Real Estate and Mortgage Glossary

Welcome to our real estate and mortgage glossary. Understanding real estate terminology can be of great assistance in buying or selling a home or an investment property. In order to help you understand words commonly used in a real estate transaction, we have prepared a list of real estate terms you should become familiar with. Thanks again, and be sure to contact us for any of your real estate needs in the North Phoenix metro area, including Anthem, Carefree, Cave Creek, Fountain Hills, Glendale, Litchfield Park, Paradise Valley, Peoria, Phoenix, Scottsdale, Sun City, Surprise or any of the other surrounding cities in Maricopa County, Arizona.


Acceleration Clause – A clause in a deed of trust or note that accelerates or hastens the time when the debt becomes due. For example, most loan deeds of trust contain a provision that the note shall become due immediately upon the sale or transfer of title of the loan, or upon failure to pay an installment of principal or interest. This is also called a due-on-sale clause.

Adjustable Rate Mortgage – A mortgage instrument with an interest rate that is periodically adjusted to follow a pre-selected published index. The interest rate is adjusted at certain intervals during the loan period.

Agency – Any relationship in which one party (agent) acts for or represents another (principal) under “the authority of the princi­pal. Agency involving real property should be in writing, such as listing, trust, powers of attorney, etc.

Amortization – Payment of debt in regular, periodic installments of principal and interest, as opposed to interest only payments.

Appraisal – An opinion of value based on factual analysis. Legally, an estimation of value by two disinterested persons of suitable qualifications.

APR (Annual Percentage Rate) – The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. The APR is disclosed as a requirement of federal truth in lending statutes.

Assessed Value – Value placed upon property for property, tax purposes by the tax collector.

Assessment – A levy against property in addition to general taxes. Usually for improvements such as streets, sewers, etc.

Assumption of Mortgage – Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust. The lender usually must approve the new debtor in order to release the existing debtor (usually the seller) from liability.

Balloon Note – A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a “balloon” is due at maturity.

Beneficiary – (1) One for whose benefit a trust is created. (2) In states in which deeds of trust are commonly used instead of mortgages, the lender (mortgagee) is called the beneficiary.

Borrower – One who borrows funds, with the express or implied intention of repaying the loan in full, or giving the equivalent. .

Breach of Contract – Failure to perform a contract, in whole or in part, without legal excuse.

Broker, Real Estate – One who is licensed by the state to carry on the business of dealing in real estate. A broker may receive a commission for his/her part in bringing together a buyer and seller, landlord and tenant, or parties to an exchange.

Buy Down – A fixed rate loan where the interest rate and payment are reduced for a specific period of time by paying the interest up front to subsidize the lower payment.

Cal-Vet Loans – Real estate loans available to armed forces veterans from California, at low interest rates.

Chain of Title – The chronological order of conveyances of a parcel of land, from the original owner to the present owner.

Clear Title – Real property against which there are no liens, especially involuntary liens (mortgages).

Closing – In real estate sales, the final procedure in which documents are executed and/or recorded, and the sale (or loan) is completed.

Closing Costs – Expenses incidental to a sale of real estate, such as loan fees, title fees, appraisal fees, etc.

Closing Statement – The statement which lists the financial settlement between buyer and seller, and the costs each must pay.

Cloud on Title – An invalid encumbrance on real property, which, if valid, would affect the rights of the owner. For example: A sells lot 1, tract 1, to B. The deed is mistakenly drawn to read lot 2, tract 1. A cloud is created on lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or, if necessary, by court action.

Community Homebuyers’ Program – A fixed rate loan with a low 3 to 5% down payment, no cash reserve requirement, and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a 4 hour training course on home ownership.

Consideration – Anything which is, legally, of value, and induces one to enter into a contract.

Conventional Mortgage – A mortgage or deed of trust not obtained under a government insured program such as FHA or VA.

Conveyance – Transfer of tide to land. Includes most instruments by which an interest in real estate is created, mortgaged or assigned.

Covenants, Conditions and Restrictions (CC&R’s) – A term used in some areas to describe the restrictive limitations which may be placed on property.

Deed – Actually, any one of many conveyancing or financing instruments, but generally a conveyancing instrument, given to pass fee title to property upon sale.

Deed of Trust – An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.

Deposit – Money given by the buyer with an offer to purchase. Shows good faith. Also called earnest money.

Discount Points – A negotiable fee paid to the lender to secure financing for the buyer. Discount points are up front interest charges to reduce the interest rate on the loan over the life, or a portion, of the loan’s term. One discount point equals one percent of the loan amount.

Disposable Income – Income, usually mondily income, left over after fixed obligations and living expenses for that period of income are paid.

Documentary Transfer Tax – A state tax on the sale of real property, based on the sale price.

