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Glossary of Terms

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Words and terms as used in particular professions may have rather different meanings in another business or context. We have defined many of them here as they are generally used in real estate, property management, investing and insurance.
      The definitions are intentionally general, non-technical and limited. They do not encompass all the possible meanings or nuances that a term may acquire in everyday use.
      Local law, as well as custom and use in various regions or countries may modify or completely change the meanings of some defined terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z #

      Select the first letter of the word from the list above to jump to appropriate section of the glossary. If the term you are looking for starts with a digit or symbol, choose the '#' link.

Type in a word or phrase that may be unique to the definition you need.  Each time that you click "Find" another instance of that word or phrase will be found.

Spanish-English translations of Common Real Estate Terms (Alvaro Carballo-Pinto)

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Abandonment:  (1) The voluntary relinquishment of rights of ownership or other interest (like an easement) by failure to use the property. coupled with an intent to abandon (give up interest).  (2) Voluntarily giving up all rights, title, or claims to property (tangible or intangible) that rightfully belongs to the owner.  (3) The complete retirement of a fixed asset from service. 

Abatement:  A reduction or decrease. Usually applies to a decrease of assessed evaluation of ad valorem taxes after the assessment and levy or to a reduction in rent due to maintenance problems.

Ability to Pay:  Tenant or Borrower's ability to meet payments and obligations out of earnings. There are generally accepted percentages used to determine if a borrower has excess long-term debt, (43%) or a tenant will be likely to pay the rent.

Abstract:  The notes made by a title examiner based on his examination of the land records. These notes are a concise summary of the transactions affecting the property. The title agency produces  a binder from the information in the abstract.

Abstracters Certificate:  A certificate contained in an abstract which shows the time period and scope of the search of public records done by the abstracter.

Abstract of Judgment:  A summary of the essential provisions of a court judgment, which when recorded in the county recorder's office. creates a lien upon the property of the defendant in that county. both presently owned or after required.

Abstract of Title:  A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.

Abutting:  Land that touches or borders the land of another.

Accelerated Depreciation:  Depreciation at a larger than usual rate because of various reasons including:  useful or economic life materially less than physical life; assets purchased for use in conjunction with a contract or job at the completion of which the asset will have diminished or no foreseeable remaining utility; or special provisions of the income tax code.

Acceleration:  The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), or by using the right vested in the Due-on-Sale Clause.

Acceleration ClauseConditions in a mortgage or other financing instrument that gives the the right to declare all sums owing lender immediately due and payable upon the happening of an event, such as the sale of the property, a delinquency in the repayment of the note, or for breach of some other condition of the mortgage.

Acceptance:  Consent to an offer to enter into a contract.

Accessibility:  The location of a site in terms of how easily it may be reached by customers, employees, carriers, and others necessary to the intended use of the property. May also be defined as the ease of access to structures by the disabled.

Accession:  Addition to a property by natural growth or improvements.

Access Right:  The right to enter and exit a property.

Accord:  An agreement by which one accepts something different (usually less) from what is owed as full satisfaction. The amount owned may be in dispute or simply accepted as full satisfaction by the creditor or claimant. The agreement and acceptance is called "Accord and Satisfaction".

Accounts Payable:  Amounts owed but not yet paid.

Accounts Receivable:  Monies earned but not yet received.

Accretion:  The buildup of land from natural forces such as wind or water, e.g., gradual addition to the shore or bank of a waterway. The land generally become the property of the owner of the shore or bank, except where statutes specify otherwise.

Accrued Depreciation:  (1) The amount reserved each year in the accounting system for replacement of a building or other asset. (2) The portion of useful life of a property used at any given time.

Accrued Interest: Interest that has accrued between the most recent payment and the sale of an asset.

Acknowledgement:  A written declaration or confirmation by a person executing an instrument, given before an officer authorized to give an oath, stating that the execution is of his own volition.  This confirmation is made to an authorized officer of the Court or notary public who signs a statement also called an acknowledgment.

Acquiesce:  To accept passively; to accept; to comply.

Acquisition:  The process of obtaining or the act of acquiring property.  Becoming the owner of property.

Acquisition Costs: The cost of acquiring property other than purchase price; escrow fees, title insurance, lenders fees, etc.

Acre:  43,560 square feet of land.

Act of God:  Damage caused by nature (floods, winds etc) rather than destruction by man.

Actual Notice:  Unrecorded evidence of a claim against property, e.g., possession or posting of a lien.

Actual Age vs. Effective Age:  The actual age is the number of years since the structure was built. The effective age is the age that the improvements appear to be.

Actual Notice:  Unrecorded evidence of a claim against property, e.g., possession or posting of a lien.

Actuary:  A specialist, who applies mathematical probabilities to the statistics that insurance is based on.

Adapt:  To fit, make suitable, or adjust for a new use.

ADA (American with Disabilities Act):  Federal law (some states also have additional laws) governing access for the physically handicapped. As pertains to income properties, requires certain construction to assure access and usage by the disabled.

Additional Insured:  Party named as being insured under an insurance policy owned by another party. For example, a landlord or manager is named as "additional insured" on the tenant's policy.

Add-On Interest:  A method of charging interest usually used in the financing of automobiles, but not generally used in real estate financing. Interest is computed on the total amount borrowed and added on to the principal. Each payment is then deducted from this total amount. Interest on real estate loans is usually figured based on the balance owing after each payment is made (declining in balance).

Adjusted Gross Income:  Gross income of a building if fully rented, less an allowance for estimated vacancies and collection losses..

Adjustable Rate Mortgage (ARM):  A type of loan whose interest rate is adjusted periodically (usually once or twice a year) based on a pre-selected index. Also sometimes known as the re-negotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Adjustment Interval:  On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, typically one, three or five years, depending on the index.

Administrator:  A person appointed by the Court to settle the estate of a person who dies without a will. The feminine form is Administratrix. Compare "Executor."

Ad Valorem Tax"According to value." A method of taxation using the value of the thing taxed to determine the amount of tax. Taxes can be either "Ad Valorem" or "Specific." Example: A tax of $5.00 per $1000.00 of value per house is "Ad Valorem." A tax of $5.00 per house (irrespective of value) is "Specific".

Advance Fee:  A fee charged by a broker to seller to cover all or a portion of the broker's costs of promoting the property. The fee is generally credited against commissions but is not refunded if no commissions are received. Most frequently used in connection with large offerings which require a substantial outlay of funds for promotion.

Adverse Possession:  A claim made against land titled to another person based on open, notorious and hostile possession and use of the land to the exclusion of the titled owner.

Affidavit:  A statement reduced to writing and sworn or affirmed before a notary, officer, or other person who has authority to administer an oath or affirmation.

Affirmation:  A solemn declaration by a person whose religious belief forbids the taking of an oath.

Affordable Housing:  The U.S. Federal government has determined that no more than 30% of gross income should be spent on total housing cost. Affordable housing must meet that standard. See our Affordable Housing web pages.

Agency:  A relationship in which one person (Agent) is given the authority to act on behalf of another person (Principal).

Agent:  a person who has been given the authority to act on behalf of another.

Agreement:  A meeting of minds.  A change to the correct or alteration to the original document/agreement without changing its principal essence.

Agreement of SaleKnown by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Air Lot:  A designated air space over a parcel of land which, like surface or sub-surface rights, may be transferred.

Air Rights:  Legitimate use of space above the surface of the land usually based on a zoning ordinance.

Alienate:  To transfer the title or ownership of property from one person to another.

Alienation Clause:  A special type of acceleration clause that demands payment of the entire loan balance, at the lender's option, upon sale or transfer of title.  Also called Due-On-Sale Clause  See the more general Acceleration Clause.

Alluvion:  Also alluvium.  Soil deposited by accretion;  increase of land on the bank of a river due to a change in the flow of the stream.

ALTA:  American Land Title Association, a national association of title insurance companies, abstractors, and attorneys specializing in real property law which speaks for the title insurance and abstracting industry and establishes standard title policies and procedures.

Alter Ego:  A second self.  The fiduciary relationship between an agent and his principal.

Amenities:  Things that increase the value enjoyable living to be derived from a home or a beneficial influence related to the location of a property (e.g., desirable neighborhood, good schools and nearby parks) or related to the properties design or construction (e.g., pool, special appliances, walk-in pantry).

Amenity Value:  The value added to a property by associated amenities.

Amortization (Loan):  A payment plan which enables the borrower to reduce his debt gradually through monthly payments of principal.  Usually calculated by mortgage payment tables providing constant monthly payments over the term.  Amortization should not be confused with depreciation which is the time over which buildings (31.5 years) or other equipment is written off.

Amortization (TI):  The basis upon which the Tenant Improvement's are paid off over the period of the lease.  "Financed" by the landlord or paid directly by the tenant.  

Amortized Loan:  loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.

Annexation:  Addition to property by attaching a smaller item of related nature.  For examples, attaching personal property to real property or adding unincorporated land to a city.

Annuity:  An annual or other periodic payment of money, usually a fixed amount.

Anticipation, Principals of:  Affirms that value is created by anticipated benefits to be derived in the future.

Anti-Trust Laws:  Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition (e.g.., fixed real estate commissions)

Annexation:  Addition to property by attaching a smaller item of related nature.  For examples, attaching personal property to real property or combining unincorporated land to a city.

Annual Percentage Rate (APR):  An interest rate reflecting the cost of a mortgage as a yearly rate.  Everything financed in your mortgage loan package (interest, loan fees, points or other charges) is expressed as a percentage of the loan amount as a yearly rate (usually slightly above the actual interest rate alone).  The APR allows home buyers to compare different types of mortgages based on the real annual cost for each loan.

Annuity:  An annual or other periodic payment of money, usually a fixed amount.

Anticipation, Principals of:  Affirms that value is created by anticipated benefits to be derived in the future.

Anti-Trust Laws:  Laws designed to preserve the free enterprise of the open marketplace by making illegal certain private conspiracies and combinations formed to minimize competition (e.g., fixed real estate commissions)

Appel Loan (Accelerating Payoff Progressive Equity Loan):  A residential property loan which calls for a payment increase over the first 6 years. Level payments are made for the remaining years and the loan paid off during the 15th year. There is no prepayment penalty and PMI is required.

Appellant:  The party who appeals a decision to a higher court.

Appellee:  The party against whom the decision is taken to a higher court.

Applicant:  A person or entity who is applying for employment, housing, or other benefit.

Apportionment:  A division or partition of property into proportionate parts.

Appraisal:  An expert judgment or estimate of the value of real estate, made by a qualified professional called an "appraiser," as of a given date.  Most states require licenses. Various lenders have their own lists of approved appraisers.

Appraisal Methods:  The three major methods of appraisal are: Cost ApproachIncome ApproachMarket Value (comparables) Approach.

Appreciation:  Increase in value of a property that occurs with the passage of time and is not due to inflation or to additional investment in improvement of the property.  The excess of the present value of a property over its book value.  The opposite of depreciation.

Appurtenance:  Anything attached to the land or used with it that passes to the new owner. 

Arbitration:  Alternative to suing in court to settle disputes between brokers and their clients and between brokers. Traditionally, pre-dispute arbitration clauses are inserted into agreements that automatically assure that disputes will be arbitrated by objective third parties and preclude court cases.

Architect:  A person whose profession  is designing buildings, drawing plans, and generally supervising construction.  

Area Specific Plan:  A long-range plan by a local government (city or county) that specifies the future development for a portion of the area covered by the general plan.

Arm's Length Transaction:  A transaction that is conducted as though the parties were unrelated, thus avoiding any semblance of conflict of interest. For example, under current law parents may rent real estate to their children and still claim business deductions such as depreciation as long as the parents charge their children what they would charge someone who is not a relative to rent the same property.  HUD also allows parents to receive government Section 8 rent subsidies on behalf of their children.

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.

Articles of Incorporation:  A document filed with the state of incorporation wherein the purpose and structure of the corporation being formed are stated.

Assessed Valuation:  The value assigned to real estate by a state or local taxing authority. Property taxes are then determined by using a percentage of that assessed value. Some units of government tax property based on 100% of assessed value, others use various fractions times the current tax levy.

Assessment:  A local tax levied against a property for a specific purpose, such as a sewer or street lights.

Assessor:  Government official responsible for determining assessed values of properties.

Asset:  Anything having commercial or exchange value that is owned by a business, institution, or individual.
Assign:  To transfer rights or interests in property to another person

Assignment of Rents Clause:  A clause in a land-contract or trust deed which, in the event of a default, gives the beneficiary the right to collect rents of the secured property. 

Assignee:  One who receives an assignment or transfer of rights. An assignment of a contract transfers the right to buy property.

Assignor:  The one who assigns to another person.

Associate:  The term commonly applied to a real estate salesperson employed by a broker who is a REALTOR and who has Associate Membership in the local board of REALTORS.  The term associate is not copyrighted.

Associate Broker:  A person who is licensed as a real estate broker, but works for another broker.

Assume:  To take upon oneself or undertake responsibility.

Assumable Loan:  A loan in which the lender is willing to "transfer" from the previous owner of the home to the new owner, sometimes at the same interest rate, sometimes at a new rate. An assumable loan can make your home more attractive to buyers when you want to sell.

Assumable Lease:  A lease in which the lessor is willing to allow "transfer" of the lease from a lessee to a new lesssee.  There may be conditions (e.g., financial qualifications) or modification of terms associated with an allowed assumption.

Assumption of Mortgage: An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee's consent is usually required.

The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments.

An "Assumption of Mortgage" is often confused with "purchasing subject to a mortgage." When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee's consent is not required to a sale subject to a mortgage.

Both "Assumption of Mortgage" and "Purchasing Subject to a Mortgage" are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

Attachment:  Seizure of property through Court process to repay a debt.

Attestation:  A written affirmation that a document is authentic.

Attorn:  To turn over or transfer to another, to assign to some particular use or service.  To agree to become a tenant to a new owner.

Attorney-At-Law:  An attorney who is qualified and licensed to prosecute and defend actions in a court of law.

Attorney-In-Fact:  A type of agency relationship where one person holds a "Power of Attorney" allowing him to execute legal documents on behalf of another. Decisions made by the attorney-in-fact are binding on the principal.

Attractive Features:  Desirable features that motivate a prospective purchaser to make an offer to purchase or lease.  See Amenities.

Authentication:  Where a person makes a written statement, declares it is true, and signs same.

Authorization To Sell:  Formal name for the document commonly called a listing.

Avigation Easement:  An easement over private property abutting an airport runway, which limits the height of crops, trees, structures, etc., in the aircraft's takeoff and landing path.

Avoid:  To annul, cancel, make void.

Avulsion:  Removal of land from one owner to another when a stream suddenly changes course.

Axial Theory:  A theory of urban development which supposes that growth tends to occur outward from the central business district along major public transportation lines.

