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Abstract (Of Title)
A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews an abstract
of title to determine whether there are any title defects which must be
cleared before a buyer can purchase clear, marketable, and insurable title.
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Acceleration Clause
Condition in a mortgage that may require the balance of the loan to
become due immediately, if regular mortgage payments are not made or for
breach of other conditions of the mortgage.
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Agreement of Sale
Known by various names, such as contract of purchase, purchase
agreement, or sales agreement according to location or jurisdiction. A
contract in which
a seller agrees to sell and a buyer agrees to buy, under certain specific
terms and conditions spelled out in writing and signed by both parties.
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Amortization
A payment plan which enables the borrower to reduce his debt gradually
through monthly payments of principal.
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Appraisal
An expert judgment or estimate of the quality or value of real estate
as of a given date.
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Assumption of Mortgage
An obligation undertaken by the purchaser of property to be personally
liable for payment of an existing mortgage. In an assumption, the purchaser
is substituted for the original mortgagor in the mortgage instrument and
the original mortgagor is released from further liability under the mortgage.
Since the mortgagor is to be released from further liability in the
assumption, the mortgagee's consent is usually required. The original mortgagor should
always obtain a written release from further liability if he desires to be
fully released under the assumption
Failure to obtain such a release renders the original mortgagor liable
if the person assuming the mortgage fails to make the monthly payments.
An "Assumption of Mortgage" is often confused with "purchasing subject
to a mortgage." When one purchases subject to a mortgage, the purchaser
agrees to make the monthly mortgage payments on an existing mortgage, but the
original mortgage or remains personally liable if the purchaser fails to
make the monthly payments. Since the original mortgagor remains liable in
the event of default, the mortgagee's consent is not required to a sale
subject to a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage"
are used to finance the sale of property. They may also be used when a
mortgagor is in financial difficulty and desires to sell the property to
avoid foreclosure.
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Binder or "Offer to Purchase"
A preliminary agreement, secured by the payment of earnest money,
between a buyer and seller as an offer to purchase real estate. A binder
secures the right to purchase real estate upon agreed terms for a limited
period of time. If the buyer changes his mind or is unable to purchase, the
earnest money is forfeited unless the binder expressly provides that it is
to be refunded.
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Broker
See real estate broker
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Building Line or Setback
Distances from the ends and/or sides of the lot beyond which
construction may not extend. The building line may be established by a
filed plat of subdivision, by restrictive covenants in deeds or leases, by
building codes,
or by zoning ordinances.
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Certificate of Title
A certificate issued by a title company or a written opinion rendered
by an attorney that the seller has good marketable and insurable title to
the property which he is offering for sale. A certificate of title offers
no protection against any hidden defects in the title which an examination
of the records could not reveal. The issuer of a certificate of title is
liable only for damages due to negligence. The protection offered a
homeowner under a certificate of title is not as great as that offered in a
title insurance policy.
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Closing Costs
The numerous expenses which buyers and sellers normally incur to
complete a transaction in the transfer of ownership of real estate. These
costs are in addition to price of the property and are items prepaid at the
closing day. This is a typical list:
- Documentary Stamps on Notes Cost of Abstract
- Recording Deed and Mortgage
- Documentary Stamps on Deed
- Escrow Fees
- Real Estate Commission
- Attorney's Fee Recording Mortgage
- Title Insurance Survey Charge
- Appraisal and Inspection
- Escrow Fees
- Survey Charge Attorney's Fee
The agreement of sale negotiated previously between the buyer and the
seller may state in writing who will pay each of the above costs.
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Closing Day
The day on which the formalities of a real estate sale are concluded.
The certificate of title, abstract, and deed are generally prepared for the
closing by an attorney and this cost charged to the buyer. The buyer signs
the mortgage, and closing costs are paid. The final closing merely confirms
the original agreement reached in the agreement of sale.
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Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the
marketability of title.
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Commission
Money paid to a real estate agent or broker by the seller as
compensation for finding a buyer and completing the sale. Usually it is a
percentage of the sale price-6 to 7 percent on houses, 10 percent on land.
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Condemnation
The taking of private property for public use by a government unit,
against the will of the owner, but with payment of just compensation under
the government's power of eminent domain. Condemnation may also be a
determination by a governmental agency that a particular building is unsafe
or unfit for use.
