Boutique Brokerage Serving the Conejo Valley, Simi Valley, Moorpark and Surrounding Area

Understanding the Escrow Process

Understanding Escrow

Escrow is an impartial, unbiased third party working for buyer and seller. Escrow holds funds and documents on behalf of the buyers and sellers and distributes them according to buyer and seller instructions.

To start the process, the agent (usually the listing agent) delivers to the escrow officer such items as, but not limited to, buyer's deposit check, details contained in the Residential Purchase Agreement, buyer and seller addresses and phone numbers, and information regarding the buyer's lender.

The escrow officer then prepares escrow instructions to be signed by buyer and seller. Escrow instructions reiterate the Residential Purchase Agreement and also contain information pertaining to the escrow process. The escrow is formally opened when both buyer and seller return signed escrow instructions to the escrow officer.
During the escrow, everybody has a job to do. Below, each party's responsibilities are outlined:

AGENT Assists his/her client in completing all of his/her responsibilities.

SELLER Delivers grant deed to escrow and  information on the current mortgage holder, and home protection (if any). Delivers any bills to be paid out of escrow to escrow. Fulfills any other obligations required by the Residential Purchase Agreement.

BUYER Deposits earnest money, down payment, and money to cover closing costs to escrow. Approves any documents outlined in the Residential Purchase Agreement. Fulfills any other obligations required by the Residential Purchase Agreement.

TITLE COMPANY Prepares preliminary title report. Arranges for and receives loan funds. Delivers deeds to county recorder's office. Writes title policy. Confirms recording of deeds. Makes payoff to lender on seller's mortgage. Sends remaining proceeds to escrow (minus title fees). Sends title policy to insured.

LENDER Delivers loan documents to escrow for buyers to sign. Delivers funds for the buyer's loan to the title company.

ESCROW HOLDER Opens the order for title insurance. Obtains approval from the buyer on the preliminary title report, termite inspection, and any other items required by the Residential Purchase Agreement. Has buyer sign loan documents. Delivers loan documents to the lender. Receives funds from the buyer and lender. Pays buyer and seller bills, as outlined in the escrow instructions. Prorates taxes, association dues, rents, etc. Prepares a final statement (closing statement) for buyer and seller. This statement specifies amounts paid out of buyer and seller accounts. Records grant deed and trust deed and disburses funds. Delivers closing statements to the agents and/or buyers and sellers.

The escrow is closed after terms and conditions of the escrow instructions have been completed and deeds have been recorded.

The Appraisal Process

The buyer's lender will require an appraisal of your home before approving a loan for the buyer. The appraisal determines the maximum loan amount that the lender will make on the property.

The appraiser will use the market comparison approach to establish an opinion of value. The market comparison approach uses recent sales in the same neighborhood and compares location, condition, and amenities to establish approximate value.

The appraisal is usually a condition of the Residential Purchase Agreement because lenders limit the amount that they will loan based on the loan-to-value ratio. Loan-to-value ratio is defined as the relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value. For example, if a home is appraised at $300,000 and the lender will lend 80% loan-to-value (LTV), the loan amount cannot exceed $240,000.

When a home is appraised for more than the purchase price, the lender will only make a loan based on the purchase price. When a home is appraised for less than the purchase price, the lender will only make a loan based on the appraisal amount.

If the appraisal comes in below the purchase price, there are five possible solutions:

1) Increase the down payment. The down payment amount can be increased.

2) Reduce the sales price. The sales price can be reduced to the appraised price.

3) A combination of 1 and 2. Increase the down payment and reduce the sales price.

4) Obtain another appraisal. The buyers can obtain another appraisal.

5) Obtain a loan with a higher LTV. If the buyers were not originally applying for a loan with the maximum loan-to-value, the LTV can be increased.

The Inspection Process

In most cases, the buyer will obtain a professional inspection of your home. Quite often, the buyers will accompany the inspector during the inspection. The inspector's job is to disclose, in detail, the condition of the property. An inspection will usually take between one and four hours. Sometimes an inspector will suggest further inspections, tests, and/or investigations that the buyer should conduct. Generally, it is best if the sellers are not present during the inspection.

The law requires the sellers and brokers to disclose to a buyer all material facts known to them which affect the value or desirability of the property. In most cases, brokers are required to make a visual inspection of the property and disclose anything that would affect the value or desirability of the property. However, this inspection of the property does not alleviate the seller's responsibility to disclose material facts. It is best to consider everything to be a material fact, as it is much better to over-disclose than to under-disclose. The majority of lawsuits involving buyers and sellers of residential property involve lack of disclosure by a seller.

After the inspection/s are completed, the buyer's agent will submit a list of repair requests to us. We will then respond to it in writing within the prescribed time period. The Residential Purchase Agreement specifies the time periods for the inspections to be completed and responses to be made. It also specifies the seller's responsibilities in regard to repairs.

Understanding Title Insurance

Title companies, unlike most insurance companies, operate under the theory of risk elimination. Most of the premium for title insurance is used to prevent problems, as opposed to most insurance companies, which allocate most of their premiums to settle claims once a problem arises.

Title companies store and maintain records that affect title. This is done in the "Title Plant". Many title companies' records date back over one hundred years. This allows them to anticipate and eliminate potential problems with title transfers. They determine what encumbrances (claims or liens) are on your title. The title company works to clear encumbrances which buyers do not customarily assume before the close of escrow. The title company conducts a thorough search of public records to eliminate most of the risks against a future claim. When a claim is filed, the title company handles it according to the terms of the title insurance policy.

Title companies are required to file their rates with the California Department of Insurance. Rates and service vary from company to company. Buyer and seller choose services; however, referrals can be provided upon request. Our referrals are based on price, service, strength of the company, and past performance.

Walk-through Inspection

The walk-through inspection is usually done about five days before the close of escrow. We meet the buyers at the property and follow the following procedure:
Verify repairs. Most likely, there were repair or replacement requests that you agreed to.

Demonstration of equipment. You will demonstrate how to operate equipment such as pool, spa, sprinklers, alarm system, appliances, or any other items that the buyers may have questions on concerning their proper operation.

Set up utilities. The buyers will be provided with a list of all the utility numbers, and we will discuss with you the coordination of switching over the various utility services to the buyer.

Coordinate possession. We will plan the transfer of keys and finalize the possession time and date.