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Bad Title:  Title that is legally insufficient to convey property to a purchaser; not marketable title.

Backdating:  Inserting a date into a document that is prior to the date that the document was actually executed.

Back Fill:  The replacement of excavated earth into a hole or against a structure.

Bad Title:  Claim of title that is legally insufficient to convey property to a purchaser; not a marketable title.

Balance Sheet:  A financial report that shows assets, liabilities, and net worth of an entity or individual as of a specific date.

Bailee:  An insurance term meaning a person to whom goods are given in trust.

Bailor:  A person who gives goods to another to hold in trust.

Balloon Payment Loan:  Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a time specified in the contract.  The final payment on a note which is greater than the preceding installment payments.  Real estate law considers that any final payment twice as great as the smallest installment payment is a balloon payment.

Band of Investment:  A method of developing an interest rate or capitalization rate by applying mortgage and equity rates of comparable properties.

Bankruptcy:  A provision of Federal Law whereby a debtor surrenders his assets to the Bankruptcy Court and is relieved of the future obligation to repay his unsecured debts. A Trustee in Bankruptcy administers the assets, selling them to pay as much of the debt as possible. If your seller is in bankruptcy, the Trustee in Bankruptcy owns the property and is the party to sign the contract and make decisions. After bankruptcy, the debtor is discharged and his unsecured creditors may not pursue further collection efforts against him. Secured creditors, those holding deeds of trust or judgment liens, continue to be secured by the property but they may not take other action to collect from the debtor.

Bargain and Deed Sale:  Deed which conveys the property for a consideration, but without any warranties.

Base and Meridian:  Imaginary survey lines used to describe the location of lands.

Baseboard:  The board skirting the walls of a room at the floor line.

Baseline:  Survey line running east and west, crossing a principal meridian at a point, which is used in establishing boundaries under the rectangular survey system.

Basement Floor:  The lowest level of a building.

Base Year:  The initial period for the initial rent (may actually be less than or more than a year).  After the initial period rent increases and/or NNN amounts may be added.

Basis:  Regarding income tax, the current basis of an asset is the original cost of an asset, less depreciation deducted during the period of ownership, plus certain allowable out-of-pocket expenses not previously deducted.  Upon sale of an asset, the taxable gain is based on the sales price, less costs of sale, less the current basis.

Basis Point:  One hundredth of one percent. 25 basis points equals 0.25%

Bedroom Community:  A primarily residential area within commuting distance of a large city.

Benchmark:  A permanent reference mark for surveyors.

Beneficiary:  1. A person named to receive a benefit from a Trust. A contingent beneficiary has conditions attached to his rights, usually someone else must die first.  2. The lender on a note and trust deed transaction.  3. A person named in a insurance policy or a will to receive property.

Bequeath:  To dispose of property by will.

Bequest:  Personal property which is transferred by will.

Bid:  An offer.

Bilateral Contract:  Contract where all parties to the instrument are legally bound to act as prescribed.  See Unilateral Contract.

Bedroom Community:  A primarily residential area within commuting distance of a large metropolitan area.

Bill of Sale:  A document used to transfer ownership of personal property.

Binder:  A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder.

Bi-Weekly Mortgage Loan:  A loan that requires payment every two weeks rather than every month.  Because there are 26 smaller payments per year rather than 12 monthly payments, considerably less interest will be paid over the term of the loan.

Blanket Mortgage:  A mortgage covering at least two pieces of real estate as security for the same mortgage. This sort of loan is more common for commercial property or "special case" loans.

Blight:  A reduction in in real estate productivity due to causes that have a deleterious effect upon the appearance and value of an area. 

Blind Advertising:  Advertising pertaining to real estate activity or services by a licensee that fails to indicate the license status of the advertiser.

Blockbusting:  The illegal act of inducing property owners to sell by informing the that changes in racial makeup will reduce the value of their properties.


BOCA:  Building Officials Conference of America, the organization that developed the Basic Building Code, accepted as the minimum standard in certain states.  See Building Code.

BOMA Standard:  "Building Owners and Managers Association" standard for internal measurement of buildings.

Bona Fide:  In good faith, without fraud, authentic, genuine.

Bond:  An amount of money, often posted with the Court, to guarantee against loss as a result of a possible claim. For example, if there is a "lien" against the property, the owner may post a bond and the lien is removed from the property and the parties argue over the money rather than the property.

Book Value:  The value on the books of a taxpayer that represents the owner's original cost plus capital improvements, less depreciation.  Also called "cost basis" and seldom an indication of market value.

Boot:  Money or property given to make up any difference in value or equity between two properties in an exchange.

Borrower (Mortgagor):  One who applies for and receives a loan in the form of a mortgage with the intention of repaying the loan in full.

Breach of Contract:  Failure to perform provisions of a contract.

Broker:  An individual in the business of assisting in arranging funding or negotiating contracts for a client buy who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services. See Real Estate Broker.

Building Line or Setback:  Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Building Code:  A state, county or city law that sets forth minimum construction standards.  See BOCA.

Building Line:  A line fixed at a certain distance from the front and/or side of a lot, beyond which no building can  project.

Building Remainder Technique:  An appraisal method whereby a fair income is attributed to the land and the remainder of the income is capitalized to provide a value of the improvements.

Building Standard TI's:  The level of tenant improvements that a landlord is willing to include for new tenants in a particular property.

Bundle of Rights:  The rights or interest that a person has in something.  The exclusive right of a person to own, possess, use, enjoy, and dispose of real or personal property.

Bureau of Land Management (BLM):  The federal agency responsible for managing certain federal lands, not including national parks or national monuments.

Business Broker:  One who markets a going business or business opportunity and/or negotiates the sale of same for the owner of the business.  The sale may or may not include real property and/or leases thereof.  Many states require that business brokers have a real estate broker license even when real property is not directly involved.

Business Opportunity:  A business or going concern including the stock-in-trade, fixtures, goodwill, and sometimes a lease.

Butterfly Roof:  A pitched roof with sides that are higher than the center, resulting in an inward drain.  The opposite of a gable roof.

Buy-down:  With a buy-down, the homebuilder, seller, or buyer pays an amount to the lender so that the lender can provide a lower rate and lower payments, usually for an early period of the loan.  The seller may increase the sales price to cover the cost of the buy-down.  While the payments are initially low, they will increase when the subsidy expires. Buy-downs are sometimes used to qualify borrowers for a loan amount that they would not otherwise qualify for but will be able to pay in subsequent years as their income increases.

Buyer Remorse Laws:  Some states have a law which allows a tenant a number of days (e.g., 3) after signing the lease to change his/her mind, and therefore break the lease, with no penalty.  Many states have similar laws related to the purchase of certain types of property, for example, undeveloped land.

Buyer's Market:  When the supply of properties for sale exceeds the demand for purchase of properties.

By-Laws:  Rules and regulations governing an association or corporation

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Called Loan:  A loan that is due and payable at the demand of the lender usually as a result of an acceleration or alienation clause becoming effective.

CAM Costs:  Common Area Maintenance costs.  Often apportioned among and charged to tenants of a commercial property.

Canvassing:  Making telephone calls or going door to door to seek prospective buyers or sellers.

Cap:  A limit on how much the CAM, interest rate or the monthly payment can change, either at each adjustment or during the life of the lease or mortgage. Payment caps don't limit the amount of interest the lender is earning, so they may cause negative amortization.

Capacity:  The ability of a person to perform certain civil acts.

Capital:  Wealth used in trade.  Net worth of a business.

Capital Asset:  An asset not bought and sold in the normal course of business.  Generally speaking, the term includes fixed assets such as land, buildings, furniture, fixtures, machinery, and equipment.  IRS definitions also include security investments.

Capital Expenditure:  Investment for purchase of a capital asset or for a significant addition or improvement to a capital asset.  Improvements are usually more substantial or longer life than repairs and maintenance expenses.

Capital Gain (Loss):  The difference between the sale price and purchase price of a capital asset.  For real estate, capital improvements and depreciation must be taken into account.

Capital Gain Tax:  Income tax on the profit from the sale of a capital asset.  The law has traditionally specified a holding period after which the gain was called "long-term" for which there was a lower tax rate.

Capital Improvement:  A major modification or addition to a capital asset.  Usually, does not include repairs or routine maintenance or even replacement of existing parts for the asset.

Capital Investment:  The initial capital and the long-term expenditures made to establish and maintain investment property or a business.

Capitalization:  A method used to estimate value of a property based on the rate of return on investment.

Capitalization Rate:  The capitalization rate, or "cap rate," is the yield that an owner receives on his or her investment—the return rate that is considered reasonable compensation for the investment, taking the risk into account. The cap rate is determined using the following formula:
Cap Rate = Net Operating Income (NOI) divided by the total amount of the investment including down payment and closing costs.

Cash Flow:  The amount of cash derived over a certain period of time from an income-producing property. The cash flow should be large enough to pay the expenses of the income-producing property (mortgage payment, maintenance, utilities, etc.).

Cash-On-Cash Rate of Return:  The cash-on-cash rate of return method uses cash flow analysis to determine the value of property. It is calculated using the following formula:
Cash-on-Cash rate of return = Net Operating Income - Debt Service Equity

Catastrophe Risk:  A risk in which the potential loss is of exceptional magnitude, e.g., a Nuclear power station.

Caveat Emptor:  Buyer beware. The buyer must inspect the property and satisfy himself that it is adequate for his needs. The seller is under no obligation to disclose defects, but may not actively conceal a known defect or lie if asked.

Certificate of Eligibility:  The document given to qualified veterans which entitles them to VA guaranteed loans for homes, business, and mobile homes. Certificates of eligibility may be obtained by sending DD-214 (Separation Paper) to the local VA office with VA form 1880 (request for Certificate of Eligibility).

Certificate of Insurance:  Document provided by insurance agent or company prior to issuance of an insurance policy verifying that insurance is in force.

Certificate of No Defense:  A document executed by the mortgagor, upon the sale of the mortgage to the assignee acknowledging the validity of the full mortgage debt.  See also Estoppel Certificate.

Certificate of Occupancy:  A certificate issued by a local governmental body stating that the building is in a condition to be occupied.

Certificate of Reasonable Value (CRV):  An appraisal issued by the Veterans Administration showing the property's current market value.

Certificate of Sale:  A document generally given to the purchaser at a tax foreclosure sale certifying that the holder received title subsequent to the redemption period and paid the property taxes for the interim period.

Certificate of Satisfaction:  A document signed by the Note Holder and recorded in the land records evidencing release of a DEED OF TRUST, MORTGAGE or other lien on the property.
Certificate of Title:  A written opinion issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Certificate of Veteran Status:  The document given to veterans or reservists who have served 90 days of continuous active duty (including training time) It may be obtained by sending DD 214 to the local VA office with form 26-8261a (request for certificate of veteran status). This document enables veterans to obtain lower down payments on certain FHA insured loans.

Certiorari, Writ of:  A writ of review or inquiry.  To bring certain information from an inferior court to an appellate court for its review. 

Cessation:  A halt of or ceasing of.

Cestui Que Trust:  The person who has a beneficial interest in an estate, the legal title to which is vested in another person.

Chain:  Unit of land measurement equal to 66 feet.

Chain of Title:  The series of transactions from Grantor to Grantee as evidenced in the land records.

Chancery Court:  County Circuit Courts are also Courts of Chancery, the powers are exercised by the Circuit Judges who have jurisdiction in all cases of encroachment, bills to quiet title, specific performance of contracts, foreclosures of mortgages, etc.

Chancery File:  The written proceedings in a suit in the Circuit Court for the County in Chancery.

Chattel:  Personal property such as household goods or removable furniture.

Chattel Mortgage:  A mortgage on personal property.

Chimney Cap:  The finishing course of brick at the top of a chimney.

Chose:  An article of personal property.

Chose In Action:  A right to cover by suit an article of personal property.

Chronological Age:  The age of a property measured by the actual number of years elapsed since the original structure was built.

Circuit Court Commissioner's Deed:  A deed by Circuit Court Commissioner to purchase on foreclosure of mortgage or contract.  The deed given to a holder who sues to foreclose on an unpaid mortgage or contract comes from the Circuit Court in which he sued.

Circuit Court File:  All the documents relative to a suit in the Circuit Court for the County.

Class Action:  A claim brought on behalf of a group of people who have suffered similar damage or injury.

Clear Title:  A title clear of all encumbrances.

Client:  The party whom the broker or attorney represents.

Closed Mortgage:  One that may not be paid off until maturity.

Closing:  The meeting between the buyer, seller, and lender, or their agents, where the property and funds legally change hands. Also called settlement.

Closing Costs:  The numerous expenses which buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs, usually in the range of 3 to 7 percent of the loan amount, are in addition to price of the property and are items prepaid at the closing day. This is a typical list:

Buyers Expenses, Sellers Expenses:  Possible expenses include loan origination fee and discount points, appraisal fee, title search and/or title insurance, survey, taxes, deed recording fee, credit report and notary fees, documentary stamps, recording fees, escrow fees, real estate commission, attorneys' fees, survey charge, inspection fees. The agreement of sale negotiated previously between the buyer and the seller may state in writing who will pay each of the above costs.

Closing Day:  The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Closing Statement:  A financial statement given to the buyer and seller at the close of a real estate transaction, showing all receipts and disbursements involved in the sale.

Cloud On Title:  An outstanding claim or encumbrance which adversely affects the marketability of title.  Any condition that affect the clear title of real estate.

Clustering:  Grouping of home sites within a subdivision on subnormal lots, with the remaining land used as common areas.

Code of Ethics:  The high standards to which a professional (e.g., a Realtor)  pledges himself to observe.  Basically, the "Golden Rule."

Codicil:  An addition or modification to a will.

Cognovit Note:  A not authorizing confession of judgment.

Co-Insurance:  Insurance coverage on one risk provided by a number of separate insurers.

Collateral:  Assets that a borrower pledges as security for a loan.  In mortgage lending, the collateral is the specific real property that the mortgagee pledges as security.

Collusion:  A secret agreement between two or more persons to defraud another of his rights.

Color of Title:  That which has the appearance of good title but is not.

Commercial Banks:  Financial institutions providing a wide range of  services.

Commingling:  Unauthorized and illegal mixing of personal funds with funds of a customer or client.

Commission:  Compensation (fee) paid to a real estate agent by the seller (and/or buyer) for negotiating a real estate sale or loan transaction or otherwise representing parties in a transaction.  Usually it is a percentage of the sale price or loan amount.  Sale commissions are often 6 to 7 percent on houses, 10 percent on land, whereas, loan fees are usually 1 to 2 percent.

Community Property:  Property acquired while married.  Belongs equally to husband and wife by law in community property states.  See Separate Property.