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Condominium
Individual ownership of a dwelling unit and an individual interest in
the common areas and facilities which serve the multi-unit project.
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Contract of Purchase
See agreement of sale
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Contractor
In the construction industry, a contractor is one who contracts to
erect buildings or portions of them. There are also contractors for each
phase of construction: heating, electrical, plumbing, air conditioning,
road building, bridge and dam erection, and others.
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Conventional Mortgage
A mortgage loan not insured by HUD or guaranteed by the Department of
Veterans Affairs.
It is subject to conditions established by the lending institution and
State statutes. The mortgage rates may vary with different institutions and
between States. (States have various interest limits.)
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Cooperative Housing
An apartment building or a group of dwellings owned by a corporation,
the stockholders of which are the residents of the dwellings. It is
operated for their benefit by their elected board of directors. In a
cooperative, the corporation or association owns title to the real estate.
A resident purchases stock in the corporation which entitles him to occupy
a unit in the building
or property owned by the cooperative. While the resident does not own his
unit, he has an absolute right to occupy his unit for as long as he owns
the stock.
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Deed
A formal written instrument by which title to real property is
transferred from one owner to another. The deed should contain an accurate
description of the property being conveyed, should be signed and witnessed
according to the laws of the State where the property is located, and
should be delivered to the purchaser at closing day. There are two parties
to a deed: the grantor and the grantee. (See also deed of trust, general
warranty deed, quitclaim deed, and special warranty deed.)
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Deed of Trust
Like a mortgage, a security instrument whereby real property is given
as security for a debt. However, in a deed of trust there are three
parties to the instrument: the borrower, the trustee, and the lender, (or
beneficiary). In such a transaction, the borrower transfers the legal title
for the property to the trustee who holds the property in trust as security
for the payment of the debt to the lender or beneficiary. If the borrower
pays the debt as agreed, the deed of trust becomes void. If, however, he
defaults in the payment of the debt, the trustee may sell the property at a
public sale, under the terms of the deed of trust. In most jurisdictions
where the deed of trust is in force, the borrower is subject to having his
property sold without benefit of legal proceedings. A few States have begun
in recent years to treat the deed of trust like a mortgage.
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Default
Failure to make mortgage payments as agreed to in a commitment based
on the terms and at the designated time set forth in the mortgage or deed
of trust. It is the mortgagor's responsibility to remember the due date and
send the payment prior to the due date, not after. Generally, thirty days
after the due date if payment is not received, the mortgage is in default.
In the event of default, the mortgage may give the lender the right to
accelerate payments, take possession and receive rents, and start
foreclosure. Defaults may also come about by the failure to observe other
conditions in the mortgage or deed of trust.
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Depreciation
Decline in value of a house due to wear and tear, adverse changes in
the neighborhood, or any other reason.
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Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages
when real estate title passes from one owner to another. The amount of
stamps required varies with each State.
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Downpayment
The amount of money to be paid by the purchaser to the seller upon the
signing of the agreement of sale. The agreement of sale will refer to the
downpayment amount and will acknowledge receipt of the downpayment.
Downpayment is the difference between the sales price and maximum mortgage
amount. The downpayment may not be refundable if the purchaser fails to buy
the property without good cause. If the purchaser wants the downpayment to
be refundable, he should insert a clause in the agreement of sale
specifying the conditions under which the deposit will be refunded, if the
agreement does not already contain such clause. If the seller cannot
deliver good title, the agreement of sale usually requires the seller to
return the downpayment and to pay interest and expenses incurred by the
purchaser.
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Earnest Money
The deposit money given to the seller or his agent by the potential
buyer upon the signing of the agreement of sale to show that he is serious
about buying the house. If the sale goes through, the earnest money is
applied against the downpayment. If the sale does not go through, the
earnest money will be forfeited or lost unless the binder or offer to
purchase expressly provides that it is refundable.
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Easement Rights
A right-of-way granted to a person or company authorizing access to or
over the owner's land. An electric company obtaining a right-of-way across
private property is a common example.
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Encroachment
An obstruction, building, or part of a building that intrudes beyond a
legal boundary onto neighboring private or public land, or a building
extending beyond the building line.