Items to be left at the home. We will discuss where you will leave such items as garage door openers, extra keys, instruction books, alarm codes, safe combinations, etc.
Change of address. You will be provided with a change of address card to be filed with the post office.

Home protection plan. If a home protection plan was purchased, the buyers will be provided with information pertaining to the policy, along with a service number to call should they need service.

Review closing procedure. We will discuss any remaining tasks that need to be completed before the close of escrow.



Glossary of Terms

ABANDONMENT - The voluntary surrender or relinquishment of possession of real property with the intention of terminating one's possession or interest, but without vesting this interest in any other person.

ABATEMENT - A reduction or decrease in amount, degree, intensity or worth.

ACCEPTANCE - Voluntarily agreeing to the price and terms of an offer. Offer and acceptance create a contract.

ACKNOWLEDGEMENT - A written declaration by a person executing an instrument, given before an officer authorized to give an oath (usually a notary public), stating that the execution is of his own volition.

ACRE - A measure, usually of land, equal to 160 square rods (43,560 sq. feet) in any shape.

ACT OF GOD - Damage caused by nature (floods, winds, etc.) rather than destruction by man.

ADJACENT - Close to. May or may not be contiguous (touching).

ADJOINING - Touching or contiguous to.

ADJUDICATION - A judgment or decision by a court.

ADJUSTABLE MORTGAGE LOANS (AML'S) - Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan. Also called: Adjustable Rate Loans, Adjustable Rate Mortgages (ARM's), Flexible Rate Loans, Variable Rate Loans.

ADJUSTED SALE PRICE - An appraisal term used when a comparable property's sale price is adjusted to reflect the value of the subject property. The adjustment is made based on the differences between the subject property and comparable property in the time of sale, terms of sale, location, and physical characteristics.

ALTERATIONS - Changes in the interior or exterior of a building, but without changing the exterior dimensions.

AMENDMENT - A change, either to correct an error or to alter a part of an agreement without changing the principal idea or essence.

AMENITIES - Those things which enhance the enjoyment (and therefore the value) of real estate but are not necessary for its intended use. Examples: a scenic view, swimming pool, etc.

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

ANNUAL PERCENTAGE RATE (A.P.R.) - The yearly interest percentage of a loan, as expressed by the actual rate of interest paid. For example: 6% add-on interest would be much more than 6% simple interest, even though both would say 6%. The A.P.R. is disclosed as a requirement of federal truth in lending statutes.

APPRAISAL METHODS - Generally, three major methods of appraisal: Cost Approach, Income Approach, Market Value (comparables) Approach.

APPRAISAL REPORT - A written report by an appraiser containing his opinion as to the value of a property and the reasoning leading to this opinion. The factual data supporting the opinion, such as comparables, appraisal formulas, and qualifications of the appraiser, will also be set forth.

APPRAISED VALUE - An opinion of the value of a property at a given time, based on facts regarding the location, improvements, etc. of the property and surroundings.

APPRAISER - One who is trained and educated in the methods of determining the value of property through analysis of various factors which determine said value.

APPRECIATION - An increased value of property due to either a positive improvement of the area or the elimination of negative factors. Commonly, and incorrectly, used to describe an increase in value through inflation.

ARBITRATION CLAUSE - A clause in a lease calling for the decision of a third party (arbiter) regarding disputes over future rents based on negotiation. Also used in construction contracts, disputes between brokers, etc.

ARREARS - (1) Payment made after it is due is in arrears. (2) Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance, as is rent. Example: A rental payment made July 1 pays the rent to August 1. An interest payment made July 1 pays the interest to July 1.

ASSESSED VALUE - Value placed upon property for property tax purposes by the tax assessor.

ASSUMPTION FEE - Lender's charge for paperwork involved in processing records for a new buyer assuming an existing loan.


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.

BALLOON PAYMENT - The final payment (balance due) of a balloon note.

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.

BENEFICIARY'S DEMAND - Written instructions by a beneficiary under a deed of trust stating and demanding the amount necessary for issuance of a reconveyance, whether a full or partial amount.

BENEFICIARY'S STATEMENT - A statement by a lender under a deed of trust, setting forth the pertinent information necessary to assume said deed of trust, such as the unpaid balance, monthly payment, and interest rate.

BILL OF SALE - An instrument by which one transfers personal property.

BINDER - (1) A report issued by a title insurance company setting forth the condition of title to certain property as of a certain date, and also setting forth conditions which, if satisfied, will cause a policy of title insurance to be issued. Also called a commitment (See also: Preliminary Title Report). (2) A policy of title insurance (used primarily by investors) calling for a reduced rate for a future policy if the property is sold within a specified period.

BOUNDARY - A separation, natural or artificial, which marks the division of two contiguous properties.

BUILT-IN'S - Commonly stoves, ovens, dishwashers, and other appliances, framed into the building construction and not movable.


BY-LAWS - Rules and regulations, adopted by an association or corporation, which govern its activities.

CAL-VET LOANS - Real estate loans available to armed forces veterans from California, at low interest rates.

CASHIER'S CHECK - A check drawn by a bank on itself rather than on an account of a depositor. A cashier's check is generally acceptable to close a sale without waiting for the check to clear.

CC&R'S (COVENANTS, CONDITIONS, AND RESTRICTIONS - A term used in some areas to describe the restrictive limitations which may be placed on property. In other areas, simply called restrictions.

CERTIFIED CHECK - A personal check drawn by an individual which is certified (guaranteed) to be good. The bank holds the funds to pay the certified check and will not pay any other checks drawn on the account if such payment would impede payment of the certified check. The bank also will not honor a stop payment of a certified check.

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 also the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

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.

CO-MORTGAGOR - One who signs a mortgage with another as borrower. The term is often applied to one who intends to guaranty the loan even though co-mortgagors have equal liability.

COMMISSION - An amount, usually as a percentage, paid to an agent (real estate broker) as compensation for his services. The amount to a real estate broker is generally a percentage of the sale price or total rental.

COMPARABLES - used as comparisons to determine the value of a specific property.

CONDITION - In real property law, some limiting restriction to a grant or conveyance of property, stating that upon the happening or not happening of a stated event, the estate shall be changed in some manner.

CONDOMINIUM - A structure of two or more units, the interior space of which are individually owned; the balance of the property (both land and building) is owned in common by the owners of the individual units. The size of each unit is measured from the interior surfaces (exclusive of paint or other finishes) of the exterior walls, floors, and ceiling. The balance of the property is called the common area.