Down Payment – Cash portion paid by a buyer from his/her own funds, as opposed to that portion of the purchase price which is being borrowed.

Encumbrance – A claim, lien, charge, or liability attached to and binding real property. Any right to. or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title.

Equity – The market value of real property, less the amount of existing liens.

Execute – To complete, to finish. In real estate deeds, to sign, seal, and deliver.

Fair Credit Reporting Act – A federal law giving one the right to see his/her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the buyer which company issued the report. The buyer may see die report without charge if refused credit.

Federal Home Loan Banks – A system of 11 regional banks established by die Home Loan Bank act of 1932 in order to keep a permanent supply of money available for home financing.

Fee Simple – An estate under which the owner is entitled to unrestricted powers to dispose of the property, and which can be left by will or inherited. Commonly, a synonym for ownership.

F.H.A. (Federal Housing Administration) – A federal agency which insures first mortgages, enabling lenders to loan a very high percentage of the sale price.

FHLMC (Freddie Mac) – Federal Home Loan Mortgage Corporation. A federal agency purchasing first mortgages, both conventional and federal insured, from members of the Federal Reserve System and the Federal Home Loan Bank System.

First Mortgage – A mortgage having priority over all other voluntary liens against certain property.

Flood Insurance – Insurance indemnifying banks against loss by flood damage. Required by lenders (usually banks) in areas designated (federally) as potential flood areas. The insurance is private but federally subsidized.

FNMA (Fannie Mae) – Federal National Mortgage Association. A private corporation dealing in the purchase of first mortgages, at discounts.

Fixed Rate Mortgage – A mortgage having a rate of interest which remains the same for the life of the mortgage.

GNMA (Ginnie Mae) – Government National Mortgage Association. A federal association, working with F.H.A., which offers special assistance in obtaining mortgages, and purchases mortgages in a secondary capacity.

Good Faith – Something done with good intentions, without knowledge of fraudulent circumstances, or reason to inquire further.

Grant Deed – One of the many types of deeds used to transfer real property. Grantee – one to whom a grant is made, generally the buyer. Grantor – one who grants property or property rights.

Hazard Insurance – Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

Homeowners’ Insurance – Includes the coverage of Hazard Insurance plus added coverage such as personal liability, theft away from the home (items stolen from the insured’s car), and other such coverage.

Housing Starts – Number of houses on which construction has begun. The figures are used to determine the availability of housing, need for real estate loans, need for labor and materials, etc.

Homeowners’ Association – (1) An association of people who own homes in a given area, formed for the purpose of improving or maintaining the quality of the area (2) An association formed by the builder of condominiums or planned developments, and required by statute in some states. The builder’s participation as well as the duties of the association are controlled by statute.

Impound Account – An account held by a lender for payment of taxes, insurance, or other periodic-debts against real property. The borrower pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

Index – An index used to adjust the interest rate of an adjustable rate mortgage loan. For example: the change in U.S. Treasury securities (T-bills) with a 1 year maturity. The weekly average yield on said securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly. This change in interest rates is the “index” for the change in the specific adjustable rate mortgage.

Instrument – Any writing having legal form and significance, such as a deed, mortgage, will, lease, etc.

Interest Rate – The percentage of an amount of money which is paid for its use for a specified time, usually expressed as an annual percentage.

Interest Rate Cap – The maximum interest rate increase of an adjustable rate loan. For example: a 6% loan with a 5% interest rate cap would have a maximum interest for the life of the loan which would not exceed 11%.

Joint Tenancy – An undivided interest in property, taken by two or more joint tenants. The interests must be equal, occurring under the same conveyance, and beginning at the same time. Upon the death of a joint tenant, the interest passes to the surviving joint tenants, rather than to the heirs of the deceased.

Late Charge – A charge to the borrower for failure to pay an installment payment on time.

Lease – An agreement by which an owner of real property gives the right of possession to another for a specified period of time and for a specified consideration (rent). Title does not pass.

Legal Description – A method of geographically identifying a parcel of land, which is acceptable in a court of law. A description of a parcel of land sufficient to identify the property such as a lot and tract number.

Lien – An encumbrance against property for money, either voluntary or involuntary. All liens are encumbrances but all encumbrances are not liens.

Lis Pendens – A legal notice recorded to show pending litigation relating to real property, and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation.

Loan Origination Fee – A one-time set-up fee charged by a lender.

Loan Package – The file of all items necessary for the lender to decide to give or not give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.) and information on the property (appraisal, survey etc.).

Maintenance Reserve – Money reserved to cover anticipated maintenance costs.

Maker – One who executes (signs) as the maker (borrower) of a note.

Marketability – Saleability. The probability of selling property at a specific time, price and terms.

Marketable Title – Title which can be readily marketed (sold) to a reasonably prudent purchaser aware of the facts and their legal meaning concerning liens and encumbrances.Market Price – The price a property brings in a given market. Commonly used interchangeably with market value, although not truly the same.