Compound Interest:  Interest calculated on both the principal and on unpaid interest accrued over a prior period.  Compounding cam be specified as daily, monthly, quarterly, or any other defined period. 

Condemnation: The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government's power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium A system of individual fee simple ownership of portions (units) in a multi-unit structure, combined with joint ownership of common areas and facilities which serve the multi-unit project. For a "pure" condominium, the owner has maintenance responsibility only from the interior paint and inwards, while the association has responsibility for maintenance of the remainder of the structure.  In practice, many condo projects make the owner responsible for certain items outside the interior paint.  Each individual may sell or encumber his own unit. Compare Cooperative and Planned Unit Development.

Conservator:  Also called a Committee or Guardian, a person designated by the Court to protect and preserve the property of someone who is not able to manage their own affairs. Examples include the mentally incompetent, minors and incarcerated persons.

Construction Financing/Loan:  A short-term interim loan for the development of land and/or construction of buildings.  The loan is disbursed as construction proceeds.  It is usually paid either (1) to the owner and/or general contractor at specified construction milestones or (2) directly to contractors and other vendors as their services and/or materials, or portions thereof, are delivered.  Construction loans are generally made by lenders with offices local to the site of the construction, enabling the lender or its agent to monitor the progress of the construction.

Constructive Eviction:  May occur when the tenant moves in the following situations:
s When a landlord begins construction on nearby buildings causing too much dust and noise,
s Where severe code violations exist
s When a landlord physically prevents a tenant from using the premises for the purpose for which they were intended

Constructive Notice:  Notice provide by the public records.

Contingency: A condition put on an offer to buy a property; such as the prospective buyer making an offer contingent on his or her sales of a present home.

Contract:  A legally enforceable agreement between two parties.

Contract for Deed:  Also known as a Land Contract or Land Installment Contract. A method of financing where title remains in the Seller's name until the Buyer has paid the full purchase price. A Contract for Deed will normally trigger the Due on Sale Clause of. a Deed of Trust or Mortgage but Veterans Administration regulations specifically allow Contracts for Deed without invoking the Due on Sale Clause.
Contract of Purchase:  See Agreement of Sale

Contractor:  In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Conventional Loan: A loan not insured by HUD or guaranteed by the Veterans' Administration. It is subject to conditions established by the lending institution and State statutes. The interest rates may vary with different institutions and between States. (States have various interest limits.)

Conversion Clause: A provision in some ARMs that allows you to change the ARM to a fixed-rate loan at some point during the term. Usually conversion is allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. The conversion feature may be available at extra cost.

Cooperative HousingA system of individual ownership of stock in a corporation that. in turn, owns the structure.  The property is operated for their benefit by an elected board of directors.  While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.  Each owner must pay his portion of the debt encumbering the entire building.  For example, an apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings.  Compare to Condominium.

Cornice:  An ornamental projection at the top of a wall.

Corporate Veil:  The legal shield around a corporation that protects shareholders, officers, and directors from personal liability for debts of the corporation.

Corporation:  An artificial "person" created by law and which has many of the powers and duties of an individual.

Cost Basis:  As used for income tax purposes, the original purchase price plus acquisition costs.

Cost Approach:  A method used by an appraiser to estimate replacement costs of improvements less depreciation

Cost Segregation:  Identifies circumstances where accelerated depreciation of certain buildings components is allowable.

Co-Tenancy:  Ownership in the same land by more than one person. See, Tenants In Common, Joint Tenancy, Tenants By The Entirety.

Covenant:  A written agreement or restriction on the use of land or promising certain acts. Homeowner Associations often enforce restrictive covenants governing architectural controls and maintenance responsibilities. However, land could be subject to restrictive covenants even if there is no homeowner's association.

Credit Bureau:  A business that maintains credit history records of individuals and businesses and dispenses information to those who grant credit.

Creditor:  One to whom money is owed; a lender.

Credit Report:  A report documenting the credit history and current status of a borrower's credit standing.

Credit Scoring:  A rating system by which a credit reporting agency calculates a numerical value that represents the quality of a person's credit.

Cripple Studs:  

Cubage:  Length times width times height of a building measured from the outer surface of the walls, from basement to roof.

Cubic Foot:  A block measuring 12 inches on each side.  The equivalent of 1728 cubic inches.

Cubic Yard:  A block measuring 36 inches on each side.  The equivalent of 27 cubic feet.

Cul de Sac:  A passage way or street with one outlet; a blind alley.

Culpable Negligence:  Negligence that implies fault rather than guilt;  applies to unintentional acts.

Curable Depreciation:  Physical deterioration and functional obsolescence that can be repaired, replaced, otherwise corrected.

Curtsy:  The right which a husband automatically has in his wife's estate at her death.  Does not apply in all states.

Curtilage:  Area of land covered by a building, its yard, and its outbuildings.

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DBA:  Abbreviation for "doing business as."

Damages:  Money payment ordered by a court to be paid to one whose property rights or personal rights have been violated.

Datum:  A defined horizontal plane from which relative heights and depths are measured.

Debt:  A sum of money due by certain and express agreement.

Debtor:  One who owes a debt or is liable for a claim.

Debt Service:  The amount of loan payments; usually expressed as either a monthly or annual amount.

Debt-To-Income Ratio:  The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her gross monthly income. See Housing Expenses-To-Income Ratio.

Debt Service Coverage:  The ratio of monthly installment payments excluding mortgage loans and rent to monthly take-home income.

Decedent:  A dead individual.

Declaration: A statement signed by the insured, certifying the accuracy of information that has been given. Normally, such a declaration appears at the foot of proposal forms. In fire insurance; declarations also refer to periodical returns under stock declaration policies for the purpose of the premium adjustment

Declining Balance Depreciation:  An accelerated method for computing depreciation for income tax purposes;  provides large deductions in the early years of ownership.  The annual depreciation amount is obtained by applying a fixed percentage to the diminishing balance of the asset account - i.e., the balance after deducting depreciation for the preceding period.  See Double Declining-Balance Depreciation.

Decree:  A type of court order.

Decree of Foreclosure:  Decree by a court upon completion of a foreclosure of a mortgage, lien or contract.

Deductible: This term has the same meaning as "excess". The word comes from the practice of deducting a standard or fixed amount from any claim, before payment is made.

Dedication:  An appropriation of land by its owner for public use which has been accepted for such use by authorized public officials on behalf of the public.

Deed:  A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee.  Once recorded at the Courthouse, the original piece of paper is not needed to convey title in the future.  (See also Deed of Trust, General Warranty Deed, Quitclaim Deed, and Special Warranty Deed.)

Deed of Conveyance (Re-conveyance):  The instrument used to convey title from the trustee to the trustor (borrower) after a loan secured by a deed of trust has been repaid.

Deed of TrustLike a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.  Compare, Mortgage.

Deed Restriction:  A controlling or limiting clause in a deed.

Default:  Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.

Default Judgment:  Judgment in favor of a plaintiff because the defendant failed to answer the complaint or to show up in Court or a judgment in favor of a defendant because the plaintiff failed to show up in Court.

Defeasable:  Ownership with conditional restrictions which, if broken, can cause forfeiture of title to the grantor or the grantor's heirs.

Defeasance:  An instrument that nullifies the effect of some other deed or of an estate.

Defeasance Clause:  The clause in a mortgage that gives the mortgagor the right to redeem his property upon repayment of his obligation to the mortgagor.

Defect:  The absence of some legal requisite; deficiency; imperfection; insufficiency.  For example, a defect in title to real estate.

Defendant:  A person required to answer a court action or law suit of either a criminal or civil nature.

Deferred Payments:  Payments due that are postponed to a later date.

Deficiency Judgment:  The court order to pay the balance (deficiency) of the owed on a loan after the proceeds from the sale of the security are not sufficient to pay off the loan.

Deficit Financing:  The purchase of income property for which the net income is not sufficient to cover the cost of financing the purchase.

Deferred Interest:  When a mortgage is written with a monthly payment that is less than required to satisfy the note rate, the unpaid interest is deferred by adding it to the loan balance. See Negative Amortization.

Deferred Maintenance:  Maintenance items that have not been done when needed.  Sometimes, a term used in the real estate business to describe why a building is falling down.

Deficiency Judgment:  If the foreclosure sale does not bring sufficient proceeds to pay the costs of sale and the note in full, the holder of the note may obtain a judgment against the maker for the difference.

Delinquency:  Failure to make payments on time. This can lead to foreclosure.

Delivery:  The final, unconditional and absolute transfer of a Deed to the Grantee so that the Grantor may not revoke it. A Deed, signed, but held by the Grantor, does not pass title.

Delinquent Taxes:  Unpaid taxes that are past due.

Demand:  One of the four essential elements of value.  The willingness of anyone to accept available goods at a given price.

Demise:  A transfer to another of an estate for years, for life, or at will.

Demurer:  An objection made by one party in a lawsuit to his opponent's pleading, alleging that he ought not to answer it because of some defect in the law or the pleading.

Density Zoning:  Zoning laws that restrict the maximum average number of housing units per acre within a particular area, generally a subdivision.

Department of Veteran Affairs (VA):  An independent agency of the federal government which guarantees long-term, low-or no-down payment mortgages to eligible veterans.

Deposit: See Earnest Money and Security Deposit

Deposition:  Testimony of a witness upon interrogation under oath (not in open court) that is reduced to writing for use in court or other legal proceeding.

Depreciated Cost:  Original cost of a fixed asset less accumulated depreciation.  Also, called net book value.

DepreciationDecline in value of a property due to any source, including wear and tear, adverse changes in the neighborhood, physical deterioration, economic obsolescence, or any other reason.  Also, an amount taken as expense for accounting purposes (e.g., income tax return) that represents a theoretical loss in value due to the passage of time. The amount may be greater or less than the actual decrease in value due to real factors.
      Although homes historically increase in value over the long term, once they age their market values are never as great as their costs to rebuild. Similarly, a home compared with another may be worth less for many different reasons. Therefore, this value difference may also be referred to as depreciation. Typically, however, investors use the term as it relates to tax shelter. Since the 1986 Tax Reform Act, a residential rental property can be depreciated over 27.5 years and a commercial property over 31.5 years.  With various restrictions and limitations, the amount of paper loss can be deducted from income for tax purposes.
      Also, the procedure whereby an amount of money is set aside annually from income to pay the cost of replacing improvements.

Depreciation Rate:  A percentage which when applied to the depreciation base will yield the depreciation expense for the year.

Desist and Refrain Order:  Issued by the Real Estate Commissioner when it appears that real estate law related to a subdivision has been violated.

Developer:  Person or entity responsible for coordinating activities necessary for real estate project development including site acquisition, design, financing, site preparation, permitting, construction, and sale or lease-up.

Development Method:  An appraisal method used to value raw land when no market date information is available.   The appraiser finds developed comparable property with a known value, deducts the cost of the improvements to develop the land, arriving at the value of the subject property.

Devise:  A gift of real property by will or last testament.

Devisee:  One who receives (inherits) real property by will.

Devisor:  One who grants real property by will.

Directional Growth:  The areas in which the residential parts of a city are developing.

Disbursements:  1. Expenditures; money paid out.  2. At a real estate closing, the funds expended by buyer and seller in order to transfer ownership.

Discharge of Lien:  A document signed by one one who had recorded a lien against a property acknowledging that the claim has been settled.

Discount:  To sell a note at less than its face value.  To receive the present value of a note minus a deduction to cover interest.  A loan placement charge made by the lender to  to increase the yield on the loan.

Discount Points:  An amount paid for loan funds.

Discrimination:  In real estate; prejudice or refusal to rent or sell to a person because of race, color, religion, or ethnic origin.

Disintegration:  The last stage (decay) in the life of a property.

Dispo:  see Dispossessory

Dispossessory:  see Eviction

Distress Sale:  Sale of a property when the seller has financial problems that require immediate sale even though that might mean a price of less than market value.

Divest:  To disclose and clarify the interest of a person such as a real estate agent when selling or buying a property in which he as an interest or plans to acquire an interest.

Diversification:  Investing in a variety of investment vehicles in order to spread the risk and the profit potential.  For example, investing some funds in real estate, some in mutual funds, and some in a bank accounts.  Also, investing in a variety of investments opportunities within a particular investment vehicle.  For examples, (1) investing in real estate in different locations, (2) investing in different types of real estate such as residential and commercial properties, or (3) buying stocks in a variety of types of companies.

Document:  A written instrument on which is record evidence to prove a fact.

Documentary Stamps:  A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Documentary Transfer Tax:  A method used in some jurisdictions for taxing the transfer of real estate.  It requires that a tax be paid prior to and as a condition of recording the deed.  Stamps are often affixed to the deed.

Domicile:  The place (state) where a person maintains his permanent residence, often determined by voter registration.

Dominant Tenement:  The tenement benefiting from an easement appurtenant.

Double Declining-Balance Depreciation Method (DDB):  A specific type of Declining Balance Depreciation whereby the first year's depreciation is twice that calculated by applying the straight-line method to the original asset value.  That amount is then subtracted from the original asset value, leaving the reduced remaining asset value.  The second year's depreciation is twice that calculated by applying the straight-line method to the remaining asset value.  That amount is then subtracted from the remaining asset value, leaving the new reduced remaining asset value.  This procedure is repeated each year during the period of ownership until the full original asset value is used up.

Dower:  A spouse's interest in the property of a deceased spouse.  Often the right which a wife has to one-third of her husband's estate.  Does not exist in all jurisdictions.

Down Payment:  Money paid to make up the difference between the purchase price and the mortgage amount.  Also, the amount of money to be paid by the purchaser to the seller upon the signing of the Agreement of Sale. The agreement of sale will refer to the down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser.

Drywall:  Wall or ceiling paneling made of prepared materials such as sheetrock, gypsum,  plywood, styrofoam, or pressed fiber.

Dual Agency:  Representation of opposing parties (buyer and seller) at the same time in the same transaction. This situation most often refers to cases where the Realtor is the agent for both parties.

Dual Contract:  An illegal contract stating price and terms that are not in agreement with a separate contract covering the sale.

Due Diligence:  The investigation and analysis of an investment opportunity performed prior to offering it to clients.

Due On Sale Clause:  A clause that makes a loan non-assumable by providing the note holder may call the loan immediately due and payable upon a sale or conveyance of an interest in the property. The FNMA/FHLMC form provides that a lease of more than three years or a lease with an option to buy also triggers this provision.  Also called Alienation Clause.

Duplex:  A building that contains two single-family units within the same one or more-story structure.

Duress:  Illegal constraint or pressure applied against a person in order to force performance of an act or signing of a document against his will.

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Earnest Money:  The deposit money given to the seller or his agent by the potential buyer upon the signing of the purchase agreement to show that he is serious about buying the property.  If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement:  The right to use specified part of the land of another for a specific limited purpose. Examples include utility lines, driveways, and Ingress and Egress.  Easements can be temporary or permanent.

