COMMON TERMS USED IN SAN DIEGO COUNTY RESIDENTIAL REAL ESTATE TRANSACTIONS  

1031 Exchange Sale Of Real Property A real estate sale followed by the purchase of a replacement property, resulting in reduced or eliminated recognition of capital gains.

Abstract of Judgment:  A lien issued pursuant to a court order for the payment of debt. 

Abstract of Title:  A summary of the conveyances, transfers, and any other facts relied upon as evidence of title, together with any other elements of record that may affect the marketability of title. 

Adjustable Rage Mortgage:  A mortgage with an interest rate that changes over time in line with movements in the index.  ARM’s are also referred to as AML’s (adjustable mortgage loans) or VRM’s (variable rate mortgages). 

Adjustment Period:  The length of time between interest rate changes on an ARM.  For example, a loan with an adjustment period of one year is called a one-year ARM, which means that the interest can change once a year.

Amortized Loan:  A loan that is completely paid off, interest and principal, by a series of regular payments that are equal or nearly equal.  Also called a Level Payments Loan.

Appreciation:  An increase in value of real estate.

Annual Percentage Rate (APR):  The total finance charges (interest, loan fees, points) expressed as a percentage of the loan amount.

Assumption of Mortgage:  A buyer’s agreement to assume liability under an existing note that is secured by a mortgage or deed of trust.  The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.

Balloon Payment:  A lump-sum principal payment due at the end of some mortgages or other long-term loans.

Binder:  Sometimes called an offer to purchase or an earnest money deposit.  A binder is acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

CAP:  The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

CC&R’s – Covenants, Conditions & Restrictions are limitations on the uses that may be made of a parcel of land.  Some restrictions contain a reversionary clause stating that violation of the restriction will cause title of the property to revert to the person imposing the restriction.

Certificate of Reasonable Value (CRV):  A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Closing Statement:  The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Condominium:  A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas.  The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve its boundaries.

Contingency:  A condition that must be satisfied before a contract is binding.

Contract for Deed:  Agreement to purchase property, where the seller does not convey title to the buyer until all or a specified part of the purchase price is paid by the buyer.

Conversion Clause:  A provision in some ARM’s that enables the borrower to change an ARM to a fixed-rate loan, usually after the first adjustment period.  The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages.  Additional fees may be required for this feature.

Cooperative:  A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

Counter Offer:  A rejection of an offer by a seller along with an agreement to sell the property to the potential buyer on terms differing from the original offer.

Deed:  Written instrument which, when properly executed and delivered, conveys title.

Deed of trust:  The Deed of Trust is a security device for a lender.  Under California law, it is relatively easy for a lender to satisfy a delinquent loan on real property using a Deed of Trust.

Discount Points:  Additional charges made by a lender at the time a loan is made.  Points are measured as a percentage of the loan, with each point equal to one percent.   These additional loan charges are intended to adjust the rate of return on the loan according to the level of credit risk.

Due-On-Sale Clause:  An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money:  The proportion of the down payment delivered to the seller or escrow agent by the purchaser as evidence of good faith at the time the written offer is made.

Easement:  Created by a grant or agreement for a specific purpose, an easement is the right, privilege or interest that one party holds in the land of another.  (Example:  right of way)

Equity:  The interest or value that an owner has in real estate over and above the liens held against the real property.

Escrow:  A procedure by which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

FHA Loan:  A loan insured by the Insuring Office of the Department of Housing and Urban Development, part of the Federal Housing Administration.

FNM Association:  Popularly known as “Fannie Mae”.  A privately owned corporation created by Congress to support the secondary mortgage market.  It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages.

Fee Simple:  An estate in which the owner has unrestricted power to dispose of the property, including by will or inheritance.  It is the maximum interest that a person can have in real property.

Finance Charge:  The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.  (See “Regulation Z”)

Graduated Payment Mortgage:  A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

Home Inspection Report:  A qualified inspector’s report on a property’s overall condition.  The report usually includes an evaluation of both the structure and mechanical systems.