Material Fact – A fact upon which an agreement is based, and without which, said agreement would not be made.

Mechanics Lien – A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land, and which attaches to the land as well as the improvements.

Mortgagee – The party lending the money and receiving the mortgage. Some states treat the mortgagee as the “legal” owner, entitled to rents from the property. Other states treat the mortgagee as a secured creditor, the mortgagor being the owner. The latter is the more modem and accepted view.

Mortgage Credit Certificate (MCC) Program – A first time homebuyer program subject to purchase price and income limits and limited to Alameda, Contra Costa, San Mateo and Santa Clara counties. The MCC program is actually a special tax credit and assists buyers in qualifying on almost any loan program.

Mortgage Insurance – Insurance written by an independent mortgage insurance company protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a higher percentage of the sale price. The Federal Government writes this form of insurance through the FHA and VA.

Mortgagor – The party who borrows the money and gives the mortgage.

Multiple Listing – An exclusive listing, submitted to all members of an association, so that each may have an opportunity to sell the property.

Maturity – (1) Termination period of a note. For example: A 30 year mortgage has a maturity of 30 years. (2) In sales law, the date a note becomes due.

Moisture Barrier – Insulating materials used to prevent the build up of moisture (condensation) in walls and other parts of a building.

Note – A unilateral agreement containing an express and absolute promise of the signer to pay to a named person, or order, or bearer, a definite sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or trust deed.

Notice of Cessation – A notice stating that work has stopped on a construction project. Done to accelerate the period of filing a mechanic’s lien.

Notice of Completion – A notice, recorded to show that a construction job is finished. The length of time in which mechanic’s liens may be filed depends upon when and if a notice of completion is recorded.

Notice of Default – A notice filed to show that the borrower under a mortgage or deed of trust is in default (behind on the payments).

Notice of Action – A recorded notice that real property may be subject to a lien, or even that the title is defective, due to pending litigation. Notice of a pending suit, also called “Lis Pendens”.

Offer – A presentation or proposal for acceptance, in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

Offer and Acceptance – Necessary elements of a contract to sell real estate.

Origination Fee – A fee made by a lender for making a real estate loan. Usually a percentage of the amount loaned, such as one percent.

Owner -Occupied – Property physically occupied by the owner.

Ownership – Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

Payment Cap – A maximum amount for a payment under an Adjustable Mortgage Loan, regardless of the increase in the interest rate, If the payment is less than the interest alone, negative amortization is created.

Payoff – The payment in full of an existing loan or other lien.

Personal Property – Any property which is not designated by law as real property.

Piggyback Loan – A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. One 90% loan, for example, may have one lender loaning 80% and another (subordinate) lender loaning the top 10% (high risk portion).

PITI (Principal, Interest, Taxes and Insurance) – Used to indicate what is included in a monthly payment on real property. Principal, interest, taxes (property) and insurance (hazard) are the four major portions of a usual monthly payment

Power of Attorney – An authority by which one person (principal) enables another (attorney-in-fact) to act forhim. (1) General power – authorizes sale, mortgaging, etc., of all property of the principal. Invalid in some jurisdictions. (2) Special power specifies property, buyers, price and terms. How specific it must be varies in each state.

Preliminary Title Report – A report showing the condition of title before a sale or loan .transaction. After completion of the transaction, a title insurance policy is issued.

Prepaid Items – Those expenses of property which are paid in advance and will usually be prorated upon sale, such as taxes, insurance, rent, etc.

Prepayment Penalty – A penalty under a note, mortgage, or deed of trust, imposed when the loan is paid before it is due.

Principal – (1) The person who gives authority to an agent or attorney. (2) Amount of debt, not including interest. The face value of a note, mortgage, etc.

Private Mortgage Insurance – Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a government agency such as FHA, except that it is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

Promisee – One to whom a promise has been made, such as the lender under a promissory note.

Promisor – One who makes a promise. The borrower under a promissory note.

Promissory Note – A promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or on order, or to bearer.

Proration – To divide (prorate) property taxes, insurance premiums, rental income, etc., between buyer and seller proportionately to time of use, or the date of closing.

Public Records – Usually at a county level, the records of all documents which are necessary to give notice. The records are available to the public. All transactions for real estate should be recorded.

Purchase Agreement – An agreement between a buyer and seller of real property, setting forth the price and terms of the sale.

Quitclaim Deed – A deed operating as a release: intended to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor.

Real Estate – (1) Land and anything permanently affixed to the land, such as buildings, fences, and those things attached to the buildings, such as light fixtures, plumbing and heating fixtures, or other such items which would be personal property if not attached. The term is generally synonymous with real property, although in some states a fine distinction may be made. (2) May refer to rights in real property as well as the property itself.

