The potential home buyer or seller
should find this Glossary helpful for understanding
words and terms used in real estate transactions.
There are, however, some factors that may affect
Terms are defined as they are commonly
understood in the mortgage and real estate
industry. The same terms may have different
meanings in another context.
The definitions are intentionally general,
non- technical and short. They do not encompass
all possible meanings or nuances that a term
may acquire in legal use.
State laws, as well as custom and use in
various States or regions of the country,
may modify or completely change the meanings
of certain terms defined.
Before signing any documents or
depositing any money preparatory to entering
into a real estate contract, the purchaser should
consult with an attorney of his choice to ensure
that his rights are properly protected.
Frequently used terms:
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.
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.
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.
A payment plan which enables
the borrower to reduce his debt gradually through
monthly payments of principal.
An expert judgment or estimate
of the quality or value of real estate as of
a given date.
A fibrous mineral formerly used
for making incombustible or fireproof articles.
It can be hazardous if airborne and ingested.
This is commonly found in older homes and may
need to be removed before the transaction can
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 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
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 mortgagor 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.
A secondary offer that the seller
may accept if the initial offer becomes void.
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.
(See real estate broker)
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.
A certificate issued by a local
authority indicating that a building meets
building-code requirements. It is required
to close the sale of real estate in NJ.
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.
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
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.
Cloud (On Title)
An outstanding claim or encumbrance
which adversely affects the marketability of
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.
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
Individual ownership of a dwelling
unit and an individual interest in the common
areas and facilities which serve the multi-
Contract of Purchase
(See agreement of sale)
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
A mortgage loan not insured by
HUD or guaranteed by the Veterans' Administration.
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.)
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.
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 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.
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.
Decline in value of a house due
to wear and tear, adverse changes in the neighborhood,
or any other reason.
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.
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 down payment amount
and will acknowledge receipt of the down payment.
Down payment is the difference between the
sales price and maximum mortgage amount. The
down payment may not be refundable if the purchaser
fails to buy the property without good cause.
If the purchaser wants the down payment 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 down payment and to pay
interest and expenses incurred by the purchaser.
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 down payment. 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.
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.
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
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 convenants. 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.
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.
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
This stands for For Sale By Owner.
This is a homeowner selling without a real
A loan approved by the Federal
Housing Administration and insured by them
as well. For more information go to www.fha.gov.
Fair Market Value
The value that the open market
will bear for a parcel of real estate.
Normally movable items that are
attached to the land or its improvements. For
example, a toilet. These cannot be removed
without prior approval.
Insurance required if the land
is designated in a flood zone. You can find
out if the property is in a flood zone by searching www.smartflood.gov.
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.
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
Good Faith Estimate
An estimate of costs from
the Lender associated with the purchase of
That party in the deed who is
the buyer or recipient.
That party in the deed who is
the seller or giver.
Protects against damages caused
to property by fire, windstorms, and other
Inspection of the home being
purchased by a licensed contractor to inspect
the integrity of the structure of the home
and the systems.
Home Owners’ Insurance
Required by the Lender. An insurance
policy that covers the structure and the contents
of the home.
Home Warranty Insurance
Insurance contract that covers
the replacement and/or repair of the utilities
in the home that are covered.
U.S. Department of Housing and
Urban Development. Office of Housing/Federal
Housing Administration within HUD insures home
mortgage loans made by lenders and sets minimum
standards for such homes. Visit www.hud.gov for
Standard list of closing costs
associated with the purchase of real estate.
This is presented at closing.
An antiquated method of electrical
wiring that is no longer used. Sellers are
usually required to convert to modern wiring
methods before the transaction can close.
Physical defects not noticed
by a license home inspector.
Hazardous paint that contained
lead. Since 1978 it is no longer manufactured.
This must be disclosed to buyers.
The primary residence of the
Any entity that advances funds
to be repaid. i.e. Mortgage company or beneficiary.
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.)
Lot and Block
Reference to how a parcel of
real estate is indentified within a sub-division.
The highest price in terms of
money which a property will bring in a competitive
and open market and under all conditions required
for a fair sale like the buyer and seller acting
prudently with knowledge and neither being
affected by undue pressures.
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.
A single deed for all units in
a condominium style environment.
Federal legislation designed
to protect children from pedophiles by requiring
that convicted sex offenders must register
their residence with the government.
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.
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.
Mortgage Insurance 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.
In FHA insured mortgages this represents an
annual rate of one- half of one percent paid
by the mortgagor on a monthly basis.
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.
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.
Property that can be moved that
is not attached to the land or improvement.
Will not convey with the deed unless indicated.
A map or chart of a lot, subdivision
or community drawn by a surveyor showing boundary
lines, buildings, improvements on the land,
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 HUD or Veterans'
Administration guaranteed loans (sellers can
pay, however). On a conventional mortgage,
points may be paid by either buyer or seller
or split between them.
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.
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.
Principal, Interest, Tax & Insurance
A loan payment typically made
monthly on an amortized loan that includes
a principal and interest payment plus a contribution
into a lender-established escrow account to
pay property taxes and insurance premiums on
A tax levied on privately owned
property by the government based on its market
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.)
A naturally-occurring, heavier
than air, radioactive gas common in many parts
of the country. Radon gas exposure is associated
with lung cancer.
Mitigation measures may involve
crawl space and basement venting and various
forms of vapor barriers.
Real Estate Agent
Works for a broker as an agent
who represents either the buyer or seller.
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.
Real Estate Owned (REO)
Property owned by a lender acquired
A real estate agent is a REALTOR
when he or she is a member of the National
Association of REALTORS.
The filing of a real estate transaction
with the appropriate government agent. A real
estate transaction is considered final when
it is recorded.
The process of the same mortgagor
paying off one loan with the proceeds from
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.)
A questionnaire completed by
the seller disclosing what they know about
the home. It is not guaranteed, as it is to
the best of their knowledge.
A sale of real estate in which
the sale proceeds fall short of the balance
owed on the property's loan. It often occurs
when a borrower cannot pay the mortgage loan
on their property, but the lender decides that
selling the property at a moderate loss is
better than pressing the current debtor. Both
parties consent to the short sale process,
because it allows them to avoid foreclosure,
which involves hefty fees for the bank and
poorer credit report outcomes for the borrower.
A special tax imposed on property,
individual lots or all property in the immediate
area, for road construction, sidewalks, sewers,
street lights, etc.
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
for labor, material, or money expended in that
person's behalf. In some localities it
is called "particular"
lien or "specific" lien. (See lien.)
Special Warranty Deed
A deed in which the grantor conveys
title 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.
See documentary stamps
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.
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.
An interest in real property
giving the right to its possession and use.
Tenants in Common
The co-ownership of property
by two or more persons whose interests need
not be equal and who each hold an undivided
interest in the entire property and without
the right of survivorship.
Time is of the Essence
A clause in a contract expressing
a condition that the essential nature or performance
of the contract by a party will be done within
the specified period of time or the contract
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.
Protects lenders or homeowners
against loss of their interest in property
due to legal defects in title. Title insurance
may be issued to 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.
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 convenants filed in the record,
which would adversely affect the marketability
or value of title.
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.)
Truth in Lending
The federal law that requires
lenders to disclose the terms and conditions
of a mortgage, including the APR, based on
certain charges incurred by the borrower.