Easement Appurtenant:  Easement involving two parcels of land; one subject to the use, the other entitled to the use.

Easement by Necessity:  An easement allowed by law as necessary for the full enjoyment of a property.

Easement by Prescription:  An easement acquired by continuous, open, uninterrupted, exclusive, and adverse use of another's property for a specified period of time, depending upon the state.

Easement in Gross:  An easement for a specified limited use granted to a party who does not own adjacent land.   For example to a utility company.

Eave:  The overhanging portion of a roof that projects beyond the sides of the building and serving to protect the building from the elements.

Economic Life:  The period during which an improvement earns enough profit to justify maintaining it.

Economic Obsolescence:  Loss in value from reduced desirability and usefulness of a structure resulting from such extraneous causes as zoning regulations, deteriorating neighborhoods, excessive taxation, or rent controls.  Compare, functional obsolescence.

Economic Rent:  The amount of rent which a space would bring in the open market at the time of the appraisal.

Effective Age:  The apparent age of a property based on its condition.  This is the age that counts for valuing a property.  Can be more or less than the chronological age.

Effective Gross Income:  Gross income less vacancy and bad debt allowance.

Effective Tax Rate:  The income tax paid divided by taxable income.  Hence, the average tax rate.  By contrast, see Marginal Tax Rate.

Ejectment:  A legal action to regain possession of a real property, with damages for the unlawful retention.  An act against the landlords interest.

Elevation:  1. The height above sea level.  2. Side views of structure in an architectural drawing.

Emblements:  The right of a tenant to harvest and remove, after his tenancy has ended, such annual products of the land (e.g., corn or wheat) as have resulted from his own labor and care; also known as "way-growing crop."

Eminent Domain:  The power of the state to take private property for public use upon payment of just compensation.

Employee:  One who works for another under the other's direct control or that of his agent or another employee.  See by contrast, Independent Contractor.

Employer:  The one who directly controls the work of another either directly or via an agent or another employee.

Employment Contract:  A document evidencing formal employment between employer and employee or between principal and agent.  In real estate, a listing agreement or property management agreement are examples.

Encroachment:  An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.  Examples include a fence or driveway over the property line.

Encumber:  To place a lien or charge on property.

EncumbranceA legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Endorse:  To sign the back of a promissory not or check for the purpose of transferring ownership.  Endorsing "in blank" guarantees payment to subsequent holders, while endorsing "without recourse" does not.

Enforceable:  A contract or agreement in which the party(s) can be compelled to perform.

Endorsement:  An amendment to be fixed to an insurance policy and thereafter becoming a integral part of the policy; i.e. the change of an insured or reduction in the sum insured.

Enjoin:  To impose by authority.  To prohibit by court order or regulate by legal order.

Entitlement:  The VA home loan benefit is called entitlement - entitlement for a VA guaranteed home loan. It is also known as eligibility.

EPA (Environmental Protection Agency):  Federal agency concerned with enforcement of laws regarding protection of environment.

Equal Credit Opportunity Act (ECOA):  Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

EquityThe difference between the fair market value and current indebtedness secured by the property, also referred to as the owner's interest. The value an owner has in real estate over and above the obligation against the property.  An owner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.  Also, the system of legal rules administered by courts of chancery.

Equity Kicker:  An amount that is due the lender upon sale of a property in addition to the principal balance and accrued interest of the loan.  The amount is usually based on a percentage of the gain.

Equity Sharing:  A form of joint ownership between an owner/occupant and an owner/investor. The investor takes depreciation deductions for his share of the ownership. The occupant receives a portion of the tax write-offs for interest and taxes and a part of his monthly payment is treated as rent. The co-owners divide the profit upon sale of the property. Compare, Joint Ownership Agreement.

Equalization:  The lowering or raising of assessed values for tax purposes in a taxing district so as to make them equal to assessments in other districts.

Equilibrium:  The middle stage of the life cycle of property value.  The equilibrium point is the static point at the peak of its value.

Equitable Title:  The interest held by a vendee under a contract for deed or an installment contract.

Equity of Redemption:  The right of the original owner to reclaim property sold through the foreclosure proceedings on a mortgage, by payment of debt, interest and costs.

Erosion:  The wearing away of land through processes of nature such as wind, rain, streams, etc.

Escalator Clause:  A clause in a lease that provides for an increase or decrease in rent to cover specific contingencies.  Escalators are often based upon a "cost-of-living" index.  Also called escalation clause.

Escheat:  Property that reverts to the state when an individual dies without heirs and without a will.  Reversion of property to the sovereign state because the owner dies in testate and there are no heirs capable of inheriting.

Escrow:  A disinterested third party holds funds or documents on behalf of others and subject to their instructions.  Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual.  In FHA mortgage transactions an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments.  The money is held in a trust fund, provided by the lender for the buyer.  Such funds should be adequate to cover yearly anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.

Estate:  The interest of a person in real property.  Also used to refer to all the property left by a deceased person.

Estate at Sufferance:  An estate resulting where there is a retention of possession without the consent of the landlord, after expiration of a lease.  See also Lease at Sufferance.

Estate at Will:  A type of lease that does not state a definite term and may be terminated immediately upon notice by either party.

Estate by the Entireties:  An estate created by a conveyance to a husband and wife to be held by them jointly, with the right of survivorship.  See also Tenants by the Entirety.

Estate for Years:  A lease for a definite period of time.

Estate in Sole:  Property held by a corporation sole.

Estate in Land:  The degree, quantity, nature, and extent of interest that a person has in real property. 

Estate in Remainder:  An estate given by the grantor, to take effect in a third person, upon termination of a life estate.

Estate in Reversion:  The residue of an estate left by the grantor, to commence in possession after the termination of some particular estate granted by him.  In a lease, the lessor has the estate in reversion after the lease is terminated.

Estate in Severalty:  Estate in one person only.  See also Tenants in Severalty.

Estate of Freehold:  An estate in fee simple or for life.

Estate Planning:  Financial planning done to minimize estate taxes and to provide financial security for dependents.

Estate Tax:  A tax paid following the death of a person.  The tax is usually based upon the value of financial assets of the deceased at the time of death.  See our Estate & Gift Taxation page.

Estimated Tax:  An amount paid on account for a tax due where the exact amount of the tax due is not yet known.

Estop:  To impede, bar, stop, obstruct.

Estoppel Certificate:  Statement signed by a tenant (1) affirming his lease documents (attached to Certificate) and the deposit/rent amounts; (2) confirming that there are no agreements outside of the attached documents; and (3) confirming the date to which rent has been paid.   Also called Certificate of No Defense.

Et Al:  An abbreviation for the Latin "et alii" meaning ""and others."  Also used for "et alius" meaning "and another."

Ethics:  The moral "science" dealing with the duties a member of a profession owes to the public, his client, and other members of the profession.

EvictionThe legal process of removing a Tenant from possession of a property against his will.

Evidence of Title:  Documents given to a grantee which proves that the grantor which prove that the grantor owns and has the right to convey  marketable title.

Examination of Title:  Interpretation of the record title to real property  base on the title search or the abstract of title (opinion of title).

Execution:  A writ issued by a court directing a legal official to enforce a judgment against the property of a debtor.

Exemption:  In tax law, an item of income not taxed or an amount that is deducted from taxable income before calculating tax on the balance.

Exception:  A peril or contingency specifically excluded from the terms of an insurance policy.

Excess:  The first portion of a loss, being an agreed or fixed sum, which the insured agrees to bear.  For example, the policy contains a $100 deductible or excess, the claim is for $1,000, the insurance company would pay $900 and the insured would have to pay $100.

Exchange:  The transfer of of property or services in return for property, money, or services; a barter.  In real estate tax law, the transfer of property for property.

Execute:  To complete, make or perform.  In particular, to sign a document.

Executor:  A person named in a will to carry out its terms and administer the estate. The feminine form is Executrix. Compare, Administrator.

Executory Contract:  A contract under which one more things remain to be done by one of the parties.

Ex Gratia Payments:  Payments made by the insurer when there is no strict liability to make a payment according to the policy Ex Gratia Payments: Payments made by the insurer.

Exclusive Agency Listing:  The appointment of one real estate broker as sole agent for the sale of property for a specified period, reserving the right for the owner to sell to his own customer without paying a commission.  See also Exclusive Right-To-Sell Listing and Open Listing.

Exclusive Right-to-Sell Listing:  A written agreement between a property owner and the listing broker giving the broker the right to collect the agreed commission if the property is sold by anyone during the term of the listing agreement.  See also Exclusive Agency Listing and Open Listing.

Expenses:  Short term costs of doing business that are deducted from income of the business.  For rental property, repair and maintenance expenses, insurance, property taxes, and other costs of operating the property.

Express:  To state; to put into words, either orally or written.

Expressed Contract:  An oral or written contract in which the parties state the contract's terms and express their intentions in words.

Extender Clause:  A clause in an exclusive listing contract which carries the exclusive period over beyond the listing expiration date for an additional period if a sale is made to a prospect the broker obtained during the listing period.  This clause protects the listing broker for work done during the listing period by preventing the owner from simply waiting until the expiration of the listing and then making a deal with a prospect provided by the broker.

Extended Coverage:  A broad form of title insurance that is available to homeowners.  Risks covered in extended coverage that is not in the basic coverage includes, 

Extension Agreement:  An agreement between mortgagor and mortgagee to extend the maturity date of a loan.  An agreement between lessor and lessee to extend the term of a lease.

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Face Brick:  Glazed brick that provides a finished look.

Facsimile:  An exact copy that preserves the marks of the original.

Fair Credit Reporting Act (FCRA):   As amended September 30, 1997, the Act regulates consumer credit information gathering and dissemination. It dictates a seven and ten year limit on how long negative information can be reported. The Act also provides a method for correcting erroneous information in a credit file. The 1997 amendment covers landlord tenant relationships and requires landlords to notify tenants if they have been rejected because of information in their credit file or references from previous landlords. See our FCRA Pages

Fair Housing Act:  As amended in 1988, the Act prohibits discrimination in housing based on race, color, religion, national origin, sex, physical or mental handicap, or living with children, except that housing for older persons may exclude children.

Fair Market Value:  The most probable price a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and the seller each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised and each acting in what he considers his own best interest; (3) a reasonable time is allowed in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions *granted by anyone associated with the sale. *adjustments to the comparables must be made for special or creative financing or sales concessions.

Fannie Mae:  see Federal National Mortgage Association.

Farmers Home Administration (FmHA):  Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Deposit Insurance Corporation (FDIC):  

Federal Funds Rate:  A company set up under the Federal Reserve System to insure the deposits of individuals in member banks.  The current insured limit is $100,000 per covered account.

Federal Home Loan Bank Board (FHLBB):  The former name for the regulatory and supervisory agency for federally chartered savings institutions. Agency is now called the Office of Thrift Supervision.
Federal Home Loan Mortgage Corporation (FHLMC):  This agency, known as Freddie Mac, and FNMA, popularly known as Fannie Mae, are government-sponsored enterprises (GSEs) formed to support a secondary market for residential mortgages. Although they have different histories, the two GSEs are now functionally identical. They are both highly profitable. Given the extent to which capital is now directed into housing the question has been raised as to whether the GSEs still need their full array of government privileges to do what they do.
Federal Housing Administration (FHA):  A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

Federal National Mortgage Association (FNMA):  Also know as "Fannie Mae."  A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

Federal Housing Administration (FHA) Loan:  A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans ($155,250 as of 1/1/96, but is periodically raised), they are generous enough to handle moderately-priced homes almost anywhere in the country.

FHA Mortgage Insurance:  Requires a fee (up to 2.25 percent of the loan amount) paid at closing to insure the loan with FHA. In addition, FHA mortgage insurance requires an annual fee of up to 0.5 percent of the current loan amount, paid in monthly installments. The lower the down payment, the more years the fee must be paid.

Federal Home Loan Mortgage Corporation (FHLMC):  An affiliate of the Federal Home Loan Bank which creates a secondary money market in conventional residential loans and in FHA and VA loans by purchasing mortgage loans from members of the Federal Reserve System and the Federal Home Loan Bank Systems.  Also known as "Freddie Mac."

Federal National Mortgage Association (FNMA):  A secondary mortgage institution which is the largest single holder of home mortgages in the United States. FNMA buys VA, FHA, and conventional mortgages from primary lenders. Also known as "Fannie Mae."

Fee Simple Estate:  The highest type of interest a person can have in land.  Absolute ownership (subject to laws) with the right to dispose of the property, mortgage it, or pass it on to heirs.

Fiduciary:  A person holding a position of trust and having the responsibility of acting on behalf of another.  Agents, trustees, executors, administrators, and attorneys-in-fact are fiduciaries.

Finance Company:  A company licensed by a state to loan money for most lawful purposes.  Interest rates are usually higher than a bank would charge for the same type of loan.

Firm Commitment:  A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

Fiscal Year:  Any accounting period of twelve consecutive calendar months.  Under Federal Revenue Code, a twelve month period ending with the last day of any month other than December.

Fixed Expenses:  Recurring charges or costs required in the holding of a property;  for example, taxes and insurance.

Fixed Rate Mortgage:  The mortgage interest rate will remain the same on these mortgages throughout the term of the mortgage for the original borrower.

Fee Simple:  The absolute total interest in real property.  Compare, Life Estate, Reversion.

Fee-Tail Estate:  An estate of inheritance given to a person and the heirs of his body.  If the grantee dies without leaving issue, the estate terminates and reverts to the grantor.

Felony:  A major crime, the penalty for which is usually imprisonment in a penitentiary.

Fiduciary Relationship:  A relationship of trust and confidence between principal and agent; lawyer and client; doctor and patient; etc.

Financial Advisor/Planner:  One who advises a client regarding investment and management of funds so as to maximize income and/or capital growth.

Financing Statement:  A form filed, usually with a Secretary of State, giving the names and addresses of the debtor and the secured party, a description of the property securing the debt, and sometimes the amount of the indebtedness.  A public notice of a lien on personal property.

Financial Statement:  An accounting statement(s) that shows the financial condition of a person or other entity.  Usually, both (1) income & expense statements for one or more periods of time and (2) a balance sheet showing the assets & liabilities as of a specific date are included.

Finder's Fee:  A fee paid for referring a customer to a mortgage or real estate broker.  In many states it is illegal to pay a finder's fee to any party that is not licensed as a mortgage or real estate broker.

Fire Wall:  A wall that inhibits the spread of fire from one room/area to another.  Building codes set the requirements of how long the wall must check the fire and what construction techniques/materials are acceptable.

Fixture:  An item of personal property attached to real property so that it can not be removed without damage to the real property.  A fixture becomes part of the real property.