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Encumbrance
A legal right or interest in land that affects a good or clear title,
and diminishes the land's value. It can take numerous forms, such as zoning
ordinances, easement rights, claims, mortgages, liens, charges, a pending
legal action, unpaid taxes, or restrictive covenants. An encumbrance does
not legally prevent transfer of the property to another. A title search is
all that is usually done to reveal the existence of such encumbrances, and
it is up to the buyer to determine whether he wants to purchase with the
encumbrance, or what can be done to remove it.
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Equity
The value of a homeowner's unencumbered interest in real estate.
Equity is computed by subtracting from the property's fair market value the
total of the unpaid mortgage balance and any outstanding liens or other
debts against the property. A homeowner's equity increases as he pays off
his mortgage or as the property appreciates in value. When the mortgage and
all other debts against the property are paid in full the homeowner has
100% equity in his property.
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Escrow
Funds paid by one party to another (the escrow agent) to hold until
the occurrence of a specified event, after which the funds are released to
a designated individual. In FHA mortgage transactions an escrow account
usually refers to the funds a mortgagor pays the lender at the time of the
periodic mortgage payments. The money is held in a trust fund, provided by
the lender for the buyer. Such funds should be adequate to cover yearly
anticipated expenditures for mortgage insurance premiums, taxes, hazard
insurance premiums, and special assessments.
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Foreclosure
A legal term applied to any of the various methods of enforcing
payment of the debt secured by a mortgage, or deed of trust, by taking and
selling the mortgaged property, and depriving the mortgagor of possession.
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General Warranty Deed
A deed which conveys not only all the grantor's interests in and title
to the property to the grantee, but also warrants that if the title is
defective or has a "cloud" on it (such as mortgage claims, tax liens, title
claims, judgments, or mechanic's liens against it) the grantee may hold the
grantor liable.
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Grantee
That party in the deed who is the buyer or recipient.
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Grantor
That party in the deed who is the seller or giver.
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Hazard Insurance
Protects against damages caused to property by fire, windstorms, and
other common hazards.
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HUD
U.S. Department of Housing and Urban Development. Office of
Housing/Federal Housing Administration within HUD insures home mortgage
loans made by lenders.
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Interest
A charge paid for borrowing money. (See mortgage note.)
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Lien
A claim by one person on the property of another as security for money
owed. Such claims may include obligations not met or satisfied, judgments,
unpaid taxes, materials, or labor. (See also special lien.)
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Marketable Title
A title that is free and clear of objectionable liens, clouds, or
other title defects. A title which enables an owner to sell his property
freely to others and which others will accept without objection.
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Mortgage
A lien or claim against real property given by the buyer to the lender
as security for money borrowed. Under government insured or loan-guarantee
provisions, the payments may include escrow amounts covering taxes, hazard
insurance, water charges, and special assessments. Mortgages generally run
from 10 to 30 years, during which the loan is to be paid off.
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Mortgage Commitment
A written notice from the bank or other lending institution saying it
will advance mortgage funds in a specified amount to enable a buyer to
purchase a house.
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Mortgage Note
A written agreement to repay a loan. The agreement is secured by a
mortgage, serves as proof of an indebtedness, and states the manner in
which it shall be paid. The note states the actual amount of the debt that
the mortgage secures and renders the mortgagor personally responsible for
repayment.
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Mortgage (Open-End)
A mortgage with a provision that permits borrowing additional money in
the future without refinancing the loan or paying additional financing
charges. Open-end provisions often limit such borrowing to no more than
would raise the balance to the original loan figure.
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Mortgagee
The lender in a mortgage agreement.
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Mortgagor
The borrower in a mortgage agreement.
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Plat
A map or chart of a lot, subdivision or community drawn by a surveyor
showing boundary lines, buildings, improvements on the land, and easements.
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Points
Sometimes called "discount points." A point is one percent of the
amount of the mortgage loan. For example, if a loan is for $25,000, one
point is $250. Points are charged by a lender to raise the yield on his
loan at a time when money is tight, interest rates are high, and there is a
legal limit to the interest rate that can be charged on a mortgage. Buyers
are prohibited from paying points on Department of Veterans Affairs
guaranteed loans (sellers can pay, however). On a conventional mortgage, or
an FHA insured mortgage, points may be paid by either buyer or seller or
split between them.
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Premium
The payment made by a borrower to the lender for transmittal to HUD to
help defray the cost of the FHA mortgage insurance program and to provide a
reserve fund to protect lenders against loss in insured mortgage
transactions.