CONTINGINCY - Commonly, the dependence upon a stated event which must occur before a contract is binding. For example: The sale of a house, contingent upon the buyer obtaining financing.

CONVERTIBLE MORTGAGE - A mortgage which enables the lender to take (convert to) an equity (ownership) position in the collateral security (real estate) as opposed to that of a lienholder.

COST OF LIVING INDEX - A government indicator of the increase or decrease of living costs for the average person on a monthly basis. (See also: Escalation Clause (2).


COUNTER OFFER - An offer (instead of acceptance) in response to an offer. For example: A offers to buy B's house for X dollars. B, in response, offers to sell to A at a higher price. B's offer to A is a counter offer.

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

DEED IN LIEU - A deed from the owner (debtor) to a lender to prevent foreclosure. There are usually statutory provisions as to fairness of value and absence of coercion which must be recited on the deed.

DEED IN LIEU OF FORECLOSURE - A deed given by an owner/borrower to a lender to prevent the lender from bringing foreclosure proceedings. The validity of the deed depends to some degree on "fairness" under the circumstances, and adequacy of consideration will be considered.

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.

DEFAULT - An omission or failure to perform a legal duty.

DOCUMENTARY TRANSFER TAX - A state tax on the sale of real property, based on the sale price or equity transferred, being $.55 for each $500 of the taxable amount in most states. Some states use $1.10 per $1000; $.50 per $500; $1.00 per $1000.

DOWN PAYMENT - Cash portion paid by a buyer from his own funds, as opposed to that portion of the purchase price which is financed.

DOWNSPOUT - A pipe leading from the gutters of a roof to the ground and into a sewer or away from the building.


DRY ROT - A fungal decay of seasoned wood.

DUAL AGENCY - The representation of opposing principals (buyer and seller) at the same time.

EASEMENT - A right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another. It is either for the benefit of land (appurtenant), such as right to cross A to get to B, or "in gross", such as a public utility easement.

EFFECTIVE AGE - Age of a structure as estimated by its condition rather than actual age. Takes into account rehabilitation and maintenance.

ENCUMBRANCE, INCUMBRANCE - 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 - market value of real property.

EQUITY LINE OF CREDIT - A combination of a line of credit and equity loan. A maximum loan amount is established based on credit and equity. A mortgage (deed of trust) is recorded against the potential borrower's property for said maximum loan amount. The potential borrower has the right to borrow, as needed, up to the amount of the mortgage.

ESCROW INSTRUCTIONS - Instructions which are signed by both buyer and seller, and which enable an escrow agent to carry out the procedures necessary to transfer real property, a business, or other assignable interest.

EVICTION - A court action to remove one from possession of real property. Most commonly, the removal of a tenant.


EXECUTOR - who is appointed under a will to carry out (execute) the terms of the will.

EXTENDED COVERAGE - With reference to insurance, coverage beyond the normal (standard) policy.

FAIR MARKET VALUE - Price that probably would be negotiated between a willing seller and willing buyer in a reasonable time. Usually arrived at by comparable sales in the area.

FEDERAL DISCOUNT RATE - The interest rate charged to member banks borrowing from the federal reserve bank(s).

FEDERAL FAIR HOUSING LAW - Title VIII of the Civil Rights Act which forbids discrimination in the sale or rental of residential property because of race, color, sex, religion or national origin.

FEDERAL TAX LIEN - A lien attaching to property for nonpayment of a federal tax (estate, income, etc.). A federal tax lien differs from other liens in that it is not automatically wiped out by foreclosing on a mortgage or trust deed recorded before the tax lien (except by judicial foreclosure).

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 of ownership.

FIDUCIARY - One acting in a relationship of trust.

FIXTURES - Personal property which is attached to real property, and is legally treated as real property while it is so attached. Fixtures, not specifically excepted from an accepted offer to purchase, pass with the real estate.


FNMA (FANNIE MAE) - A private corporation dealing in the purchase of first mortgages, at discounts.

GENERAL CONTRACTOR - One who contracts for the construction of an entire building or project, rather than for a portion of the work. The general contractor hires subcontractors, such as plumbing contractors, electrical contractors, etc., coordinates all work, and is responsible for payment to the said subcontractors.

GENERAL LIEN - (1) A Lien such as a tax lien or a judgment lien which attaches to all property of the debtor rather than the lien of, for example, a trust deed, which attaches only to specific property. (2) The right of a creditor to hold personal property of a debtor for payment of a debt not associated with the property being held. Must be done under an agreement since against general precepts of law.

GIFT LETTER - A letter to HUD from the donor (giver) stating that a gift of money has been made to the buyer in order to purchase specific property. The relationship of the donor and donee is stated, as well as the amount of the gift.

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

GOOD FAITH - Something done with good intentions, without knowledge of fraudulent circumstances, or reason to inquire further.

GRADUATED PAYMENT ADJUSTABLE MORTGAGE LOAN - A combination of a graduated payment mortgage and an adjustable mortgage. Monthly payments begin at less than the amount necessary to amortize the loan and increase over a maximum 10 year period. The payment increase is not predetermined but varies as the interest rate is adjusted based on the movement of an agreed upon index.

GRADUATED PAYMENT MORTGAGE - A mortgage or deed or trust calling for increasingly higher payments over the term of the loan. This allows the buyer low beginning payments. The payments then increase as (theoretically) the buyer's earnings increase.

GRANT DEED - One of the many types of deeds used to transfer real property. Contains warranties against prior conveyances or encumbrances. When title insurance is purchased, warranties in a deed are of little practical significance.

GRANTEE - One to whom a grant is made. Generally, the buyer.

GRANTOR - One who grants property or property rights.

GROSS PROFIT - The total profit before deductions. A general term which varies, depending upon accounting procedures.


GROSS RENT MULTIPLIER - The quotient of the sales price divided by the gross rent. Generally the monthly gross rent in a single family residential property and the yearly gross rent in multifamily units and commercial, office or industrial property.

HAZARD INSURANCE - Real estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.

HOLDING PERIOD - The time period used by the IRS to determine a long or short term capital gain. The period during which a taxpayer owns the capital asset.

HOME OWNERS' 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.

HOME WARRANTY INSURANCE - Private insurance insuring a buyer against defects (usually in plumbing, heating, and electrical) in the home he has purchased. The period of insurance varies and both new and used homes may be insured.

