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Dictionary

Frequently Asked Questions

Use this section to look up mortgage terms you need further clarification on.

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Abstract - The notes made by a title examiner based on his examination of the land records. These notes are a concise summary of the transactions affecting the property. The title agency produces a Binder from the information in the abstract.

Acceleration - The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Acceleration Clause - A condition in a real estate financing instrument giving the lender the power to declare all sums owing lender immediately due and payable upon the happening of an event, such as the sale of the property, or a delinquency in the repayment of the note.

Accretion - The buildup of land from natural forces such as wind or water.

Acknowledgement - As a verb, the confirmation by a party executing a legal document that this is his signature and voluntary act. This confirmation is made to an authorized officer of the Court or notary public who signs a statement also called an acknowledgment.

Acre - 43,560 square feet of land.

Adequate Protection Order - Forces trustees to release Post petition payments being held prior to the Chapter 13 Confirmation Hearing.

Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically based on a preselected index.

Adjustment Interval - On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Administrator - A person appointed by the Court to settle the estate of a person who dies without a will. The feminine form is Administratrix. Compare, Executor.

Adverse Possession - A claim made against land titled in another person based on open, notorious and hostile possession and use of the land to the exclusion of the titled owner.

Agency - A relationship in which the agent is given the authority to act on behalf of another person (Principal).

Agent - One who legally represents another, called a principal, from whom authority has been derived.

Agreement - A change to the correct or alteration to the original document/agreement without changing its principal essence.

Amortization - Loan payment by equal periodic payment calculated to pay off the debt at the end of a fixed period, including accrued interest on the outstanding balance.

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.

Annual Cap - The limit on the amount an adjustable rate mortgage's interest rate can change over a 12-month period. An annual cap prevents your payments from changing too dramatically, even if the factors that determine changes in an adjustable mortgage's rate rise or fall sharply during that period.

Annual Percentage Rate (A.P.R) - This is not the NOTE rate for which the borrower applied. It is an interest rate reflecting the cost of a mortgage at a yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage, because it takes into account points and other credit costs, such as private mortgage insurance, loan discount, origination fees, and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan.

Appraisal - An estimate of the value of property, made by a qualified professional called an appraiser. Most states require licenses. Various lenders have their own lists of approved appraisers.

Appraised Value - An opinion of value reached by an appraiser based upon knowledge, experience, and a study of pertinent data.

Approved Attorney - An attorney authorized by a title insurance company to handle closings and render title opinions.

Appurtenance - Anything attached to the land or used with it passing to the new owner.

Arbitrage - In mortgage banking, the simultaneous purchase and sale of mortgages, futures contracts, or mortgage backed securities in different markets to profit from differences in price.

Arm's Length Transaction - A transaction in which the parties involved are entirely independent of each other, deal with each other as strangers, and have no reason for collusion.

Assessed Value - The determination, for tax purposes, of how much a home and the property it occupies is worth.

Assessment - A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assign - To transfer interest.

Assignee - One who receives an assignment or transfer of rights. An assignment of a contract transfers the right to buy property.

Assignment of Mortgage - A document that evidences a transfer of ownership of a mortgage from one party to another.

Assignor - The one who assigns to another person.

Associate Broker - A person who has qualified as a real estate broker but works for a particular broker licensed in the state.

Assumption Agreement - The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt, unlike a new mortgage where closing cost and new, possibly higher, market-rate interest charges will apply.

Assumption Fee - The fee paid to a lender resulting from the assumption of a mortgage.

Assumption of a Mortgage - Assumption by a purchaser of the primary liability for a payment of an existing mortgage or deed of trust. The seller remains secondarily liable unless specially released by the lender.

Attachment - Seizure of property through court process to repay a debt.

Attorney in Fact - A type of agency relationship where one person holds a Power of Attorney allowing him to execute legal documents on behalf of another. Decisions made by the attorney in fact are binding on the principal.

Balloon (Payment) Mortgage - Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.

Balloon Payment - The unpaid principal amount of a mortgage or other long-term loan due on a specified date in the future. Usually the amount that must be paid in a lump sum at the end of the term.

Bankruptcy - A provision of Federal Law whereby a debtor surrenders his assets to the Bankruptcy Court and is relieved of the future obligation to repay his unsecured debts. A Trustee in Bankruptcy administers the assets, selling them to pay as much of the debt as possible. If your seller is in bankruptcy, the Trustee in Bankruptcy owns the property and is the party to sign the contract and make decisions. After bankruptcy, the debtor is discharged and his unsecured creditors may not pursue further collection efforts against him. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor.

Basis Point - One one-hundredth of one percent. Used to describe the amount of change in yield in many debt instruments, including mortgages.

Belly Up - Term used to describe a failed real estate project.

Benchmark - A permanent reference mark for surveyors.

Beneficiary - A person named to receive a benefit from a Trust. A contingent beneficiary has conditions attached to his rights, usually someone else must die first.

Bid - An offer.

Binder - A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder.

Bi-Weekly Mortgage - A mortgage with payments due every two weeks totaling 26 payments a year.

Blanket Mortgage - A mortgage covering at least two pieces of real estate as security for the same mortgage. This sort of loan is more common for commercial property or special case loans.

Bond - An amount of money, often posted with the Court, to guarantee against loss as a result of a possible claim. For example, if there is a Lien against the property, the owner may post a bond and the lien is removed from the property and the parties argue over the money rather than the property.

Borrower (Mortgagor) - One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Breach of Contract - Failure to perform provisions of a contract.

Broker - An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Building Restriction Line - A required set-back a certain distance from the road within which no building may take place. This restriction may appear in the original plat of subdivision, restrictive covenants or by building codes and zoning ordinances.

Buy-Down - When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires. These are sometimes used to qualify borrowers for a loan amount that they would not otherwise qualify for but will be able to pay in subsequent years as their income increases.

By-Laws - Rules and regulations governing an association or corporation.

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