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Prepayment
Payment of mortgage loan, or part of it, before due date. Mortgage
agreements often restrict the right of prepayment either by limiting the
amount that can be prepaid in any one year or charging a penalty for
prepayment. The Federal Housing Administration does not permit such
restrictions in FHA insured mortgages.
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Principal
The basic element of the loan as distinguished from interest and
mortgage insurance premium. In other words, principal is the amount upon
which interest is paid.
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Purchase Agreement
See agreement of sale.
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Quitclaim Deed
A deed which transfers whatever interest the maker of the deed may
have in the particular parcel of land. A quitclaim deed is often given to
clear the title when the grantor's interest in a property is questionable.
By accepting such a deed the buyer assumes all the risks. Such a deed makes
no warranties as to the title, but simply transfers to the buyer whatever
interest the grantor has. (See deed.)
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Real Estate Broker
A middle man or agent who buys and sells real estate for a company,
firm, or individual on a commission basis. The broker does not have title
to the property, but generally represents the owner.
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Refinancing
The process of the same mortgagor paying off one loan with the
proceeds from another loan.
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Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive
covenants are created by deed and may "run with the land," binding all
subsequent purchasers of the land, or may be "personal" and binding only
between the original seller and buyer. The determination whether a covenant
runs with the land or is personal is governed by the language of the
covenant, the intent of the parties, and the law in the State where the
land is situated. Restrictive covenants that run with the land are
encumbrances and may affect the value and marketability of title.
Restrictive covenants may limit the density of buildings per acre,
regulate size, style or price range of buildings to be erected, or prevent
particular businesses from operating or minority groups from owning or
occupying homes in a given area. (This latter discriminatory covenant is
unconstitutional and has been declared unenforceable by the U.S. Supreme
Court )
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Sales Agreement
See agreement of sale.
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Special Assessments
A special tax imposed on property, individual lots or all property in
the immediate area, for road construction, sidewalks, sewers, street
lights, etc.
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Special Lien
A lien that binds a specified piece of property, unlike a general
lien, which is levied against all one's assets. It creates a right to
retain something of value belonging to another person as compensation forlabor, material, or money expended in that person's behalf. In some
localities it is called "particular" lien or "specific" lien. (See lien.)
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Special Warranty Deed
A deed in which the grantor conveys tide to the grantee and agrees to
protect the grantee against title defects or claims asserted by the grantor
and those persons whose right to assert a claim against the title arose
during the period the grantor held title to the property. In a special
warranty deed the grantor guarantees to the grantee that he has done
nothing during the time he held title to the property which has, or which
might in the future, impair the grantee's title.
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State Stamps
See documentary stamps
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Survey
A map or plat made by a licensed surveyor showing the results of
measuring the land with its elevations, improvements, boundaries, and its
relationship to surrounding tracts of land. A survey is often required by
the lender to assure him that a building is actually sited on the land
according to its legal description.
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Tax
As applied to real estate, an enforced charge imposed on persons,
property or income, to be used to support the State. The governing body in
turn utilizes the funds in the best interest of the general public.
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Title
As generally used, the rights of ownership and possession of
particular property. In real estate usage, title may refer to the
instruments or documents by which a right of ownership is established
(title documents), or it may refer to the ownership interest one has in the
real estate.
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Title Insurance
Protects lenders or homeowners against loss of their interest in
property due to legal defects in title. Title insurance may be issued to
either the mortgagor, as an " owner's title policy, " or to the mortgagee,
as a "mortgagee's title policy." Insurance benefits will be paid only to
the "named insured" in the title policy, so it is important that an owner
purchase an "owner's title policy", if he desires the protection of title
insurance.
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Title Search or Examination
A check of the title records, generally at the local courthouse, to
make sure the buyer is purchasing a house from the legal owner and there
are no liens, overdue special assessments, or other claims or outstanding
restrictive covenants filed in the record, which would adversely affect the
marketability or value of title.
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Trustee
A party who is given legal responsibility to hold property in the best
interest of or "for the benefit of" another. The trustee is one placed in a
position of responsibility for another, a responsibility enforceable in a
court of law. (See deed of trust.)
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Zoning Ordinances
The acts of an authorized local government establishing building
codes, and setting forth regulations for property land usage.
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