Reconveyance – An instrument used to transfer title from a trustee to the equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a trust deed. Also called a deed of reconveyance or release.

Recording – Filing documents affecting real property as a matter of public record, giving notice to future purchasers, creditors, or their interested parties. Recording is controlled by statute and usually requires the witnessing and notarizing of an instrument to be recorded.

Recording Fee – The amount paid to the recorder’s office in order to make a document a matter of public record.

Retaining Wall – A wall used to contain or hold back dirt, water, or other materials of a similar nature.

Right of Survivorship – The right of a survivor of a deceased person to the property of said deceased. A distinguishing characteristic of a joint tenancy relationship.

RESPA – Real Estate Settlement Procedures Act. A federal statute effective June 20, 1975, requiring disclosure of certain costs in the sale of residential (one to four family) improved property which is to be financed by a federally insured lender.

Sales Contract – Another name for a sales agreement, purchase agreement, etc.

Second Mortgage – A mortgage which ranks after a first mortgage in priority. Properties may have two, three, or more mortgages, deeds of trust, or land contracts, as liens at the same time. Legal priority would determine whether they are called a first, sepond, third, etc. lien.

Septic System – A sewage system, whereby waste is drained through pipes and a tile field (a system of clay tiles and gravel) into a septic tank. Found in areas where city or county sewers have not yet been installed.

Septic Tank – An underground tank into which a sanitary sewer drains from a building. The sewage is held until bacterial action changes the solids into liquids or gasses, which are then released into the ground.

Signed, Sealed and Delivered – A phrase indicating that everything necessary to convey has been done by the grantor. Modernly, signed, and delivered are still necessary, but the only seals commonly used are by governments, corporations, and notaries.

Simple Interest – Interest computed on principal alone, as opposed to compound interest.

Special Assessment – Lien assessed against real property by a public authority to pay costs of public improvements (sidewalks, sewers, street lights, etc.) which directly benefits the assessed property.

Specific Performance – An action to compel the performance of a contract, when money damages for breach would not be satisfactory.

Statement of Identity – Also called Statement of Information, a confidential form filled out by buyer and seller to help a title company determine if any liens are recorded against either. Very helpful when people with common names are involved.

Statute – A law which comes from a legislative body. A written law, rather than law established by court cases.

Subordinate – To make subject or junior to.

Succession – The passing of real property by will or inheritance, rather than by grant of a deed or any other form of purchase.

Survey – The measurement of the boundaries of a parcel of land, its area and sometimes its topography.

Take Out Loan – The “permanent” (long term) financing of real estate after completion of construction.

Tax Base – The assessed valuation of real property, which is multiplied by the tax rate to determine the amount of tax due.

Tax Lien – (1) A lien for nonpayment of property taxes. Attaches only to the property upon which the taxes are unpaid. (2) A federal income tax lien. May attach to all property of the one owing taxes.
Tenancy by the Entirety – A form of ownership by husband and wife whereby each owns the entire property. In the event of the death of one, the survivor owns the property without probate.

Tenancy in Common – An undivided ownership in real estate by two or more persons. The interests need not be equal, and, in the event of the death of one of the owners, no right of survivorship in the other owners exists.

Tenant – (1) A holder of property under a lease or other rental agreement. (2) Originally, one who had the right to possession, irrespective of the title interest.

Terms – The considerations, other than price, in a sale, lease, mortgage, etc. For example: the way the money will be paid, time to take possession, conditions, etc.

“Time Is Of The Essence” – Clause used in contracts to bind one party to performance at or by a specified time in order to bind the other party to performance.

Title – The evidence one has of right to possession of land.

Topography -The contour of land surface, such as flat, rolling, mountainous, etc.

Transfer – The act by which the title to property is conveyed from one person to another.

Transfer Tax – State tax on the transfer of real property. Based on purchase price or money changing hands. Also called documentary transfer tax.

Trust – A fiduciary relationship under which one holds property (real or personal) for the benefit of another. The party creating the trust is called the settlor, the party holding the property is the trustee, and the party for whose benefit the property is held is called the beneficiary.

Trustee – (1) One who is appointed, or required by law, to execute a trust (2) One who holds title to real property under the terms of a deed of trust.

Trustor – The borrower under a deed of trust One who deeds his property to a trustee as security for the repayment of a loan.

Veterans Administration (VA) – An agency of the Federal government which, among other things, insures and guarantees loans for veterans.

Warrant – To legally assure that title conveyed is good and possession will be undisturbed.

Wrap-Around Mortgage – A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgage under the wrap-around collects a payment based on its face value then pays the first mortgagee. It is most effective when the first has a lower interest rate than the second, since the mortgagee under the wraparound gains the difference between the interest rates, or the mortgagor under the wrap-around may obtain a lower rate than if refinancing.

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