Foreclosure:  A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property, and depriving the mortgagor of possession.  The process by which a lender sells property securing a loan in order to repay the loan. Under a Deed of Trust, foreclosure is by public auction after appropriate advertisement. A Mortgage may require the lender to obtain Court approval prior to sale.

Forcible Entry and Detainer:  A legal action to recover possession of premises which are unlawfully held.

Foreclosure By Advertisement:  A method of foreclosure not involving extensive court action permitted by statute in some states, including Michigan.

Foreshore:  The land between low-water mark and high-water mark.

Forfeiture:  Loss of something of value because the owner failed to perform.


Four F Property:  Find them, fix them, flip them and forget them.  A term used by investors who buy to fix up and resell.

Franchise:  A contractual agreement to run a business using a designated trade name and operating procedures.

Fraud:  The intentional and successful employment of deception or collusion to cheat or deceive another person whereby that person acts upon it to his detriment, loss, or disadvantage.

Freddie Mac:  see Federal Home Loan Mortgage Corporation.

Free and Clear:  "Free" means a freehold estate, i.e., one of indefinite duration, and "clear" means no money encumbrances against the title.

Free Dealer:  A married woman who has met the legal requirements, can deal in real estate in her own name, and can sue and be sued in her name without her husband joining her.

Freehold:  An estate in fee simple for life; ownership implied.

Front Foot:  A standard of measurement, one foot wide and extending from street line for a depth, usually 100 feet.

Full Disclosure:  The disclosure of all material facts to a person.

Fully Indexed Note Rate:  As related to adjustable rate mortgages, the index value at the time of application plus the gross margin stated in the note.

Functional Obsolescence:  Loss in value due to out-of-date, old-fashioned, or poorly designed equipment and fixtures.  A type of depreciation reflecting loss in value from out-of-date, old fashioned, or poorly designed equipment and fixtures.  Compare, economic obsolescence.

Future Interest:  The present right to an interest in real property that will not result in possession or enjoyment until some time in the future, such as reversion or right of reentry.

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Garnishment:  A legal procedure that places a claim against a person's salary or wages for a debt or judgment.  Payments are made directly from the person's employer to a court or the debtor.  The amount that can be deducted from a person's income depends upon state law and the court.

General Contractor:  A construction specialist who enters into a contract with a property owner or lessee to construct a building or other improvements on land or to add improvements to an existing building.  The general contractor may then (1) perform all the required work using his own employees, (2) contract with sub-contractors to perform some trades (e.g., concrete, electrical, plumbing, roofing), or (3) contract for all work with various sub-contractors, the general contractor acting only as a construction manager.

General Lien:  A lien against all real and personal property owned by a debtor.  See Lien and Special Lien.

General Partner:  Any partner of a general partnership.  A partner in a limited partnership who manages the partnership and is liable for recourse debts of the partnership.

General Plan:  A long-range plan by a local government (city or county) that specifies the future development for the governed area, including the desired zonings and locations of schools, parks, and major commercial and industrial development.  Compare, Area Specific Plan.

General Tax:  See Ad Valorem Tax.

General Warranty Deed:  A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.  In other words, Grantor agrees to protect Grantee against the world.

Gift Deed:  A document used to make a gift of real property.

Gift Tax:  A tax assessed by the federal or a state government against a gift made by one person to another.  There are often exemptions that allow a certain total amount to be given tax-free during a lifetime.

GI Loan:  See VA Loan.

Ginnie Mae:  see Government National Mortgage Association.

Good Consideration:  Arising from love, affection, and the like, but having no monetary value.

Good Faith:  Honesty of intention.  A relationship that requires everything to be honest, open, and above board.

Good Will:  The excess of the price paid for a business as a whole over book value or over the agreed value of all tangible net assets acquired.

Government Lot:  A tract of land containing 40 acres, more or lot.

Government National Mortgage Association (GNMA)

Grace Period:  A period of time following the due date of a payment during which there is not financial penalty for making the late payment.  A payment received after the grace period usually incurs a late charge.  Real estate loans often have a 15-day grace period.  Even though there is no penalty fee, payment received within the grace period is technically late and could affect a person's credit record if reported as late by the lender.

Gradient:  The slope, or rate of increase or decrease in elevation, of a surface, road or pipe, expressed in inches of rise or fall per horizontal linear foot or in percent.

Graduated Lease:  A lease that provides for a varying rent, often based upon some future determination, e.g., a periodic adjustment based on a cost-of-living index or an appraisal.

Graduated Payment Mortgage (GPM):  A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grandfather Clause:  Provision included in a new rule or law that exempts from the rule or law a person or business already engaged in the activity coming under regulation.

Grant Deed:  The customary document used in California to transfer title to real property. It contains two implied warranties; that the owner has the right to sell and that there are no liens or other clouds on the title.

Grantee:  That party in the deed who is the buyer or recipient and is receiving an interest in property ( ee's get - or's give).

Grantor:  That party in the deed who is selling or giving up an interest in property (ee's get - or's give)

Gross Income:  Income before expenses or vacany.

Gross Lease:  A form of lease whereby the tenant pays a fixed amount of rent for all services associated with his leased premises including maintenance costs, property taxes, and insurance.

Gross Living Area Above Grade:  The total heated living space, finished in a similar manner, located at or above the front-door level, and based upon exterior measurements.

Gross Margin:  With regard to an adjustable rate mortgage, an amount expressed as percentage points, stated in the note which is added to the current index value on the rate adjustment date to establish a new note rate. 

Gross Rent Multiplier:  The simplest way to obtain cursory estimates of the value of a property—the so-called "yardstick value"—is to calculate the gross rent multiplier (GRM). This method compares the property's sale price with its current gross annual rental income to determine whether the income will cover your new mortgage and operating expenses. The gross rent multiplier is calculated using the following formula: GRM = Sale price divided by the Gross annual rents The higher the gross rent multiplier, the more likely the property will yield a negative cash flow. Investors should not pay more than five to six times gross rent.

Gross Square Footage:  The total square footage of the building, including machinery rooms, vertical penetrations, etc.

Ground Lease:  A lease of land in which he owner grants a long-term lease of the land (usually 99 years) and allows the lessee to build and use the land as agreed. At the end of the term, the land and all improvements revert to the owner.

Ground Rent:  Earnings of improved property credited to the ground itself after allowance is made for earnings of the improvements.

Guaranteed Inventory:  A guarantee given by the sell that the actual amount of inventory on hand at the close of escrow will equal the value placed on the inventory at the time the sales contract was executed.

Guarantee of Title:  A guarantee by an abstract company or title company that title is vested as shown on the guarantee.  Backed only by the assets or reserves of the company.

Guaranteed Sales Plan:  An agreement between seller and broker that if the seller's property is not sold before a certain date, the broker will purchase it for a specified price.

 Guaranty:  A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.  The document wherein an individual or other entity guarantees lease performance of a tenant. Although usually structured with a financially strong individual guaranteeing the lease of a limited liability entity (e.g., a corporation) or a financially weak tenant, various other arrangements are possible (e.g., a financially strong corporation could be guarantor for a questionable tenant).

Guardian:  One appointed by the Court to administer the affairs of a minor or other person of limited legal capacity.  A guardian ad litem is appointed to protect one's interest in a particular legal action. See, Conservator. 

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Hazard:  Something that has the potential of causing injury or damage.

Hazard Insurance:  A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorms and other common hazards.

Heir:  A person who inherits property or is scheduled to do so by the terms of a will or trust.

Holding Period:  The period of time for which tangible or intangible property is owned.

Hiatus:  A gap or space left between two parcels of land and not included in the legal description of either parcel. Similar terms are Gaps and Gores.

Historic Building:  A depreciable structure that is certified and listed in the National Register of Historic Places or listed in a registered historic district, if the structure is certified as contributing to the significance of the district.

Historic District:  Registered historic districts include those on the National Register of Historic Places and those that have been state or locally designated, if the ordinance or act authorizing the district, and the district itself are also certified.

Holographic Will:  A will written entirely in the handwriting of the testator.

Home Inspection:  An objective visual examination of the physical structure and systems of a home, from the roof to the foundation. The standard home inspector's report will include an evaluation of the condition of the home's heating system, central air conditioning system (temperature permitting), interior plumbing and electrical systems; the roof, attic, and visible insulation; walls, ceilings, floors, windows and doors; the foundation, basement, and visible structure.

Homeowners Insurance:  Insurance that protects the homeowner from "casualty" (losses or damage to the home or personal property) and from "liability" (damages to other people or property). Required by the lender and usually included in the monthly mortgage payment.  A standardized package insurance policy which covers an owner-occupied  residential property owner against financial loss from fire, theft, public liability, and other common risks.

Homestead Deed:  A declaration filed in the land records that an individual is asserting his homestead exemption. That exemption allows one to protect some assets (amount varies by state) against the claims of creditors.

Home Warranty:  Insurance obtained at the time of purchase of a home that covers certain defects discovered after purchase. The items covered varies between insurance companies and with the coverages desired.

Housing Expenses-to-Income Ratio:  The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio. 

Housing Ratio:  The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her gross monthly income. See debt-to-income ratio.

HUD (U.S. Department of Housing and Urban Development):  Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

Hypothecate:  To designate certain property as security for a debt without giving up possession.

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Implied:  Presumed or inferred rather than expressed.

Implied Conditions:  Basic principles of insurance, never printed or written because they are conditions of common law.

Implied Contract:  A contract between two parties that is demonstrated by their acts and contact rather than by explicit written or oral agreement.

Impound:  That portion of a borrower's monthly payments held by the lender or loan servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Impute:  To assign to a person or other entity the legal responsibility for the act of another.

Income Property:  Property that is rented to others and produces income.

Income Approach:  A method used by an appraiser to estimate the value of a property by calculating its generated income.

Incompetent:  Not legally qualified to reach proper decisions.  One who is unable to come to a sound conclusion or to manage his affairs by reason of mental deficiency.  By law one who has not reach the age of maturity.  A guardian must act in place of and on behalf an incompetent person.

Incurable Depreciation:  Physical deterioration, functional obsolescence, or economic obsolescence which are physically impossible or economically unfeasible to correct.

Indemnity:  To guarantee against a loss or liability.  A protection against actual loss or damage as a result of the matter mentioned. An indemnity is not an absolute guarantee that something won't happen; it states the terms under which an actual loss will be compensated.

Independent Contractor:  One whose time and efforts related to a project are not regulated by  other than himself.

Index:  A published interest rate that lenders use to decide how much the interest rate on an ARM will change over time.  A. measure of the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one-, three-, and five-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.  No one can be sure when an index rate will go up or down.  You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

Inflation:  Increase in prices due to devaluation of the currency.

Ingress and Egress:  Applied to Easements, meaning the right to go in and out over a piece of property, but not the right to park on it.

Injunction:  A court order that prohibits or compels an act.

Initial Note Rate:  With regard to an adjustable rate mortgage, the note rate upon origination. This rate may differ from and is usually less than the fully indexed rate.

Insolvent:  The state of being unable to pay all one's debts out of available assets.

Installment Sale:  A sale in which the seller spreads the receipt of proceeds over two or more tax years and does not receive more than 30 percent in the year of sale, therefore spreading taxation of gain over two or more years.

Institutional Lender:  A bank, insurance company, or savings and loan company that deals in real estate loans.

Instrument:  A written legal document.

Insurable Interest:  A legal or equitable interest in property or a person where the insured must stand to lose financially on the happening of some insured event.  For example, a property owner and the lender having a loan secured by the property have insurable interests in the property and could obtain hazard insurance covering the property, whereas a brother likely could not solely because of his personal relationship.  As another example, a wife has an insurable interest in her husband and could obtain a life insurance policy on him, whereas, a stranger or even a friend or relative without insurable interest could not.

Insurable Title:  Title subject to a defect or claim which a title insurance company is willing to insure against. Compare, Marketable Title.

Insured:  The person whose life, health, or property is covered by an insurance policy.
Insured Closing Letter:  An indemnity given to a lender from a title insurance company, agreeing to be responsible if the closing agent does not follow the lender's instructions or misappropriates the loan proceeds. Lenders usually require an insured closing letter be on file for each settlement.

Insurance Binder:
  A document issued by an insurance agent that binds an insurance company to provide temporarily insurance for a fixed short period of time prior to underwriting approval of the policy.  A title insurance binder is the written commitment of a title insurance company to insure title to the property subject to the conditions and exclusions shown on the binder. 

Insured:  A person with an insurable interest who stands to benefit from a policy of insurance.

Insurer:  An individual or company granting polices of insurance.

Intangible Asset:  That asset which can not be touched.  The asset may be represented by something that can be touched, such as a document.  Examples are good will and, shares of corporate stock.

Interest:  A charge paid for borrowing money. (See mortgage note)

Interest Rate:  The percentage of a sum of money charged for its use.

Interested Party:  One who benefits from a transaction in any way.

Interim Financing:  A construction loan made during completion of a building or a project. A permanent loan usually replaces this loan after completion.

Internal Rate of Return (IRR):  IRR and Financial Market Rate of Return (FMRR) are sophisticated valuation methods used when properties have uneven and/or negative cash flows. They usually factor in tax ramifications and a sale of the property at some future date. The IRR uses discounted cash analysis to measure investment yield. The FMRR is a modified IRR that accounts for negative cash flows by using a safe estimated rate to save funds and earn interest in profitable years. Investors should note that IRR and FMRR are based on assumptions that may not be accurately predicted.

Interpleader, Bill of:  Two or more parties claim the same thing (or funds) held by a third party and the third party, laying no claim to it himself, is ignorant of which party has a right to that claimed.  The third party may file a Bill of Interpleader in a Court of Equity and the Court may decide who is entitled to the thing or funds.  A broker who may have a claim for his commission out of the fund can file a Bill of Interpleader so that his rights can be protected.

Interrogatories:  Written questions provided by one party in a lawsuit that must be answered (under penalty of perjury) in writing by the other party. 

Intestate:  An estate without a Will. Compare, Testate.

Inventory:  The stock-in-trade of a business;  a list of same.

Involuntary Conversion:  The substitution of one item of property for another as the result of a casualty, condemnation, or other cause over which the owner has no control.  Under the Internal Revenue Code, a loss is recognized, but not gain provided that the proceeds are reinvested in similar property by December 31st of the second year after the conversion.

Involuntary Lien:  A lien imposed against property by operation of law without consent of the owner, such as a tax lien, judgment lien, or mechanics lien.

Ipso Facto:  By the fact itself.

Irrevocable:  That which can not be revoked or changed.

Irrevocable Trust:  A trust that cannot normally be broken after it has been executed.

Irrigation District:  A quasi-political district created under special law to provide for water service to property owners in the district.  Irrigations fees are usually a lien against a property similar to property taxes.

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Jalousie:  A kind of blind, shutter, or window made with slats fixed a an angle, the angle often being adjustable.

