Real Estate FAQs
Glossary of Real Estate Terms
A / B / C / D / E / F / G / H / I / J / K / L / M / N / O / P / Q / R / S / T / U / V / W / X / Y / Z
A
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Amortization - The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest.
Assignment of agreements - an assignment of rights under specifically identified agreements (such as construction contracts, architect’s agreements, laundry services etc)
Assignment of leases - an assignment of rights under specifically identified leases
Attornment - the agreement by a tenant to recognize a replacement or successor landlord in the event of a foreclosure or other enforcement of rights under an assignment of leases or agreement of similar effect.
B
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Bankruptcy-remote - a concept by which the process by which a person or entity seeks protection of the federal bankruptcy or state insolvency laws is rendered more difficult to pursue
Business day – The part of a day during which most businesses are operating, usually from 9 am to 5 pm Monday through Friday. Often, this term is defined in the relevant document as a day other than a Saturday, Sunday or national holiday.
C
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Cognovit note - a promissory note which contains a provision by which the borrower agrees to let the lender file an answer on behalf of the borrower confessing judgment in favor of the lender, which then allows a court to issue a judgment immediately rather than through the normal, lengthier process of litigation.
Collateral – An item of economic value, such as real estate, pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default.
Credit score – A credit score is a number that reflects your credit risk level, typically with a higher number indicating lower risk. It is generated through statistical models using elements from your credit report; however, your score is not physically stored as part of your credit history on the credit file. Rather, it is typically generated at the time a lender requests your credit report, and is then included with the report viewed by the creditors. Your credit score changes as the elements in your credit report change.
D
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Deed - A legal document conveying title to a property.
Deed of trust - one form of real estate security agreement granting a security interest in real estate which typically contains a power of sale allowing a trustee to hold a non-judicial public sale much more quickly than would be the case in a judicial foreclosure.
Default - Failure to make required payments on a timely basis or to comply with other conditions of an obligation or agreement.
Due on sale - the concept of accelerating the maturity of a loan if the mortgagor/borrower sells or conveys an interest in mortgaged property prior to the contractually agreed maturity date of the loan.
E
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Environmental indemnity - an agreement under which a borrower (and often a guarantor) contracts to indemnify, defend and hold another person (typically the lender) harmless from any liability arising out of existing or potential environmental violations (such as contamination from a release of prohibited substances like petroleum) related to the property which is the security for a loan.
Equal credit opportunity Act (ECOA) - a federal (US) statute which prohibits creditors from requiring certain types of credit information under specified circumstances. The most commonly known regulation interpreting ECOA is called Regulation B, sometimes called “Reg B”.
Equitable subordination - the concept of granting an otherwise junior lien a superior or prior right over a nominally senior lien, most commonly resulting from serious inequitable conduct by the senior lien holder.
Escrow account – An account that is held by a lender or an escrow agent. Funds are placed into the account for a specific purpose. When the funds are needed for that purpose, they are paid out of the escrow account. When you have a mortgage, a certain amount of your payment normally goes into an escrow account, out of which your property taxes and insurance payments are made.
Escrow agent – A third party who oversees the exchange of funds and property between a buyer and seller. When purchasing a property, the escrow agent acts as a custodian of the buyer’s funds and ensures that the appropriate funds are paid at the closing of the loan and that the property is appropriately conveyed.
Estoppel - the concept of being prevented (or “estopped”) from raising or denying a fact or circumstance, typically in the context of estoppel certificates.
Estoppel certificate - a statement (typically from a tenant to a new owner or a lender) providing information regarding the nature and status of the tenant’s lease, and which is designed to prevent or “estop” the tenant from later raising as defenses to a claim under the lease facts which were or should have been known to the tenant at the time the estoppel certificate was provided.
F
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Fee mortgage - a mortgage granted by the owner of the fee simple estate of real property.
Fee simple estate - the highest and most complete form of real property ownership.
FHA – This is an acronym for the Federal Housing Administration. The FHA is a government agency whose primary purpose is to insure residential mortgage loans.