HOMEOWNER'S INSURANCE - Includes the coverage of Hazard Insurance plus added coverage such as personal liability, theft away from the home (item's stolen from the insured's car), and other such coverage.

HOMESTEAD - The dwelling (house and contiguous land) of the head of a family. Some state grant statutory exemptions, protecting homestead property (usually to a set maximum amount) against the rights of creditors. Property tax exemptions (for all or part of the tax) are also available in some states. Statutory requirements to establish a homestead may include a formal declaration to be recorded.


HOUSING AND URBAN DEVELOPMENT (HUD), DEPARTMENT OF - The federal department responsible for the major housing programs in the United States, such as F.H.A.


HYPOTHECATE - To mortgage or pledge without delivery of the security to the lender.

IMPOUND ACCOUNT - Account held by a lender for payment of taxes, insurance, or other periodic debts against real property. The mortgagor or trustor pays a portion of, for example, the yearly taxes, with each monthly payment. The lender pays the tax bill from the accumulated funds.

IMPROVEMENTS - Generally, buildings but may include any permanent structure or other development, such as a street, utilities, etc.

INCOME PROPERTY - Property which produces income, usually from rental. May also include any property not entirely owner occupied.

INCUMBRANCE (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 will not prevent the transfer of fee title.

INDEMNITY AGREEMENT - An agreement by which one party agrees to repay another for any loss or damage the latter may suffer.

INDEPENDENT APPRAISAL - An appraisal by one who has no interest in the property or nothing to gain from a high or low appraisal.

INSTALLMENT NOTE - A note calling for payment of both principal and interest in specified amounts, or specified minimum amounts, at specific intervals.

INSTITUTIONAL LENDERS - Banks, savings and loan associations, and other businesses which make loans to the public in the ordinary course of business, rather than individuals, or companies which may make loans to employees.

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

INSURED MORTGAGE - A mortgage insured against loss to the mortgagee in the event of default and a failure of the mortgaged property to satisfy the balance owing plus costs of foreclosure. May be insured by F.H.A., V.A., or by independent mortgage insurance companies.

INTEREST INCLUDED NOTE - A note having equal payments (usually monthly). Interest is figured on the declining principal balance. As the principal decreases, interest also decreases, applying more of each payment to principal.

INTEREST ONLY MORTGAGE - A mortgage under which the principal amount borrowed is repaid in one payment. Periodic interest payments are made.

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 Mortgage Loan. For example: a 12% loan with a 5% interest rate cap would have maximum interest for the life of the loan which would not exceed 17%.

INVESTMENT PROPERTY - Generally, any property purchased for the primary purpose of profit. The profit may be from income or from resale.


INVOLUNTARY LIEN - A lien, such as a tax lien, judgment lien, etc. which attaches to property without the consent of the owner, rather than a mortgage lien, to which the owner agrees.


JUDICIAL FORECLOSURE - Foreclosure through court action rather than by a power of sale. Judicial foreclosure is sometimes necessary to remove certain tax liens.


KEY LOT - (1) A strategically located lot, adding to its value. (2) A lot adjoining a corner lot at its rear property line with frontage on the secondary street. Also called a Butt Lot.

LANDMARK - Originally, a monument on a boundary line. Modernly, boundary lines are usually established by walls or fences, and these are the landmarks.

LATE CHARGE - A penalty for failure to pay an installment payment on time. Usually not allowed as interest for tax deductions. May or may not be included as usury. If not, the amount of the late charge is either set by statute or must be "reasonable".

LATENT DEFECT - A hidden or concealed defect. One which could not be discovered by inspection, using reasonable care. In legal descriptions, a latent defect may be corrected, and a totally new description not necessary.

LEASE - An agreement by which an owner of real property (lessor) gives the right of possession to another (lessee), for a specified period of time (term) and for s specified consideration (rent).

LEASE WITH OPTION TO PURCHASE - A lease under which the lessee has the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the lease or only for a portion of the lease period.

LEASEHOLD IMPROVEMENTS - Improvements made by the lessee. The term is used in condemnation proceedings to determine the portion of the award to which the lessee is entitled.

LEGAL NAME - First and last name. Middle name included, omitted or incorrect will not matter. Today full names (for identification purposes) are required in many instances, but only for identification purposes (to distinguish between two men named John Smith, for example).

LEGAL NOTICE - The notice required by law in a particular case. May be actual notice, constructive notice, etc.

LEGAL OWNER - The term has come to be used as a technical difference from the equitable owner, and not as opposed to an illegal owner. The legal owner has title to the property, although the title may actually carry no rights to the property other than a lien.

LEGAL RATE OF INTEREST - A rate of interest established by law, rather than by agreement (contract).

LEGAL TITLE - Usually title without ownership rights, such as the title placed in a trustee under a deed of trust, or the title in a vendor under a land contract.

LESSOR - The party (usually the owner) who gives the lease (right to possession) in return for a consideration (rent).

LETTER APPRAISAL - A brief report giving only conclusions, as opposed to a narrative report detailing how the conclusions were reached.

LETTER OF CREDIT - A letter, usually from a bank, requesting a person or a company to extend credit to a certain person or company, and guarantying payment. Most commonly used in the purchase of goods from another country. The letter may be revocable or irrevocable, but most parties insist on the irrevocable.

LETTER OF INTENT - A formal method of stating that a prospective developer, buyer, or lessee, is interested in property. Not an offer and creates no obligation. However, a builder who wants to build an office building, for example, may influence a lender by showing letters of intent from major prospective tenants.

LIABILITY - A general term encompassing all types of debts and obligations.

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

LIFE ESTATE - An estate in real property for the life of a living person. The estate then reverts back to the grantor or on to a third party (remainderman).

.LIFE INTEREST - An interest in real estate for a period of the life of the one having the interest, or the life of another.

LIFE TENANT - One who holds land for the length of his, or another's life.

LINE OF CREDIT - An amount of money a borrower may obtain from a bank without a special credit check. The money is generally for business purposes and the amount would not include the borrower's own home loan and other personal secured loans.

LIQUIDATED DAMAGES - A definite amount of damages, set forth in a contract to be paid by the party breaching the contract. A predetermined estimate of actual damages from a breach.

LIQUIDITY - Having liquid assets.

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.

LISTING - An agreement between an owner of real property and a real estate agent, whereby the agent agrees to secure a buyer or tenant for specific property at a certain price and terms in return for a fee or commission.

LISTING AGENT - real estate agent obtaining a listing, as opposed to the selling agent.