Java:  When an RHOL page is loading you will sometimes see "Loading Java" near the bottom of your screen. Java in a programming language that allows a mini program to be included with a web page. It adds dynamics and interactively but slows loading.

Jointly and Severally:  A debt incurred by two or more parties "jointly and severally" allows an action to be brought against all the parties or against any one of the parties for the entire debt.

Joint Ownership:  Ownership by two or more people.  Creditors may sue to have the property divided to settle claims against one of the owners.

Joint Ownership AgreementAn agreement between owners defining their rights, ownership, monetary obligations and responsibilities. This could be between and investor and an occupant or the occupants.  If an investor is involved, the investor does not take depreciation deductions and none of the occupant's payment is deemed rent for tax purposes.  Compare, Equity Sharing.

Joint Tenancy Two or more persons own a property. Joint tenants with the common law right of survivorship means the survivor inherits the property without reference to the decedent's will.  Creditors may sue to have the property divided to settle claims against one of the owners. Compare, Tenants In Common,  Tenants By The Entirety, Joint Tenants with Right of Survivorship)

Joint Tenancy With Right of Survivorship:  When two or more people own an asset it is generally agreed that upon the death of one their interest passes to the other(s).

Joint Venture:  The joining of two or more persons or entities for the purpose of pursuing a particular one-time business venture.  Usually the parties contribute different things to the venture.  For example, a land owner may joint venture with a construction corporation to develop the land with condominiums.  In this case, the owner contributes land to the project and the construction company contributes expertise and labor and either or both may provide the financial capacity to obtain a construction loan for the project.

Joist:  Parallel beams, made of wood, steel, or concrete, that are supports for roofs, floors, or ceilings.  See Floor Joist, Ceiling Joists

Judgment:  A court decree that one party is indebted to another and fixing the amount of that indebtedness, usually the result of a civil lawsuit.  The judgment is usually a general lien against the party and will affect that party in the purchase or sale of real estate.

Judgment Lien:  A judgment is a lien against all real property owned by the judgment debtor in the county where the judgment is docketed (recorded).

Jumbo Loan:  A loan which is larger than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation ($214,600 as of 1/1/97).  Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

Junior Mortgage:  Mortgage of lesser priority than the first recorded mortgage. 

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Key Lot:  A lot located so that one side adjoins the rear of the other lots.  Usually the least desirable lot in a subdivision.

Kickback:  An illegal payoff for a favor.

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Land Contract:  See, Contract for Deed.

Landlord:  Usually the owner of the property being leased or rented, but may also be another party who has the authority or right to lease or rent the property to a Tenant.

Landlord's Revenge:  When a landlord has not been able to collect on an old debt for back rent or damages after nine years or so, they sometimes forgive it with a letter to the IRS. The amount of the debt, plus interest, becomes income to the former tenant that year and messes up everything from earned-income tax credits to expected refunds. It takes the place of a Christmas card that year.

Latches:  Delay or negligence in asserting one's rights.

Larceny:  The stealing, taking away, or carrying away of the property of another without his consent with the intent of converting it to the use or benefit of other than that of the owner.

Latent:  Hidden, concealed, dormant, or does not appear upon the face of a thing.  For example, a latent defect is a defect that will not be revealed by reasonably careful inspection.

Lead-Based Paint:  Lead has been determined to cause developmental problems in young children when ingested. Lead-based paint was used in and on homes in America until 1978 and continues to present a serious health problem. The federal government has mandated lead-based paint disclosure and information whenever a pre 1978 home is sold or rented. See lead on our Environmental Pages

Lease:  A legal document setting forth the agreement between the Landlord and Tenant. It explains under what conditions the Tenant is allowed to occupy the property and the responsibilities of the Landlord. The terms Lease and Rental Agreement are interchangeable, but sometimes (1) the term "Lease" is used for a term of a year or more and term "Rental Agreement" is for a shorter period or (2) the term "Lease" is used for commercial properties, while the term "Rental Agreement is use for residential properties.

Lease Term:  The period for which the lease will be in effect.

Leasehold Estate:  Tenant's right of possession for a specific period of time under a lease agreement. (Common in Hawaii.)

Leasehold Improvements:  Improvements made to real property by the tenant or on his behalf in order that he can use the leased space for his intended purpose. 

Leasing Agent:  One who represents a property owner in the leasing the property, but is not necessary also involved in the management thereof.

Ledger:  A record that shows the receipt and disbursements as they affect particular transactions.

Legal Age:  The age at which a person reaches legal maturity and can now perform certain acts or be bound by contract.  Different states and the federal government define legal age as different chronological ages for different purposes.

Legal Description:  A description, recognized by law, which is sufficient for a surveyor to locate and identify a property without oral testimony.

Legal Entity:  An individual, partnership, trust, corporation, association, or other form of organization empowered by law or custom to own property or transact business.

Legal Person:  A creature of statute having certain powers and duties of a natural person, e.g., a corporation.

Lender:  The one loaning funds to a borrower.

Lessee:  see Tenant

Letter of Intent:  A letter from a potential buyer for a property stating his intent to purchase the property under certain conditions. The letter is usually not legally binding as would be a Purchase Contract.

Lessor:  see Landlord

Letter of Credit:  A document generated by a financial institution (e.g., bank) that guarantees the credit of the institution's client to a party from whom that client is purchasing goods or services.

Leverage:  Using a small amount of money to realize profit on a larger amount that include borrowed funds. Debt as a relationship to equity - the more long-term debt the greater the leverage.  For example, with a $70,000 loan on a property worth $100,000 which is appreciating a a 5% annual rate, you realize a $5,000 annual return on a $30,000 investment, or a 17% return on investment.

Leveraged Lease:  Lease that involves a lender in addition to a lessor and lessee.  The lender puts up part of the cash (usually the majority) to purchase the asset.  The balance is put up by the lessor.  The lessee then makes periodic payment to the lessor, who in turn pays the lender.  The lessor, as owner of the asset, is entitled to the tax benefits.

Liability:   A legal responsibility for a condition or act, or to pay compensation to another person.

Liability Insurance:  Insurance that provides protection against civil lawsuits resulting from injury, death, or other damages by a person or occurring on a person's property. 

Lien:  A claim by one person on the property of another as security for money owed.  Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.  Property is said to be encumbered by a lien and the lien must be removed to clear title.  See also General Lien and Special Lien.

Lien Release:  A written statement from a service or material supplier that he has been paid for the services or materials that he has provided for construction on a property.

Life Cap:  With regard to an adjustable rate mortgage, a ceiling the note rate cannot exceed over the life of the loan.

Life Estate:  The right to use, occupy and own for the life of an individual. Compare, Fee Simple.

Limited Liability Company (LLC):  An entity created under state law that offers many of the operational and limited liability benefits of a corporation, but is taxed like a partnership.

Limited Partner:  A partner in a limited partnership who has no risk of loss beyond his investment in the partnership.  In order to have this protection, the limited partner can have only a very narrowly defined role in the operation of the partnership.

Liquid Asset:  An asset that is already cash or can quickly be converted to cash without significant loss from its current market value.  For example, a checking account and publicly traded stocks are considered to be liquid assets.

Liquidation:  Disposal of assets and inventory by a business, usually because the business is going out of business.

Lis Pendens:  Recorded document showing a pending litigation filed in the court. These show up on the preliminary title report and must be dealt with when transferring ownership or refinancing.

Listing Broker:  The real estate broker who a has contract with the property owner that gives the broker the right to market the property and be paid a specified commission if he finds a ready, willing, and able buyer.  See also Selling Broker.

Living Trust:  A Trust set up for estate planning purposes wherein the Trustor(s) is also the Trustee(s) until the death or incompetence of one or more of the Trustors at which time the successor Trustee(s) becomes Trustee(s).  This type of trust that allows the estate owner, Trustor, to also be the Trustee and to have full access to and control of assigned trust assets while reducing, or even completely avoiding, probate.  There can also be tax benefits associated with the trust.  A Revocable Living Trust can be revoked or modified by the Trustor at any time prior to his death or incapacity.  A Living Trust can be either Revocable or Irrevocable.

Loan Application:  The loan application is the source of information on which the lender bases a decision to make the loan; defines the term of the loan, gives the name(s) of the borrower(s), place of employment, salary, bank accounts and credit references, and describes the real estate that is to be mortgaged. It also stipulates the amount of the loan being applied for and the repayment terms.

Loan Commitment:  A promise by a lender to make a loan on specific terms or conditions to a borrower or builder. A promise by an investor to purchase mortgages from a lender with specific terms or conditions. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paper work or compliance with stated conditions.

Loan in Default:  A loan of which no payments are being made and in danger of resulting in foreclosure. 

Loan Origination Fee:  A fee charged by the lender for evaluating, preparing, and submitting a proposed mortgage loan.

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

Long-Term Capital Gain:  Gain on the sale of an asset that was held for at least the minimum period of time required to qualify for a reduced rate of taxation per the current IRS Code.

Loophole:  A technicality in a law, regulation, or contract that allows one to get around the intent of the document or a specific clause therein.

Low Income Housing Tax Credit:  A temporary low income housing incentive added to the IRS code in 1986 as part of tax reform that was made permanent in 1993. Investors receive an annual credit of up to their tax bracket times $25,000. The credit must be spread out over 11 years. See our Tax Credit Pages

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Majority:  The age at which a person may handle his own affairs.

Management Fee:  Compensation paid for management services.  For property management, the fee is usually based on a percentage of collected income.

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

Marginal Tax Rate:  The income tax rate at which an additional earned dollar will be taxed.  For a graduated tax rate, such as the U.S. federal and most states have, the marginal rate is the highest rate at which a person will be taxed for his particular income level.  By contrast, see Effective Tax Rate.

Market ApproachA real estate appraisal term for determining what price the property is likely to bring in the local market at a certain point in time. The value is determined by comparing the subject property to similar properties that have recently sold, those that did not sell, and those that are currently being offered for sale.  Also, called the Comparables Approach.

Market Value:  The highest price that a buyer would pay and the lowest price a seller would accept on a property.  Market value may be different from the price a property could actually be sold for at a given time.

Marketable Title:  A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.  Compare, Insurable Title.

Material Fact:  A material fact is one which would influence the judgment of a prudent buyer, lender or underwriter in accepting or rejecting a proposal, fixing the rate of premium or setting special conditions.

Mechanic's Liens:  The right of an unpaid contractor, laborer or supplier to file a lien against property to recover the value of his work 

Metes and Bounds:  A means of describing land by directions and distances rather than reference to a lot number.  Generally used when land has not been subdivided into lots.

Mill:  One-tenth of one cent; the unit of money often used in specifying the property tax rate.  A tax rate of one mill on the dollar is the same as a rate of one-tenth of one per cent of the assessed value of the property.

Mini-Warehouse:  Warehouse space divided into separate spaces for use by small business.

Misrepresentation:  A false, misleading, or incorrect statement, account, or explanation.

Month-To-Month Tenancy:  A lease of real property for a term of one month, renewable for each succeeding month, at the option of either party; an estate at will.

Mortgage:  A voluntary lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.  To foreclose, the lender must often institute a court action and the borrower may have the right to reclaim the property after foreclosure. Compare, Deed of Trust.

Mortgage Broker:  One who finds a loan for a borrower and is paid a fee to do so.  The loan is usually from a third party lender and the broker's fee may be paid by the borrower or lender or both.

Mortgage Commitment:  A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance:  Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance, FHA mortgage insurance. 

Mortgage Insurance Premium (FHA):
  The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

Mortgage Note:  A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgage (Open-End):  A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

Mortgagee:  The lender in a mortgage agreement.

Mortgagor:  The borrower in a mortgage agreement.


Multiple Listing Service:  An association of real estate brokers who share listings.  The listings can be sold by any of the brokers and the selling broker will receive a commission as specified in the listing.

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Natural Person:  A living individual as contrasted to a legal person.

Negative Amortization:  Amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn't covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

Negative Cash Flow:  When outgo exceeds income, with the difference funded from another source.

Negligence:  Lack of reasonable care.

Negotiate:  To bargain and trade, arranging the terms of a contract.

Neighborhood Analysis:  A demographic analysis of the area in which a property is located, performed for use in property management planning.

Neighborhood Watch:  A very successful nationwide program that organizes area residents in an effort to prevent crime and vandalism by watching each other's property. It is usually promoted by the Community Relations Section of local police Departments. Training includes: how to spot trouble and how to report suspicious activity. Signs are posted announcing the existence of the group in the neighborhood as a deterrent.

Negotiable Instrument:  A promissory not or check which meets certain legal requirement, allowing it to circulate in commerce.

Net Effective Income:  The borrower's gross income minus federal income tax.

Net Listing:  A listing based don the net price the seller will receive if the property is sold.  Under a net listing the broker is free to offer the property for sale at the highest price he can get and keep the amount over the net listing price, increasing the commission.  Net listings are illegal in many states.

Net Operating Income (NOI):  Gross income less all operating expenses, including: maintenance, repair, taxes, insurance, management and a reserve for vacancy and uncollected rent. All expenses except mortgage interest and principal.

Net Worth:  The difference between total assets and total liabilities.

NNN (Triple Net) Lease:
  see Triple Net (NNN) Lease

Non-Assumption Clause:  A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

Non-recourse Loan:  A loan for which only the property securing the loan is at risk.  The borrower is liable only to the value of the property and his assets beyond that property are not at risk if the property is foreclosed upon.  That is, the lender cannot obtain a deficiency judgment against the owner if the amount realized by the lender upon sale of the property is less than the  amount of the loan.

Notary Public:  One authorized by law to acknowledge and certify documents and signatures. 

Note:  A written promise to pay a certain sum of money at a certain time. A negotiable note starts "Pay to the order of" and is transferable by endorsement similar to a check. 

Notice of Completion:  A notice filed or recorded with a governmental agency (usually city or county) by a property owner, or by his contractor or other agent, stating that construction is complete. The filing/recording starts the clock on time periods wherein contractors can file liens.

Notice of Non-Responsibility:  A notice posted on a rental property where a tenant is undertaking improvements in order to protect the property against liens by the contractors, workers, and material suppliers used by the tenant.

Novation:  The substitution of a new obligation for an old one.  A release of liability on an existing obligation.

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Oath:  A pledge made in verification and truth of statements to be made.

Obligee:  The person in whose favor an obligation is entered into or incurred.

Obsolescence:  Impairment of desirability and usefulness brought about by physical, economic, functional, or other changes.

Occupancy:  Having possession of a property.  Physically taking and holding it and residing thereon as a tenant or owner.

Offer and Acceptance:  The two components of a valid contract; a "meeting of the minds."

Off-Sale License:  Type of liquor license which permits the licensee to sell alcoholic beverages for consumption of the premises of the licensee.