FICO score – This is an acronym for Fair Isaac Credit Organization. Fair, Isaac and Company, Inc. is a developer of data management systems and services multiple industries such as financial and retail services. The company employs various tools to help businesses worldwide use data to make faster, more profitable decisions in areas such as marketing and accepting customers. (www.fairisaac.com)
Financing statement - a form created in accordance with the UCC and designed to be filed in one or more official government offices to perfect a creditor’s security interest.
Fixtures - personal property which is permanently affixed or attached to real property such that it is considered to be an integral part of the real property.
Foreclosure - the process of enforcing a mortgage or other security interest against real property, usually through a judicial or court-supervised process.
G
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Gross earnings – An individual's taxable income before any adjustments are made.
Guaranty - the agreement of a person or entity to pay amounts due, or otherwise perform the obligations, of another person or entity (for example, the promise by Tom to pay the loan Dick owes to Harry).
H
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Homeowners association – A homeowner association is comprised of two or more homeowners who belong to a membership organization for the maintenance of commonly owned real estate and improvements. It can range from a simple duplex up to a huge development with thousands of homes, condominiums and townhouses that maintain marinas, golf courses and other extensive facilities (often improvements like a tennis court or swimming pool for the development where the house is located).
I
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Indemnification – One party’s agreement to compensate someone else for loss or damage.
Intercreditor agreement - an agreement between a borrower and two or more of it’s creditors who have competing security interests or other obligations from borrower (for example, between the mortgage lender and the mezzanine lender both lending to Borrower X).
J
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Junior financing - a loan relationship which is junior or lower in priority to a first or more senior loan.
Junior lien - a lien which is subordinate to or lower in priority to another (senior) lien
K
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L
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Lease – A contract granting use or occupation of property during a specified time for a specified payment.
Leasehold estate - an interest in real estate granted by a lease, typically limited to a specified term of years, and which estate terminates at the end of the lease.
Leasehold mortgage - a mortgage and security interest in a leasehold estate.
Lending regulations - regulations and rules issued periodically by federal (US) or state governmental agencies (such as the Federal Reserve Bank, the Federal Deposit Insurance Corporation or the Office of Thrift Supervision) which govern the lending and other business practices of banking and thrift/savings institutions.
Lien - The right to retain the lawful possession of the property of another until the owner fulfills a legal duty to the person holding the property, such as the payment of lawful charges for work done on the property.
Loan origination fee – A fee charged by a lender for processing a loan application, typically calculated as a percentage of the mortgage amount.
M
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Mezzanine loan - a loan usually secured by the ownership or equity interests of a borrower (for example, the shares of a corporation or the membership units of a limited liability company).
Mortgage - an agreement creating a security interest and other rights in a parcel of real property for the benefit of a lender or other secured party.
Mortgage broker – An individual or company who brings borrowers and lenders together for the purpose of loaning money. The mortgage broker might also negotiate with the lender to help the borrower get a better deal on the mortgage loan.
Mortgage insurance – Insurance protecting a lender against loss from a mortgagor's default. Mortgage insurance is issued by the FHA or a private mortgage insurer. If the borrower defaults on the loan, the insurer would pay the lender the lesser of the loss incurred or the insured amount.
N
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Neighborhood association – A neighborhood association is a voluntary membership organization that deals with social, political, zoning and other issues which typically affect the members' properties and usually does not maintain commonly owned property.
Non-disturbance - the concept of consenting to (i.e., not disturbing) the rights of another, typically in the context of a lender agreeing to permit a tenant to remain in its leasehold when it’s landlord (who would be the lender’s borrower) defaults under its loan to lender.
Non-recourse - the concept of a lender not having recourse against (i.e., the right to pursues recovery from) any assets of a borrower other than those assets specifically identified in the mortgage and related security agreements (i.e., the lender would only be able to collect against the property identified in the mortgage and not from the other assets of the borrower).