LOAN ORIGINATION FEE - A one time set up fee charged by the lender.

LOAN PACKAGE - The file of all items necessary for the lender to decide to give or not to 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.). There may be a charge for "packaging" the loan.

LOAN POLICY - A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalid title in the borrower, or loss of priority of the mortgage or deed of trust.

LOAN SERVICING - The bookkeeping and collection of a loan. It may be done by the lender or by another for the lender.

LOAN TO VALUE RATIO - The ratio, expressed as a percentage, of the amount of a loan to the value or selling price of real property. Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks, savings and loans, or government insured loans, is set by statute.

LONG TERM CAPITAL GAIN - Gain on the sale of a capital asset which has been held for a specified time or longer. Long term capital gain is taxed at a special rate and not as ordinary income.


LOSS PAYABLE CLAUSE - A clause in a fire insurance policy, listing the priority of claims in the event of destruction of the property insured. Generally, a mortgagee, or beneficiary under a deed of trust, is the party appearing in the clause, being paid to the amount owing under the mortgage or deed of trust before the owner is paid.

M.A.I. (MEMBER APPRAISAL INSTITUTE) - The designation given to a member of the American Institute of Real Estate Appraisers. A designation earned through experience, education, and examination.

MARKET DATA APPROACH - Appraising the value of a property by comparing the price of similar properties (comparables) recently sold. The degree of similarity (physical characteristics and locations) of the properties and the circumstances of the sale (time and terms) are the important considerations.

MARKET VALUE - The highest price a willing buyer would pay and a willing seller would accept, both being fully informed, and the property exposed for a reasonable period of time. The market value may be different from the price a property can actually be sold for at a given time.

MARKETABILITY - Salability. The probability of selling property at a specific time, price, and terms.

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.

MECHANIC'S LIEN SURETY BOND - A bond, from a bonding company indemnifying a tile insurer against loss from writing a policy before expiration of the mechanic's lien period.

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.

MINERAL RIGHTS - The ownership of the minerals (coal, gold, iron, etc.) under the ground, with or without ownership of the surface of the land.

MONTH TO MONTH TENANCY - A tenancy where no written lease is involved, rent being paid monthly. Some obligations as to notice of moving or eviction may exist by statute.

MORTGAGE - (1) To hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property. (2) The instrument by which real estate is hypothecated as security for the repayment of a loan.

MORTGAGE BANKER - A company providing mortgage financing with its own funds rather than simply bringing together lender and borrower, as does a mortgage broker. Although the mortgage banker uses its own funds, these funds are generally borrowed and the financing is either short term or, if long term, the mortgages are sold to investors (many times insurance companies) within a short time.

MORTGAGE BROKER - One who, for a fee, brings together a borrower and lender, and handles the necessary applications for the borrower to obtain a loan against real property by giving a mortgage or deed of trust as security. Also called loan broker.

MORTGAGE INSURANCE - Insurance written by an independent mortgage insurance company (referred to as an "MIC") protecting the mortgage lender against loss incurred by a mortgage default, thus enabling the lender to lend a high percentage of the sale price. The Federal Government writes this form of insurance through the FHA and VA.

MORTGAGE LIFE INSURANCE - A term life insurance policy for the amount of the declining balance of a loan secured by a mortgage or deed of trust. The beneficiary under the policy is the mortgagee. In the event of death (some policies also cover disability) of the insured (mortgagor), the mortgage is paid in full.

MORTGAGE POOL - A group or "pool" of mortgages, an interest in which can be purchased through a securities dealer. Because of market changes in interest rates and points (discounts), early payoffs, and foreclosures, pools have different returns and, therefore, different investment values. The rate of payoffs and foreclosures is called the "speed" of the pool.

MORTGAGE SERVICING - Controlling the necessary duties of a mortgagee, such as collecting payments, releasing the lien upon payment in full, foreclosing if in default, and making sure the taxes are paid, insurance is in force, etc. Servicing may be done by the lender or a company acting for the lender, for a servicing fee.

MORTGAGE WAREHOUSING - A system whereby a mortgage company will hold loans which would ordinarily be sold, in order to sell later at a lower discount. These mortgages are used as collateral security with a bank to borrow new money to loan.

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 modern and accepted view.

MORTGAGOR - The party who borrows the money and gives the mortgage.

MULTIFAMILY DWELLING - (1) A building occupied by more than one family. (2) A building designed as a dwelling for more than four families at the same time.


MULTIPLE LISTING - An exclusive listing, submitted to all members of an association, so that each may have an opportunity to sell the property.

NARRTIVE APPRAISAL - The most detailed of the appraisal reports in which conclusions are supported and explained. The requirements for reaching said conclusions, however, do not differ from the shorter letter report of any properly done appraisal.

NATIONAL ASSOCIATION OF REAL ESTATE BROKERS - An organization dedicated to the betterment of the real estate industry and specifically to the role of blacks in the real estate industry. It is composed primarily of black real estate brokers who have adopted the term "Realists". Originally founded in Miami in 1947, the association is now based in Washington D.C.

NEGATIVE AMORTIZATION - A condition created when a loan payment is less than interest alone. Even though payments are made on time, the amount owing increases.

NEGATIVE CASH FLOW - When the income from an investment property does not equal the usual expenses. The owner must come up with cash each month to meet these expenses.

NEGOTIABLE - Capable of being negotiated. Commonly used to mean assignable or transferable in the ordinary course of business, such as negotiable bonds, securities, notes, etc.

NOMINEE - Most commonly used in a deed, such as to John Doe, or nominee, when the actual grantee is not revealed. Has no legal meaning, other than representative of another.

NONBEARING WALL - A wall used only to separate areas, and which carries only its own weight.

NONCONFORMING USE - A property which does not conform to the zoning of the area. Usually, the property was built in conformity and then the zone was changed.

NONJUDICIAL FORECLOSURE SALE - Sale by a trustee under a deed of trust, or mortgagee under a power of sale of a mortgage. There is no court (judicial) proceeding.

NONRECOURSE LOAN - A loan not allowing for a deficiency judgment. The lender's only recourse in the event of default is the security (property) and the borrower is not personally liable.

NONRECURRING EXPENSE - An expense which does not usually repeat itself, such as a fire or other natural disaster.

NOTARY PUBLIC - One who is authorized by the state or federal government, to administer oaths, and to attest to the authenticity of signatures. A federal authorization may extend the authority to attest to the authenticity of certain documents, and to act as a notary in foreign countries.