Offset Statement:  Statement by owner of property or owner of lien against property, setting forth the present status of liens against subject property.

Ogligor:  The person who is bound to perform an obligation.

Occupancy Permit:  Permission for occupancy of a building (usually new construction) that is issued a by local governmental agency after all inspections have been passed and utility services to the property are certain.

Offer:  A proposal; after acceptance it becomes a contract.

Offer to Purchase:  A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

Office of Thrift Supervision (OTS):
  The regulatory and supervisory agency for federally chartered savings institutions. Formally known as Federal Home Loan Bank Board.

Offset Statement:  That statement of an owner or lender which sets forth the present status of any loan against the property. Also, a tenant's declaration of his interest in the property.

Offsite Improvements:  Improvements constructed to provide services to structures to be built on lots in a subdivision.  Improvements include roads within the subdivision and sewer lines, water lines, electrical, cable TV, and phone service to the lots.  Compare, Onsite Improvements.

Onsite Improvements:  Improvement associated with construction of the building itself.  Compare, Offsite Improvements.

Open End Mortgage:  A mortgage loan that allows for future advances, using the same instrument for security, during the life of the loan.

Open Listing:  A listing agreement that provides for the broker to receive the agreed commission if he produces a buyer ready, willing and able to purchase the property on the terms of the listing, or on other terms acceptable to the owner.  See also Exclusive Right-To-Sell Listing and Exclusive Agency Listing.

Option To Purchase:  A written agreement whereas a purchaser has the right to purchase a property under specific terms within a specific period of time, but is not required to do so.  This right often requires an option payment or may be part of a lease agreement.  An option is also used in lease agreements to extend the lease and/or to lease additional space, either with  prearranged lease modifications or left negotiable at option time.

Oral:  That which is from the mouth, spoken.

Oral Agreement/Contract:  An agreement or contract that is based on spoken words and has no written documentation.

Ordinance:  A statute enacted by the legislative department of a city government.

Orientation:  Placing a building on a lot with regard to its exposure to the sun, prevailing winds, privacy from the street, and/or protection from outside noises.

Ordinary Income:  Income that is taxed at ordinary rates as defined by the IRS or other taxing authorities.  Wages, salaries, business profits, and bank interest are usually considered ordinary income, while gain on the sale of assets is not.

Origination Fee:  The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan. 

OSHA (Occupational Safety and Health Agency):  A Federal agency concerned with safety and health in the workplace.

Ostensible:  That which is apparent; seeming to be.

Ouster:  Putting out of possession, often a wrongful dispossession.

Overhang:  See Eave.

Over-improvement:  An improvement which is not the highest and best use for the site on which it is placed due to an excess in size or cost related to that of surrounding properties.  Over building.

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Pact:  An agreement:

Parcel:  An area of land within one single description.

Parol Contract:  A oral or spoken agreement.

Parol Evidence:  Evidence given orally rather than in writing.

Partial Reconveyance Deed:  A deed used to re-convey a portion of land encumbered by a blanket mortgage or deed of trust.

Partial Release Clause:  A clause in a mortgage or deed of trust that provides for release of part of the property from the encumbrance upon past payment of all or part of the debt.  Usually found in a blanket mortgage.

Partition:  The forced division of land among parties who were formerly co-owners. A partition suit may ask to divide the land, or if that is not practical, sell the land and divide the proceeds.

Partnership:  Two or more persons joined together for the operation of a business or investment, sharing the profits and liabilities in certain agreed proportions.

Party Wall:  A wall on the line between two adjacent properties commonly owned.

Pass Throughs.  Amounts related to operating expenses (usually increases therein) that a gross lease might specify to be passed through to the tenant.

Payoff Amount:  A total balance; amount of a full payment on existing loan or lien.

Payback Rate:  An old-fashioned, but widely used yardstick to calculate the owner's return.  It simply measures how long it will take for an investor to earn back his or her investment.  If the investor purchased a building for $1,000,000 in cash, and the property delivered an annual return of $100,000, at an 8% cost of funds, the payback period would be just under 14 years.  The forced division of land among parties who were formerly co-owners. A partition suit may ask to divide the land, or if that is not practical, sell the land and divide the proceeds.

Permanent Financing/Loan:  Long-term financing for existing real property, usually ten years or more.  Also called an "end loan."  Compare, Construction Financing/Loan.

Pecuniary:  A traditional alternative for saying "monetary".

Per Capita:  Per person.

Percolation:  A measure of the ability of soil to allow water to pass through. A percolation test is often required prior to construction of a leeching field for a septic tank.

Peril:  A contingency of fortuitous happening which may be cover or excluded by a policy of insurance.

Personal Property:  Any property which is not real property (real estate).

Phase 1 Report:  A report compiled following preliminary investigation of environmental issues concerning a property.

Pipestem Lot:  A lot connected to a public street by a narrow strip of land. Usually several adjacent "pipestems" are combined to form one driveway with each owner having a mutual-reciprocal easement to use and maintain the driveway to the street.

PITI:  Principal, Interest, Taxes and Insurance. Also called monthly housing expense.

Planned Unit Development (PUD):  A system of individual fee simple ownership of portions (units) in a multi-unit development, combined with joint ownership of common areas and facilities which serve the multi-unit project.  Each individual may sell or encumber his own unit.  Has most characteristics of a condominium, but fee simple ownership and maintenance responsibility usually includes the entire structure (or share thereof) and some land outside the structure.

  A map or chart of a lot, subdivision or community drawn by a surveyor showing streets, lot boundary lines, buildings, improvements on the land, and easements.

Plate:  Top, Sole, Double

Points:  Sometimes called "discount points."  Prepaid interest assessed at closing by the lender.  A point is one percent of the amount of the mortgage loan.  For example, if a loan is for $25,000, one point is $250. Points are charged by a lender to raise the yield on his loan at a time when money is tight, interest rates are high, and there is a legal limit to the interest rate that can be charged on a mortgage.  Buyers are prohibited from paying points on HUD or Veterans' Administration guaranteed loans (sellers can pay, however).  On a conventional mortgage, points may be paid by either buyer or seller or split between them.

Policy:  The contract from which is issued by the insurance company to the insured. It sets out details of the insured, property insured, the amount of insurance and the premium, the period during which the policy is in force and other conditions of the contract.

Post-Dated Check:  A checked dated later than the date on which it was given to the payee.  In many states a post-dated check is technically a promissory note and, accordingly, a person can not be criminally prosecuted for writing a "bad" post-dated check.

Power of Attorney:  A written document authorizing another to act on his behalf as an attorney-in-fact.  One does not need to be a licensed attorney to act as an attorney-in-fact, but power of attorney forms are powerful legal documents that should be used only if you understand the implications thereof or under advice of a licensed attorney-at-law.

Premium:  The monetary consideration paid by the insured to the insurers for the insurance granted by the policy.

Prelim (Preliminary Title Report):  A document provided by a title insurance company that shows title-related information about a property for which the title company expects to issue a title insurance policy. It is preliminary in that it is subject to corrections.

Preliminary Notice:  A written notice provided to a property owner by contractors (including sub contractors) stating that services or materials have been provided to the property and that the contractor has rights of lien in the event that those services or materials are not paid for.

Prepaid Expenses:  Necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance, and special assessments.

Prepaid Interest:  Interest that is paid before it is earned.  As to income tax, it must usually be deducted as expense as earned rather than when paid.

Prepayment:  Payment of mortgage loan, or part of it, before due date. Mortgage agreements often restrict the right of prepayment either by limiting the amount that can be prepaid in any one year or charging a penalty for prepayment. The Federal Housing Administration does not permit such restrictions in FHA insured mortgages.

Present Value:  Today's worth of an asset to be received at a specific date in the future, taking into account expected investment interest rate and inflation.

Price Per Square Foot:  Calculating price per square foot and price per unit is a good way to evaluate a property against comparable buildings in the area. Commercial buildings are usually leased at a annual square foot rate. So values are compared by calculating the price per square foot. That number is derived by dividing the building's cost or annual lease amount by its square footage. Both the cost-per-square foot and value per-square-foot of a structure decline, however, when its size is increased by building up or down, rather than outward. For example, a finished area in a basement does not have the same cost or value as living area of identical size on the main floor.

Price Per Unit:  Price per rentable unit is more commonly used on residential properties.  Price per unit is derived by dividing the sale price by the number of units.

Primary Mortgage Market:
  Lenders making mortgage loans directly to borrower's such as savings and loan associations, commercial banks, and mortgage companies. These lenders sometimes sell their mortgages into the secondary mortgage markets such as to FNMA or GNMA, etc.

Prime Rate:  The most favorable interest rate charged by lenders on short-term loans to qualified customers.

Principal:  (1) The basic element of the loan as distinguished from interest and mortgage insurance premium. In other words, principal is the amount upon which interest is paid. (2) One giving authority to another to act for him.  For example, the employer/client of a real estate broker.

Priority:  The order of position, rank, or time.  The priority of liens is generally determined by the chronological order in which the lien  documents are recorded.  Tax liens, however, have priority even over previously recorded liens.

Private Mortgage Insurance (PMI):  In the event that you do not have a 20 percent down payment, lenders will allow a smaller down payment- as low as 3 percent in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan's structure.

Probate:  Court process to prove a valid will.  The legal process of closing out the estate of a deceased whereby creditors are paid and funds are distributed to the heirs in accordance with the will.

Profit & Loss Statement:  A financial statement that lists sources and amounts of income, the types and amounts of expenses, and the difference between the two (net income or loss).

Promissory Note:  A written unsecured note promising to pay a specified amount of money on demand, transferable to a third party. 

Property Manager:  A property manager is an agent of the owner and is responsible for the leasing, maintenance, accounting, and other tasks involved with operation of a rental property. Many owners do their own property management in whole or in part..

Property Taxes:  Taxes (based on the assessed value of the real estate) paid by the property owner for community services such as schools, public works, and other costs of local government. Often paid as a part of the monthly mortgage payment.

Proposal:  This is the form the policyholder or their agent completes. It is the basis of the contract and contains a set of printed questions designed to obtain full information of the property to be insured, of any previous losses and the insurance experience of the proposer. This information enables the insurance company to assess the risk involved and calculate an appropriate premium to be charged.

Prospectus:  A document that describes a property that is offered for sale or an investment opportunity of any kind.

Proprietorship:  A form of business ownership that involves a single owner who has not chosen a corporation or other entity form under which to operated the business.

Pro Rata:  Divided according to a linear allocation of time or other criteria.

Public Sale:  Sale or auction open to the public. 

Purchase Agreement:  see Agreement of Sale

Purchase Money Mortgage (PMM):  Seller financing as a part of the purchase price.  

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Quid Pro Quo:  The exchange of money for something of value.

Quiet Enjoyment:  The right of a tenant to use a property without interference.

Quiet Title Action:  A suit brought for the purpose of establishing clear title to real property or to remove a cloud on the title such as an unjust lien.

Quitclaim Deed:  A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.  Compare, Special Warranty Deed and General Warranty Deed.

Quorum:  The number of members or percentage of membership of an organization required to be present in order to hold a vote or conduct other business of the organization.

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Raw Land:  Land that has not been developed.  Often defined as land that has no utilities available on site.

Real Estate Agent:  A person who is licensed by the state to act as agent for another in the sale or purchase of real property.  Although a real estate broker is technically a real estate agent, the term agent usually means a licensed salesperson who must work for a licensed broker.

Real Estate Broker:  A person who is licensed by the state to act as agent for another in the sale or purchase of real property and be paid for those services.  The broker does not have title to the property, but represents the seller or  buyer, or both.

Realtor:  A member of the National Association of Realtors.

Recapture:  Recovery by an owner of the money invested in a property.  Recovery by a taxing authority of depreciation taken against income during the period of ownership.  Basically, the accrued depreciation is added to the actual gain realized.  For example, a property purchased for $100,000 and sold for $150,000 for which $30,000 of depreciation has been taken during the period of ownership would have a taxable gain of $80,000, ignoring buying and selling costs, differences in tax rates that might be applied to the depreciation, and other technicalities.  In filling out the income tax forms, the accrued depreciation is subtracted from the original cost basis and the gain is calculated as the sales price less the depreciated cost basis, giving the same result.  Recapture can apply to both real property and to business personal property.

Recession:  A slow-down in economic growth, usually resulting in higher unemployment and lower sales.  A severe recession is called a Depression.

Rescission:  The cancellation of a contract.  See Right of Rescission.

Recording Fees:  Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Recourse Loan:  A loan for which the borrower is liable beyond the value of the property securing the loan.  In other words, his other assets are at risk if the property is foreclosed upon.  That is, the lender can obtain a deficiency judgment against the owner if the amount realized by the lender upon sale of the property is less than the  amount of the loan.

Refinancing:  Obtaining a new mortgage loan on a property already owned, often to replace existing loans on the property.  In some cases, the process of the same mortgagor paying off one loan with the proceeds from a new loan.

Regression:  An appraising principal that holds that a high-valued property placed in an area of lower-valued property seeks the level of the lower-valued property.

Regulation Z:  See Truth-In-Lending

Reinstatement:  This has alternative meanings. Following a loss, either the repair or replacement of damaged property to a condition equal but no better than its original condition, or the restoration of the sum insured to the original figure.

Reissue Rate:  A discounted rate for title insurance when the title was previously insured with an owner's title insurance policy issued within the last ten years.

Release Clause:  Provision in a mortgage agreement allowing the freeing of pledged property after a proportionate (or other specified) amount of payment has been made.  Most often used for financing of subdivision land to provide for release of each lot as it is sold.

Remainder:  An interest in land that is postponed until the termination of some other interest such as a Life Estate. Compare, Fee Simple.

Rentable Square Feet:  The usable square feet plus a load factor, i.e., a percentage (typically 7% to 12%, depending on the age, type and size of a building) of such common areas as the building lobby, common hallways and restrooms.  The load factor should not include vertical penetrations, i.e., elevator shafts and stairwells.

Rental Agreement:  A legal document setting forth the agreement between the Landlord and Tenant. It explains under what conditions the Tenant is allowed to occupy the property and the responsibilities of the Landlord. The terms Lease and Rental Agreement are interchangeable, but sometimes (1) the term " Lease" is used for a term of a year or more and term " Rental Agreement" is for a shorter period or (2) the term "Lease" is used for commercial properties, while the term "Rental Agreement is use for residential properties.

