity of your Mortgage Servicer: 1. Mortgage Servicer is responsible for handling any questions you have about your mortgage loan. Payoff amount? Taxes and hazard insurance? They should have that information too. 2. Mortgage Servicer is also responsible for collecting your payment. To avoid late fees and potential fraud, make sure you are sending your payment to the correct Servicer. 3. If you are unable to make the payments on your mortgage and wish to negotiate the terms of your loan, you may only do so with your Mortgage Servicer. Contrary to popular belief, it is your Mortgage Servicer and not the lender that can negotiate the terms of the loan with you.

13 N Negative Amortization Mortgage Mortgages that allow for negative amortization have become popular in recent years. Adjustable rate mortgages with a negative amortization feature are typically known as payment option ARMs. Fixed-rate mortgages with a negative amortization feature are typically known as graduated payment mortgages. While these mortgages can provide borrowers with the ability to make low monthly payments, the risk is that the monthly payments must increase substantially at some point over the term of the mortgage. The date or dates at which the payments must increase on a fixed rate graduated payment mortgage are known with certainty. The rate at which deferred interest is created on a payment option ARM cannot be known with certainty because of the variable interest rate. Payment option ARMs have scheduled payment increases, but also carry triggers that might cause the mortgage to recast before scheduled payment increases. Payment option ARMs, therefore, carry a great deal of payment shock risk. Note A general term for any kind of paper or document signed by a borrower that is an acknowledgment of the debt and is, by inference, a promise to pay. When the note is secured by a mortgage, it is called a mortgage note and the mortgagee is named as the payee. O Optional Delivery Commitment An agreement which requires an investor to buy mortgages at an agreed upon price, but does not require the lender to sell or deliver them. The lender pays a fee for this option. P Personal Property Any property that is not real property. Also called chattel. PITI (Principal, Interest, Taxes, and Insurance) Acronym for the items included in a monthly mortgage payment: principal, interest, taxes and insurance. Principal The original balance of money lent, excluding interest. Also, the remaining balance of a loan, excluding interest. Promissory Note A written promise to pay a specific amount at a specified time. Purchase Agreement/Contract A written agreement between a buyer and seller of real property, setting forth the price and terms of sale. Q Quitclaim Deed A deed relinquishing all interest, title or claim an owner has in a property. A quitclaim deed implies no warranty.

14 R Real Estate Appraisal Estimate of the value of property, usually required when a property is sold, financed, condemned, taxed, insured, or partitioned. An appraisal is not a determination of value. Three approaches are used. To produce an accurate resale price for a residence, appraisers compare the price of the property to the prices of similar nearby properties that have sold recently. For new construction and service properties such as churches and post offices, appraisers look at the reproduction or replacement cost of the improvements, less depreciation, plus the value of the land. For investment properties such as apartment buildings and shopping centers, an estimated value is based on the capitalization of net operating income from a property at an acceptable market rate. Real Estate Settlement Procedures Act (RESPA) (Regulation X) Federal law which regulates the settlement practices within the real estate industry. This law requires the provision of Good Faith Estimates of Closing Costs, prohibits kickbacks for referrals of related services and standardizes the closing with a required form and format (HUD-1). Real Property Land and improvements permanently attached to it, such as buildings. In some states, this term is synonymous with the term real estate. Recording The filing of documents or details of a legal document to make them a matter of public record. Usually requires the witnessing and notarizing of the document or instrument to be recorded. Recourse The right of a lender to claim assets (besides the subject property serving as security) from a mortgagor in default. (A mortgagee has recourse against a borrower if the borrower is personally liable for the loan.) (In secondary marketing, a recourse loan is a loan that the lender must repurchase in the case of loan default or other defect.) Redemption Period The time allowed by law in some states during which mortgagors may buy back their foreclosed properties by paying the balance owed on their delinquent mortgages, plus interest and fees. Repayment Plan Is a structured agreement between two parties for the timely repayment of a debt. Right of Redemption In some states, a right permitting the mortgagor to reclaim foreclosed property by making full payment of the foreclosure sales price. The right of redemption exists for a specified period of time, called the redemption period. Right of Rescission Period of three full days after closing in which the consumer is allowed to negate an owner occupied refinance transaction. S Sales Contract A written agreement between buyer and seller stating terms and conditions of a sale or exchange of property.