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 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 NONRESPONSIBILITY - A notice filed by an owner of property to show that work being done has not been contracted for by said owner. If properly done, mechanic's liens will not attach to the property. Often done when a tenant contracts for work on property.

NOTICE OF RECISION - A recorded notice to rescind a notice of default of a mortgage or deed of trust.

NOTICE TO QUIT - A notice by a landlord to a tenant to vacate rented property. There are two types; for nonpayment of rent or a second type for any other reason. Usually the notice for nonpayment allows less time to vacate.


NULL & VOID - Void. Not legally binding.

OBLIGATION BOND - A bond secured by a mortgage but over the mortgage amount. It creates a personal obligation on the part of the mortgagor.

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 & ACCEPTANCE - Necessary elements of a contract to sell real estate.

OFFER TO PURCHASE - See: Purchase Agreement).

OFFEREE - One to whom an offer is made.

OFFEROR - One making an offer.

ONE HOUR DOOR - A fire resistant door; one which will hold back a fire for a minimum of one hour.

ONE HOUR WALL - A fire resistant wall; one which will hold back a fire for a minimum of one hour.

OPEN-END MORTGAGE - A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually as to the assets of the mortgage.

OPTION - A right, which acts as a continuing offer, given for consideration, to purchase or lease property at an agreed upon price and terms, within a specified time.

OPTIONEE - One who, for consideration, receives and option.

OPTIONOR - One who, for a consideration, gives an option.

ORAL APPRAISAL - A verbal appraisal report. The conclusions must be based on the same methods as would be used in a written appraisal.

ORDINANCE - A law or statute. The term used to designate the enactments of the legislative body of a municipal corporation or a county.

OWNER OCCUPIED - Property physically occupied by the owner.

OWNER OF RECORD - The owner of property according to the records of the county recorder.

OWNER'S POLICY - Title insurance for the owner of property, rather than a lienholder.


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.

PAD - The foundation of slab construction. Specifically used to describe where a mobile home is placed or a condominium is built, but can be generally used for any slab or land under a building.

PARTIAL RELEASE - A release of a portion of property covered by a mortgage. A subdivider will obtain a partial release as each lot is sold, upon payment of an agreed upon amount. In areas where the subdivider is not usually the builder, it may be necessary to sell groups of lots to obtain a partial release. In areas where deeds of trust are used instead of mortgages, a "partial reconveyance" is the document used.

PARTY WALL - A wall erected on a property boundary as a common support to structures on both sides which are under different ownerships.

PATENT DEFECT - A defect plainly visible or as would be discovered by the exercise of ordinary care. A patent defect in a legal description is one which cannot be corrected on its face, and a new description must be used.

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.

PENTHOUSE - (1) A condominium or apartment on the roof of a building, used as a residence. (2) a small building on a roof, which houses elevator machinery, ventilating equipment, etc.

PER ANNUM - Yearly, annually.

PER DIEM - Daily.

PERFECT ESCROW - A complete escrow. When the escrow agent has all instrument and instructions necessary to carry out the transaction (purpose of the escrow).

PERMANENT MORTGAGE - A mortgage on completed construction for a long period of time, usually over ten years.

PERSONAL PROPERTY - Any property which is not designated by law as real property.

PHYSICAL LIFE - The normal life of an improvement, if properly maintained.

PI (PRINCIPAL AND INTEREST) - Used to indicate what is included in a monthly payment on real property. If the payment includes only principal and interest, property taxes and hazard insurance would make the total payment higher.

PICTURE WINDOW - A large window used to let in light and a view, but not air.

PIGGYBACK LOAN - A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. A 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 and insurance are the four major portions of a usual monthly payment.

PLANNING COMMISSION - A board of a city, county, or similar local government, which must approve proposed building projects. Often must be confirmed by a higher board, such as a council.

PLOT PLAN - A plan of the location of improvements on a parcel of land. Also called a plot map. Don't confuse with plat.

POWER OF ATTORNEY - An authority by which one person (principal) enables another (attorney in fact) to act for him. (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.

POWER OF SALE - Clause in a mortgage or deed of trust giving the mortgagee or trustee the power to sell the property in event of default. There are laws which govern the sale, which must be a public auction, but there is not court action necessary (judicial foreclosure)..

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.

PRINCIPAL - (1) The person who gives authority to an gent or attorney (see attorney-in-fact). (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 governmental 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.

PRIVATE PROPERTY - Property owned by a person, group, corporation, or other entity, not a governmental body.

PRO RATE - To divide in proportionate shares, such as taxes, insurance, rent or other items which buyer and seller share as of the time of closing, or other agreed upon time.

PROBATE - Originally, the proving that a will was valid. Modernly, any action over which probate court has jurisdiction.

PROBATE COURT - A court having jurisdiction of estates, whether of a deceased, a minor, or an incompetent person.

PROBATE SALE - Sale of property from an estate. Must be done under supervision and procedures of the probate court.

PROCURING CAUSE - A direct cause of an event, or the direct cause of a series of causes leading to an event. A broker is entitled to a commission under an open listing if proven to be the procuring cause of a sale.

PROFIT AND LOSS STATEMENT - A statement showing the income and expenses of a business over a stated time, the difference being the profit and loss for the period.

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.

PROPERTY MANAGEMENT - The branch of the real estate business dealing with the management of property. The property may be a rented house or a large office or industrial complex. The duties may range from merely collecting rents to complete management of all maintenance and may also include being leasing agent or sales agent.

PROPERTY TAX - Generally, a tax levied on both real and personal property; the amount of the tax is dependent on the value of the property.

PUBLIC REPORT - A report given to prospective purchasers in a new subdivision, stating the conditions of the area (costs of common facilities, availability of schools, noise factor if near an airport, etc.), issued by the real estate commission.

PUBLIC UTILITY - A company such as the telephone company, electric company, or gas company, which supplies a necessity in our modern life, and monopolizes the industry. Such companies are under the control of the Public Utilities Commission.

PUFFING - An opinion not made as a representation of fact, but intended to enhance the value of the property.


PURCHASE AGREEMENT - An agreement between a buyer and seller of real property, setting forth the price and terms of the sale.

RATE 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 from the Federal Reserve Statistical Release H.15 (519). This change in interest rates is the "index" for the change in the specific Adjustable Mortgage Loan.