Non-recourse carve-outs - circumstances and events for which a lender could seek recovery from a borrower’s assets other than those identified in a non-recourse mortgage.
O
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P
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Participation agreement - a document providing for an allocation and ordering of rights and obligations of two or more lenders who are jointly funding a loan.
Participation loan - a loan funded by two or more lenders.
Perfection - the concept of confirming the granting of a security interest (governed by the UCC with respect to personal property).
Personal property - Any property, such as furniture, clothing and consumer electronics, other than real estate property.
PITI – Acronym for principal, interest, taxes, and insurance, the four components of a mortgage payment.
Power of sale - the right to hold a sale of an asset (such as real property secured by a deed of trust) without having to go through a judicial process.
Pre-approved – A loan is “pre-approved” when a potential borrower has passed a preliminary credit screening. A pre-approval from a lender shows that a potential borrower has a solid credit history and is qualified for a mortgage loan of a specified size. In a competitive market, a pre-approval letter can provide greater negotiating clout with a seller, as other potential buyers may not be pre-approved and the seller can be more comfortable that you will be able to complete the purchase.
Prepayment - the concept of paying all or a portion of an outstanding loan balance prior to the contractually agreed date for such payment.
Prepayment penalty - a fee assessed by a lender on a borrower who repays all or part of the principal of a loan before it is due. The prepayment penalty compensates the lender for the loss of interest that would have been earned had the loan remained in effect for its full term.
Prepayment fee - a fee charged in the event of a prepayment.
Prepayment premium - a premium or fee charged in the event of a prepayment.
Pre-qualified – A potential borrower is “pre-qualified” when a lender completes a cursory review of the potential borrower’s financial situation.
Principal - The amount borrowed, or the part of the amount borrowed which remains unpaid (excluding interest). This term is also used to describe that part of a monthly payment that reduces the outstanding balance of a mortgage.
No terms listed
R
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Regulation B - the most commonly known rule under the Equal Credit Opportunity Act (ECOA).
RESPA – This is the acronym that stands for the Real Estate Settlement Procedures Act. This federal law is a consumer protection law that was originally implemented in 1974. The law covers one to four-family properties and requires, among other matters, that your lender provide you with advance notice of all of your closing costs prior to closing. The law also establishes guidelines for escrow account balances and prohibits "kickbacks" to parties for referring business associated with the loan.
S
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Secondary financing - a junior priority loan
Security agreement - a document granting a lender the right to execute against certain specified real and/or personal property as collateral for a loan or other obligation.
Security interest - the interest granted a lender by a borrower in a security agreement.
Single purpose entity, Special purpose entity or SPE - an entity (typically but not always a limited liability company) designed to provide bankruptcy-remote protections for a lender.
Submortgage – An arrangement in which a mortgage lender pledges a mortgage as collateral for his/her own loan.
Subordinate the fee - the concept of consenting to someone having a security interest in a fee simple estate to secure an interest in a lesser real property interest (such as a leasehold estate).
Subordination - the concept of agreeing to make an otherwise senior interest junior (or subordinate) to an interest which otherwise would be a junior interest.
Subordination, non-disturbance and attornment agreement - a document providing for subordination, non-disturbance and attornment obligations by parties with diverse interests in the same property.
T
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Title insurance - an insurance policy issued to protect a property owner or the owner of a security interest against losses resulting from defects which affect or impair the ownership rights of the insured person.
Title policy endorsement - specific individual agreements by a title insurance company in addition to or altering the basic provisions of a title policy.
U
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Underwriting – The process by which a lender decides whether a potential creditor is creditworthy and should receive a loan.
Uniform commercial code or “UCC” - a uniform law created by the National Conference of Commissioners on Uniform State Laws (NCCUSL) and adopted in essentially identical form by all fifty of the United States.
V
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W
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X
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Yield maintenance fee - a fee stated to be designed to make a lender whole for earnings it would have realized on a loan through the contractual maturity date when that loan is prepaid.
Z
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