Home Warrantee Plan:  Protection against failure of mechanical systems within the property.  Usually includes plumbing, electrical, heating systems and installed appliances.

Index:  A measure of interest rate changes used to determine changes in ARM’s interest rate over the term of the loan.

Joint Tenancy:  An undivided ownership of property by two or more persons.  Upon the death of any owner, the survivors take the decedent’s interest in the property.

Land Contract:  A contract ordinarily used in connection with the sale of property in cases where the seller does not wish to convey title until all or a certain part of the purchase price is paid.

Lien:  A legal hold or claim on property as security for a debt or charge. (i.e. judgments, taxes, mortgages, deeds of trust, etc.)

Loan Commitment:  A written promise to make a loan for a specified amount on specified terms.

Loan-to-Value Ratio:  The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

Margin:  The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Mechanics Lien:  Under California law, workers who provide materials and/or labor to a property owner who is improving the property are entitled to a lien, to use the property itself to secure the debt.   

Marketable Title:  Merchantable title, title free and clear of objectionable liens or encumbrances.

Mortgage:  An instrument recognized by law by which property is pledged to secure the payment of a debt or obligation.  Statutory procedures for foreclosure in the event of default are available.

Mortgage Life Insurance:  A type of term life insurance often purchased by mortgagors.  The coverage decreases as the mortgage balance declines.  If the borrower dies while the policy is in effect, the debt is automatically covered by the insurance proceeds.

Multiple Listing Service (MLS):  The MLS is a property database maintained by the Board of Realtors® to aid in the sale and purchase of properties.  The MLS is a marketing tool used to expose properties to a wider market of buyers.

Negative Amortization:  Occurs when payments on a loan are insufficient to cover interest charges.  As a result the unpaid balance is added to the principal of the loan, causing the amount of the loan to rise.  Negative amortization can occur when an ARM has a payment cap, and monthly payments are insufficient to cover the increased interest rate.

Origination Fee:  A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan.  The fee is limited to 1 percent for FHA and VA loans.

Personal Property: Any property that is not real property.  (i.e. money, savings accounts, cars, etc.)

PITI:  Principal, interest, taxes, and insurance.

Planned Unit Development (PUD):  A zoning designation for property developed at the same or slightly greater overall density that conventional development, sometimes with improvements clustered between open, common areas.  Uses may be residential, commercial or industrial.

Point:  An amount equal to 1 percent of the principal amount of an investment or note.  The lender assesses loan discount points at closing to increase the yield on the mortgage to a level that corresponds with the perceived risk.

Prepayment Penalty:  A fee charged to a mortgagor who pays a loan before it is due.  Not allowed for FHA or VHA loans.

Promissory Note:  Following a loan commitment from the lender, the borrower signs a note promising to repay the loan under stipulated terms.  The promissory note establishes personal liability for its repayment.

Property Taxes:  Each year on March 1 the lien of the following year’s taxes attaches to the land pursuant to California law.  Property taxes are assessed on the July 1 through June 30 fiscal year.

Purchase Agreement:  A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions.  Also called a sales contract, earnest money contract, or agreement for sale.

Real Property:  Land and whatever is included it with it either by nature or by artificial annexation.

Realtor®:  A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors®.

Regulation “Z”:  The set of rules governing consumer lending.  The regulation was issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Special Assessment:  A charge levied against real estate by a public authority to pay the costs of public improvements such as street lights, sidewalks, street repairs, etc.

Subdivision:  A parcel of land that has been divided into smaller parts (lots, blocks, or tracts).

Tenancy in Common:  A type of joint ownership of property by two or more persons with no right of survivorship.

Term of Mortgage:  The period during which a mortgage must be paid.

Trust Account:  An account that is kept separate from a broker’s own funds.  A real estate broker is required by law to deposit all client funds in a trust account.

Title Insurance Policy:  A policy that protects the purchaser, lender or other party against loss.

VA Loan:  A loan that is partially guaranteed by the Veterans’ Administration and made by a private lender.

Warrantee Deed:  A deed used to convey real property.  The deed contains warranties of title and quiet possession, with the grantor promising to defend the premises against unlawful claims of third persons.