RAW LAND - Land in its natural state. Land which has not been subdivided into lots, does not have water, sewers, streets, utilities, or other improvements necessary before a structure can be constructed.

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.

REAL ESTATE BOARD - A board composed of regular members (real estate brokers and sales-associates), and affiliate members (lenders, title companies, etc.) for the purpose of furthering the real estate business in a given area.

REAL ESTATE OWNED (R.E.O.) - Most commonly refers to property owned by a lender from foreclosure of mortgages or trust deeds. This property is usually for sale.

REALTOR - A designation given to a real estate broker or sales associate who is a member of a board associated with the National Association of Realtors or with the National Association of Real Estate Boards.

REASSESSMENT - Re-estimating the value of all property in a given area for tax assessment purposes.

RECORDED MAP - A map recorded in a county recorder's office. May be a subdivision map or describe a non-subdivided parcel. Reference to a recorded map is commonly used in legal descriptions.

RECORDER'S OFFICE - The county office where instruments are recorded, giving public notice.

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

REDEMPTION PERIOD - A time period during which a mortgage, land contract, deed of trust, etc., can be redeemed. Usually set by statute, and after judicial foreclosure.

REFERRAL - In the real estate business, generally the act of a past client recommending a real estate broker or agent to one currently a buyer or seller. Also, any recommendation by one real estate agent of another for a referral fee.

REFINANCE - (1) The renewing of an existing loan with the same borrower and lender. (2) A loan on the same property by either the same lender or borrower. (3) The selling of loans by the original lender.

REGULATION Z - Federal Reserve regulation issued under the Truth-in-Lending Law, which requires that a credit purchaser be advised in writing of all costs connected with the credit portion of the purchase.

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.

RETAINING WALL - A wall used to contain or hold back dirt, water or other materials of a similar nature.

REVENUE STAMPS - Formerly federal tax on sale of real property. Cancelled and replaced by state tax stamps. The stamps (similar to postage stamps) are affixed to the conveyancing instrument (deed), or a rubber stamp is used to show the amount of the tax.

REVERSE ANNUITY MORTGAGE - A mortgage whereby the mortgagor borrows on a monthly basis and repays in a lump sum (the reverse of a usual mortgage). Most commonly used by retirees. Some loans have minimum age restrictions. The term may be for a specified number of years or until the property is sold or the borrower dies.

REVOCABLE - Capable of being revoked.

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.


RIPARIAN RIGHTS - Rights of an owner to riparian lands and water.

RIPARIAN WATER - Water within the normal flow of the stream or river. An abnormal flow (floods) is not riparian water.

SAFETY CLAUSE - A clause in a listing protecting the broker from having buyer and seller wait until the listing expires to make a deal, thereby avoiding the payment of commission. The clause states that if the property is sold during a specified period after the expiration of the listing (or any extension thereof) to a buyer provided during the listing period by the broker, the commission shall be paid.

SALE - LEASEBACK - A sale and subsequent lease from the buyer back to the seller. Although the lease actually follows the sale, both are agreed to as part of the same transaction.

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, second, third, etc. lien.

SECONDARY MORTGAGE MARKET - The buying and selling of first mortgages or trust deeds by banks, insurance companies, government agencies, and other mortgages. This enables lenders to keep an adequate supply of money for new loans. The mortgages may be sold at full value (par) or above, but are usually sold at a discount. The secondary mortgage market should not be confused with second mortgage.

SECURITY - Real or personal property pledged or hypothecated by a borrower, as additional protection for the lender's interest.

SECURITY AGREEMENT - A "catch all" term used to describe many different types of debtor-creditor relationships, such as a chattel mortgage, trust receipt, inventory liens, etc.

SECURITY DEPOSIT - Commonly a deposit of money by a tenant to a landlord to secure performance of a written or oral rental agreement.

SELF-SUPPORTING WALLS - Walls which support only their own weight. Not load-bearing.

SEPTIC SYSTEM - A sewage system, whereby waste is drained through pipes and a tile field 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 gases, which are then released into the ground.

SERVICE ROAD - A road running alongside a limited access highway, for use by abutting owners, and as a transition road from the highway to local streets. Also called a frontage road.

SET BACK ORDINANCE - Part of a zoning ordinance. Regulates the distance from the lot line to the point where improvement may be constructed.

SETTLEMENT STATEMENT - A statement prepared by broker, escrow, or lender, giving a complete breakdown of costs involved in a real estate sale. A separate statement is prepared for the seller and buyer.

SHORE LINE - The lands alongside navigable waterways, between the high and low water marks.

SHORT TERM CAPITAL GAIN - Profit from the sale of a capital asset not held long enough to qualify as a long term capital gain. Taxed as ordinary income.

SLAB - (1) A concrete floor used as a foundation in homes without a basement. (2) Any concrete floor, even if an upper story.

SQUARE YARD - The area contained by boundaries of 1 yard long and 1 yard wide. There are 9 square feet in 1 square yard.

STANDARD COVERAGE POLICY - A title insurance policy used in several states, not having as broad a coverage as the nationally recognized American Land Title Association (A.L.T.A.) policies.

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. Also called a statement of identity.

STATUTE OF LIMITATIONS - A law which limits the bringing of a court action (civil or criminal) to within a specified period of time.

STOCK COOPERATIVE - A corporation formed for the purpose of holding title to real estate, physically similar to an apartment house. Each shareholder receives the right to exclusive occupancy of a dwelling unit. A forerunner of the condominium.

STRAIGHT NOTE - A promise to repay a loan, signed by the debtor and containing the date executed, amount owing and to whom, date due (or on demand), rate of interest and how it is payable. A straight note is not amortized.

SUBCONTRACTOR - One who works under a general contractor (builder), such as an electrical contractor, cement contractor, etc.

SUBDIVISION - Commonly, a division of a single parcel of land into smaller parcels (lots) by filing a map describing the division, and obtaining approval by a governmental commission (city or county). The exception is a condominium, which is sometimes called a "one lot subdivision".

SUBLEASE - A lease, under which the lessor is the lessee of a prior lease of the same property. The sublease may be different in terms from the original lease but cannot contain a greater interest. Example: A leases to B for 5 years. B may sublease to C for 3 years, but not for 6 years.

SUBSTITUTION OF TRUSTEE - A document which is recorded to change the trustee under a deed of trust. A simple procedure in some states; more regulated in others.


SUBURBAN - The area around a city. Usually residential with small businesses, although modernly an attraction for large industrial and commercial complexes.