15 Satisfaction of Mortgage The recorded instrument the lender provides to evidence payment in full of the mortgage debt. Second Mortgage A mortgage taken out on property that already has one mortgage, with priority in settlement of claims given to the earlier mortgage. Security Deed Security instrument in which property is conveyed to the lender by the borrower as a deed passing title, and not as just a mortgage to secure repayment of the note. Security Instrument Mortgage or deed of trust evidencing the pledge of real estate as collateral for the loan. Servicing Agreement A written agreement between an investor and mortgage servicer stipulating the rights and obligations of each party. Servicing Released A stipulation in the agreement for the sale of mortgages in which the seller is not responsible for loan administration. Servicing Retained A stipulation in the agreement for the sale of mortgages in which the seller is responsible for loan administration and is paid a fee for doing so. Settlement The closing of a mortgage loan. Also, the delivery of a loan or security to a buyer. Settlement Costs Money paid by borrowers and sellers to effect the closing of a mortgage loan, including payments for title insurance, survey, attorney fees and such prepaid items as taxes and insurance escrow. Short Sale Is an agreed upon sale of real property for less than the outstanding mortgage amount owed and is one of several options other than foreclosure that might be available to a financially distressed borrower. Borrowers with temporary financial problems should try to negotiate a forbearance agreement with their lender. For borrowers with more lasting financial problems, in addition to a mortgage short sale, a deed in lieu of foreclosure or a short refinance might be potential options in avoiding foreclosure. Sole Proprietorship A form of self-employment in which the individual who is self-employed has formed no separate legal entity such as a corporation. Special Assessment District A governmental subdivision with the power to tax and improve property within its jurisdiction. Also called special improvement district. Special Warranty Deed A deed containing a covenant whereby the grantor agrees to protect the grantee against any claims arising during the grantor s period of ownership. Subordinate Lien A lien or encumbrance (for example a second mortgage or mechanic s lien) on real estate whose priority is inferior to another s recorded interest in the same property.

16 Subordination Clause A clause in an agreement which states that the current claim on any debts will take priority over any other claims formed in other agreements made in the future. Subordination is the act of yielding priority. T Tax Sale The sale of property by a taxing authority or an officer of the court acting on a judgment to satisfy the payment of delinquent taxes. Tenancy at Will A holding of real estate without agreement or fixed term of possession, that can be terminated at the will of either the lessor or lessee. Tenancy by Entirety A form of ownership in which husband and wife are co-owners with rights of survivorship. Tenancy in Common A form of undivided ownership interest by two or more persons that provides for no right of survivorship. The interest need not be of equal percentage. Tenancy in Partnership A type of ownership whereby real property is held in the name of the partnership rather than in the name of individual partners. Title Written evidence of the right to or ownership in property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift or through foreclosure of a mortgage. Title Binder Written evidence of temporary title insurance coverage that runs for a limited time and must be replaced by a permanent policy. Title Insurance Policy A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest as purchaser, mortgagee or otherwise. Title Search An examination of public records, laws and court decisions to ensure that no one except the seller has a valid claim to the property, and to disclose past and current facts regarding ownership of the subject property. Title Theory A doctrine that says that the mortgagee holds legal title until the mortgage debt is paid in full. Torrens Certificate A certificate issued by a public authority called a registrar of titles, establishing title in an indicated owner. Used when title to property is registered under the Torrens system of land registration. Transfer Free and Clear Transfer of property in which any outstanding debt is paid off before the transfer of ownership; transfer is made without any encumbrances. The grantee either pays cash or obtains new financing.

17 Transfer Subject to the Existing Mortgage Transfer in which grantee takes the property subject to the existing mortgage. Typically, the grantee pays the grantor for the existing equity. The grantee undertakes to make the mortgage payments; however, the personal and primary liability of the grantor in the existing mortgage remains in effect. Trust A fiduciary relationship whereby legal title to a property is transferred to a trustee with the intention that such property be administered by the trustee for the benefit of another, the beneficiary, who holds equitable title to such property. Trust Deed The instrument given by a borrower (trustor) to a trustee vesting title to a property in the trustee to ensure the borrower s fulfillment of an obligation. A mortgage. Truth-in-Lending Act (TILA) (Regulation Z) Federal law which requires a truth in lending statement to be disclosed for consumer loans. This statement would include disclosure of the annual percentage rate, or APR, as well as other facets of the mortgage program. The law also requires the right of recission period which follows the closings of refinances. U Uniform Residential Appraisal Report (URAR) The appraisal form which is utilized by appraisers of residential properties to estimate the value of properties to be financed with FHA, VA and conventional mortgages. Uniform Residential Loan Application Form (URLA) (Fannie Mae/Freddie Mac 1003/FHA 2900/VA 1802) Form which is accepted by all major mortgage sources for application of residential mortgages. Uniform Settlement Statement (HUD-1) Settlement summary form required by RESPA to be used by closing agents. V Voluntary Conveyance Intention to transfer title to another through an affirmative volitional act. An elective transfer of property title from a defaulting borrower to the lender, as an alternative to foreclosure. This arrangement saves the lender the expense of foreclosure, and the borrower receives credit for payment in full. Z Zoning The creation of districts by local governments in which specific types of property uses are authorized.