SURVIVORSHIP - Gaining an interest in property by outliving (surviving) another who had the interest.

TAKE OUT COMMITMENT - Agreement by a lender to place a long term (take out) loan on real property after completion of construction.

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 EXEMPTION - Freedom from payment of property or other taxes, granted to religious, educational, and similar organizations. Partial property tax exemptions are granted in some states to individuals, such as veterans and senior citizens.

TAX LIEN - (1) A lien for non-payment 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 the taxes.

TAX RATE - Traditionally the ratio of dollars of tax per hundred or per thousand dollars of valuation. Modernly, has become to be expressed as a percentage of valuation.

TAX ROLL - A list, usually published by a county, containing the descriptions of all parcels in said county, the names of the owners (or those receiving the tax bill), the assessed value, and tax amount.

TAX SALE - Public sale of property at auction by governmental authority, after a period of nonpayment of property tax.

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.

TITLE - The evidence one has of right to possession of land.

TITLE COMPANY - An agency issuing the policy of a title insurance company.

TITLE INSURANCE - Insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances.

TITLE ORDER - An order for a search of the title to some parcel of property, eventually leading to the issuance of a policy of title insurance.

TITLE PLANT - A filing of all recorded information to real property, paralleling the records of the county recorder's office, although the filing system may be different.

TITLE REPORT - (See: Preliminary Title Report).

TITLE SEARCH - A review of all recorded documents affecting a specific piece of property to determine the present condition of title.

TOWNHOUSE - Originally a house in a city as opposed to a country estate. More recently the term is applied to certain types of row houses, whether planned unit developments or condominiums.

TRACT HOUSE - A house built using the plan of the builder, as one of many similar homes in a subdivision, as opposed to a custom house, which is built to the specifications of the owner.

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. Check statutes for each state. 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.

TRUST ACCOUNT - An account used by brokers, escrow agents, or anyone holding money in trust for another.

TRUST AGREEMENT - The writing which sets forth the terms of a trust.

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.

TRUSTEE'S DEED - A deed by a trustee under a deed of trust, issued to a purchaser at auction, pursuant to foreclosure.

TRUSTEE'S SALE - A sale at auction by a trustee under a deed of trust, pursuant to foreclosure proceedings.

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

TRUTH IN LENDING - Also referred to as Regulation Z. Part of the Consumer Credit Protection Act. Federal legislation designed to protect borrowers by requiring lenders to furnish information regarding the cost of the loan. The law requires interest to be expressed as the annual percentage rate (APR) to the nearest 1/8 of one percent. The APR must include charges such as loan fees, discount points, servicing fees, etc., as well as interest. The law applies to 1 to 4 family residential property only. Also applies to other consumer loans.


TURN KEY - Referring to an owner making a property ready for a tenant to begin business by having the tenant furnish only furniture, phone and inventory, if any. Ready to "turn the key" in the front door and begin business.

UNDERIMPROVEMENT - An improvement which is deficient in size or quality in relation to the site on which it is built.

UNDERLYING FINANCING - A mortgage, trust deed, or land contract prior to (underlying) another mortgage, trust deed, or land contract which is all inclusive or wraps around it.

UNDERWRITER - One who insures another. A small title company may buy insurance from a larger one (the underwriter) for all or part of the liability of its policies. A larger title company may buy part of the insurance from another company on high liability policies.

UNDIVIDED INTEREST - A partial interest by two or more people in the same property, whether the interest of each is equal or unequal.

UNENCUMBERED - Free of liens and other encumbrances. Free and clear.

UNILATERAL CONTRACT - A contract under which one party expressly makes a promise; the other party, although making no reciprocal promise, may be obligated by law or may have already given consideration.

UNLAWFUL DETAINER - The unjustifiable possession of property by one whose original entry was lawful but whose right to possession has terminated; usually a tenant.

UNRECORDED INSTRUMENT - A deed, mortgage, etc., which is not recorded in the county recorder's office and, therefore, not protected under recording statutes. Valid between the parties involved, but not against innocent third parties.

UNSECURED - Generally referring to an obligation which has only a promise as security. A note would be unsecured, a note and mortgage would be secured.

URBAN RENEWAL - Razing and rebuilding of obsolete sections of cities through financing by federal, state, and local governments.


USEFUL LIFE - (1) In appraisal for sales purposes, the true economic value of a building in terms of years of use to the owner. (2) For tax purposes, the life set for depreciation. At any time during that period, a new life could begin for a new owner.

USURY - Charging an illegal rate or amount of interest on a loan.

VALID - Legally binding. Properly carried out in accordance with legal procedures.

VALUATION - The estimating of value. Appraisal.

VARIABLE INTEREST RATE - An interest rate which fluctuates as the prevailing rate moves up or down. In mortgages there are usually maximums as to the frequency and amount of fluctuation. Also called "flexible interest rate".

VETERAN'S ADMINISTRATION (V.A.) LOANS - Housing loans to veterans by banks, savings and loans, or other lenders which are insured by the Veteran's Administration, enabling veterans to buy a residence with little or no down payment.


VOIDABLE - May be voided, but not void in itself.

VOLUNTARY LIEN - A lien placed against real property by the voluntary act of the owner. Most commonly, a mortgage or deed of trust.

WAREHOUSING - The depositing of loans by a lender such as a mortgage company, in a bank, for sale at a later date. The mortgage company then borrows against these loans. This is done when the mortgage company wishes to assemble a block of loans for sale, or when the company believes that the discount rate is dropping and the loans may be sold for a higher price in the future.

WARRANTY - A legal, binding, promise given at the time of a sale, whereby the seller gives the buyer certain assurances as to the condition of the property being sold. Warranties as to real property have taken a lesser role with the increase of the use of title insurance.

WATER TABLE - (1) The depth, measured from the surface, at which natural underground waters are found. (2) A ledge to aid the run-off of rainwater, built at or above the top of the foundation wall.

WEEP HOLES - Small holes in a retaining wall or other wall where it may be necessary to drain off excess water to avoid pressure build-up.

WITHOUT RECOURSE - A finance term. A mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower.


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 mortgagee under the wrap-around collects a payment based on its face value and 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 wrap around gains the difference between the interest rates, or the mortgagor under the wrap-around may obtain a lower rate than if refinancing.

ZERO LOT LINE - The construction of a building on any of the boundary lines of a lot. Usually built on the front line, such as a store built to the sidewalk.