Rent Control:  Rent control and rent stabilization laws are quite complex and very greatly from city to city, but they all presume an ability to control the price of something without having the same ability to control the cost of providing it. Such laws actually date back to World War II when the federal government tried to regulate the price of things in short supply, including butter, gas and housing. The federal rent control law expired in 1950, but rent-controlled housing continued to exist, since the laws in some states allow them to be kept in a family from generation to generation. The rent in these dwellings may be increased only by an amount set by the government.
Rent Stabilization:  A modern term for rent control. Rent "stabilization" laws were a political response to a shortage of affordable housing which actually worsened the problem they were enacted to solve. The laws typically cover multi-unit buildings and usually exempt one and two-family houses. They:
  • set-up rent stabilization boards who attempt to regulate the market through edict
  • regulate when and how much rent can be increased
  • require that landlords continue to provide essential services (even if at a loss)
  • define how, when and why a lease may be terminated

Renegotiable Rate Mortgage:  A loan in which the interest rate is adjusted periodically. See adjustable rate mortgage.

Replacement Cost:  The cost of rebuilding real property property improvement or purchasing replacement personal property.

Replacement Cost Insurance:  Property and casualty insurance that replaces lost or damaged items with like-kind and quality without regard to depreciation of the lost or damaged items.

Rescind:  To cancel the contract from the beginning, thus restoring the parties to their original positions.

Reserve:  Funds accumulated for future capital expenditures.  For an apartment building, a certain amount would be retained from monthly income for various  future major expenses, the percentage of that cost of each item depending upon the life of the item.  For examples, for a roof expected to require replacement every 20 years at a cost of $36,000, the amount of $150 should be put into the reserve account each month, while for exterior painting planned for every 5 years at a cost of $6,000, the monthly reserve addition should be $100.

  Short for the Real Estate Settlement Procedures Act.  RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.

Restraining Order:  A court order whose purpose is to prevent a person from committing some act.  For example, a judge may issue a restraining order against a property owner to postpone or prevent the demolition of a property.

Restrictive Covenants:  Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court).

Reverse Annuity Mortgage
(RAM):  A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as Satisfaction of Mortgage: The document issued by the mortgagee when the mortgage loan is paid in full. Also called a "release of mortgage." 

Reversion:  A provision in a conveyance that the land will return to the grantor upon the happening of an event or contingency. Compare, Fee Simple.

Revocable:  That which can be revoked or nullified.

Rider:  An addition, attachment, attachment, or endorsement to a document that extends it meaning.  For example, an insurance policy rider adds coverage to specific property or otherwise expands coverage provided under the basic policy.

Right of First Offer (Lease):  Landlords undertake to offer space to existing tenants prior to offering it to other potential tenants.

Right of First Refusal (Lease):  Landlords undertaking to offer space to existing tenants on the same terms and conditions as a bona fide offer they may have received for that space.

Right of Rescission:  A contract clause or a law that allows a party to cancel or rescind the contract without cause during a certain period after execution of the contract.  With respect to mortgage refinancing, the law that gives the home owner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.  Some states require rescission periods for certain types of contracts.  For example, the State of Arizona allows a purchaser of subdivided land to rescind the contract within three days after signing a contract if he had personally viewed the property or within six months if he had not seen it prior to signing the property.

Right of Way:  An easement giving a person the right to pass over the land of another.

Right Things Wrong:
  Unsightly but easily repairable. For example:

  • Broken porch steps and rails
  • Broken windows
  • Pealing paint and wallpaper
  • Holes in plaster

Riparian Rights:  The rights of an owner of land adjacent to water.

  The chance of loss.

Rule of 72:  The formula for approximating the time it will take for a given amount of money to double at a given compound interest rate.  The formula is simply 72 divided by the interest rate to find the number of years or 72 divided by number of years to find the required interest rate.  For example, with a 12% interest rate, it will take approximately 6 years to double your money.  See Rule of 72 web page.

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Sale and Leaseback:  A transaction in which the the seller remains as a tenant of the purchaser.  This provides cash to the seller who can continue to occupy the same space, while the buyer is assured a tenant.

Sales Agreement:  see Agreement of Sale

Sales Contract:  See Agreement of Sale

Salesperson:  In real estate, a natural person who, for compensation or in expectation thereof, is employed by a licensed real estate broker to perform one or more acts specified in real estate law to require a salesperson license.

Salvage Value:  The amount that can be recovered from a property, sold in whole or in parts, at the end of its economic life.

Sandwich Lease:  The leasehold interest that lies between the primary lease and the operating lease.

Satisfaction:  The discharge of an obligation by paying the amount owed.

Satisfaction Piece:    A document for recording and acknowledging payment of an indebtedness secured by a mortgage.

SBA:  The Small Business Administration is a federal agency whose charter is to promote the success of small businesses by providing education, counseling, and training; financing (direct and guarantees); and management and marketing assistance.

Scarity:  An inadequate supply.  A deficiency in supply that creates value.

Seal:  An emblem of authority.

Secondary Market:  A market for the purpose of purchase and sale of existing mortgages usually at discounted prices to provide greater liquidity to the mortgagee/lender. 

Second Mortgage:  A mortgage recorded after a First mortgage.  Ranks second in priority and is subordinate to the First.

Secret Profit:  In real estate, when a broker sells for a higher price than asked and pockets the difference.  Constitute fraud.

Section:  A land parcel containing 640 acres, usually in the shape of a square one-mile on a side.

Section 8:  A federal Department of Housing and Urban Development program to assist low income tenants in securing decent, safe and affordable housing. Originally a subsidy tied to projects, it now includes certificates and rent vouchers that allow tenants to seek the best housing available in the private market as well. Under the program, a tenant pays 30% of their income for total housing expense, (rent and utilities) the federal government pays the balance directly to the landlord. See our Section 8 web pages

Secured Loan:  A loan for which specific property is given or pledged to assure repayment.

Secured Party:  The lender who has a security interest.

Security:  The thing of value that is given to assure fulfillment of an obligation.

Security Deposit:  Money or other valuable consideration deposit by a Tenant with a Landlord to insure the Tenants performance under a Lease or Rental Agreement.

Seizin (Seisin):  Possession of a freehold in real estate by one entitled thereto.

Seller Financing:  Financing for a sale that is provided by the seller.  In this case, the seller does not receive all of his equity in the property in cash at the time of closing

Seller's Market:  When the demand for purchase of properties exceeds the supply of properties for sale.

Selling Broker:  The real estate broker who finds a ready, willing, and able buyer for a property.  See also Listing Broker.

Semi-Annually:  Every six months.

Separate Property:  Property owned by a husband or wife that is not community or joint property because it was acquired before marriage or by gift or devise after marriage and was not thereafter co-mingled.  See Community Property.

Septic Tank System:  Private sewage disposal system for a single-family house or other small building.

Servient Tenant:  The owner of land burdened by an easement.

Servient Tenement:  Land burdened by an easement.

Setback:  The distance from curb or other line within which no building may be erected, as established by zoning ordinance.

Severalty Ownership:  Real property owned by one person only; sole ownership, severed from all other claims.

Severance:  The act of severing;  separating something from the land, such as the taking of natural resources (oil, gas, minerals, lumber, game, etc.) from the property.

Servicing:  All the steps and operations a lender performs to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement/Settlement Costs:  See closing/closing costs.

Shared Appreciation Mortgage (SAM):  A mortgage in which a borrower receives a below-market interest rate in return for which the lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgage where the borrowers shares the monthly principal and interest payments with another party in exchange for part of the appreciation.

Short-Term Capital Gain:  Gain on the sale of an asset that was held for for less than the minimum period of time required to qualify for a reduced rate of taxation per the current IRS Code, so is taxed at ordinary income rates.

Shotgun Clause:  A clause in a partnership agreement whereby if a partner offers to buy out one or more other partners then these other partners have the right to instead buy out the offering partner under the same price and terms.

Siding:  Finish covering on exterior walls.

Simple Interest:  Interest which is computed only on the principle balance.  A method of calculating interest whereby the total interest is equal to the annual rate of interest (in decimal form) times the number of years borrowed or loaned times the principal amount borrowed or loaned.  Contrast with Compound Interest.  See our Interest Calculations page.

Sinking Fund:  A fund set aside from the income of property which, with accrued interest, will pay for the replacement of improvements.

SMART:  Safety Management Alliance of Residents and Tenants, is a program from the Institute of Real Estate Management, designed to increase awareness, encourage commitment, and provide low or no-cost strategies to reduce crime.

Solvent:  The state of being able to pay all one's debts out of available assets.

Special Assessments:  A special tax imposed by local government on property, individual lots or all property in the immediate area, for public improvements such as road construction, sidewalks, sewers, and street lights.

Special Lien:  A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien.  See Lien and General Lien.

Special Warranty Deed:  A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.  Compare, General Warranty Deed and Quitclaim Deed.

Specific Performance:  A legal action to complete the performance of a contract.

Spendable Income:  The amount of income left after deduction expenses.  Sometimes expenses include contributions to reserves for future expenses.

Spouse:  One of the partners in a marriage.  A wife is the spouse of her husband and a husband is the spouse of his wife.

State Stamps:  see Documentary Stamps

Statute of Frauds:  A law that requires certain contracts to be in writing in order to be valid and enforceable.  For example, a lease for more than a year must be in writing for it to be valid and enforceable.  Most states have similar laws.

Statute of Limitations:  The time period to file a law suit to enforce a claim or it is barred by law.

Statutory:  That which is according to statute.

Step Up Clause:  A lease term allowing for rent increases at specified times.

Stipulated Judgment:  A judgment negotiated between and agreed to by both parties and by the Court.

Straight Line Depreciation:  A method of calculating depreciation whereby an equal amount of money is set aside annually from income to pay the cost of replacing improvements.  That is, the cost of replacing an improvement is divided by the expected life of the improvement.


Sub Contractor:  A contractor who is engaged by another contractor rather than by the property owner (or other principal). The sub contractor is under control of the contractor, but the owner is still responsible for payment to the sub contractor.

Subdivision:  Dividing land into lots and streets. The owner signs a Plat and Deed of Re-subdivision which is recorded among the land records. The state and county have strict requirements for subdivision of land.


Subject To:  Taking title to property with a lien but not agreeing to be personally responsible for the lien, if the holder who forecloses the lien can take the property but may not collect any money from the owner who took "subject to." Compare, Assumption.

  Relinquishing priority to a subsequent mortgage or trust deed.

Sufferance:  Same as Estate at Sufferance.

Summary Judgment:  A judgment in favor of a defendant that is issued by the Judge early in a civil trial because it is obvious to the Judge, even though all arguments have not yet been heard, that the plaintiff has no case.

Super Fund Site:  An area defined by the Federal government wherein serious pollution of the soil or groundwater has occurred. 

Survey:  A measurement of land by a registered land surveyor.  A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure him that a building is actually sited on the land according to its legal description.

Sweat Equity:  Equity created by a purchaser performing work on a property being purchased. 

Symbiotic Relationship:  An interdependent landlord tenant relationship where each understands the mutual advantage gained by their association.

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Tax:  A compulsory payment of a percentage of income, property value, sales price, etc. for the financial support of a government.  Theoretically, the governing body in turn utilizes the funds in the best interest of the general public.  As applied to real estate, an enforced charge imposed on property.

Tax Credit:  Credit that can be used to offset taxes owed.

Tax Deduction:  Credit that can be applied against taxable income.  The value of the deduction depends upon the marginal tax bracket of the taxed entity.

Tax Deed:  The deed given when real property is sold by the government because of tax delinquency.

Tax Deferred Exchange:  See 1031 Tax Deferred Exchange.

Tax Free Exchange:  Misnomer often used for Tax Deferred Exchange.

Tax Lien:  A charge (lien) against property.  The lien is created by operation of law and automatically takes priority over all other liens.

Tax Sale:  A sale of property by the government to cover delinquent taxes.

Temporary Restraining Order:  A restraining order that is issued pending a decision of the court on the merits of the case.

Tenant:  A person who is granted temporary possession of a property under specific terms and conditions which are usually specified in a Lease or Rental Agreement with the Landlord.

Tenant at Will:  Tenancy can be terminated at the will of the landlord without cause, with legal notice.

Tenant Improvements (TIs):  Construction done to prepare a space for a new tenant.  For a new building, such construction often starts from a shell.  For a previously-occupied space, remodeling or even total interior demolition and construction might be involved.

Tenant Representative:  Specializes in planning and negotiating for tenants. The tenant representative should, preferably, not also be leasing agent or property manager for the property ,( i.e., landlord representative).

Tenants By The Entirety:  A husband and wife own the property with the common law right of survivorship so, if one dies, the other automatically inherits.  One may not sue the other to Partition the property.  A creditor of one may not claim the property or the proceeds of sale. Compare, Tenants In Common, Joint Tenants.

Tenants In Common: Two or more persons own the property with no right of survivorship.  If one dies, his interest passes to his heirs, not necessarily the co-owner.  Either party, or a creditor of one, may sue to Partition the property. Compare, Tenants By The Entirety, Joint Tenants.

Termination vs. Eviction:  Termination is the ending of a rental agreement or lease by either the landlord or the tenant. Eviction is the forced removal of a tenant and can only be ordered by a judge. See our Eviction Pages

Testate:  To die with a Will. Compare, Intestate.

Testator:  One who makes out a last will and testament. The feminine form is Testatrix.

Title:  As generally used, the rights of ownership and possession of particular property.  In real estate usage, title may refer to the instruments or documents by which a right of ownership is established or evidenced (title documents), or it may refer to the ownership interest one has in the real estate.

Title Insurance:  Insurance that provides an "Indemnity" against loss or damage as a result of defect in title ownership to a particular piece of property. Title insurance covers mistakes made during a "Title Search" as well as matters which could not be found or discovered in the public records such as missing heirs, mistakes, fraud and forgery.  Protects lenders or homeowners against loss of their interest in property due to legal defects in title.  Title insurance may be issued to a "mortgagee's title policy."  Insurance benefits will be paid only to the "named insured" in the title policy, so it is important that an owner purchase an "owner's title policy", if he desires the protection of title insurance.  Compare, Certificate of Title.

Title Search or Examination:  An examination of the public records, including court decisions, to disclose facts concerning the ownership of real estate.  The purpose is to make sure the buyer is purchasing a property from the legal owner and that there are no liens, overdue special assessments, or other claims or outstanding restrictive covenants filed in the record which would adversely affect the marketability or value of title.  The title examiner prepares an Abstract and the title agent prepares a Binder but decisions regarding the legal sufficiency of title or questions requiring legal interpretation must be resolved by a licensed attorney at law.

Trespass:  The unauthorized, unlawful entry upon the property of another.

Trimmer Stud:  See Jack Stud.

Triple Net (NNN) Lease:  A lease whereby the tenant pays not only a fixed base rent, but also pays a share of property taxes, insurance, and common area maintenance.  There can be variations whereby the tenant pays in whole or in part for certain items or pays for future increases of items.

Trust:  A right to or in property held for the benefit of another. A trust may be written or implied. An implied trust is called a Constructive Trust.

Trust Account:  A special account where money is deposited by an agent for the account of a principal and is to be kept intact and not commingled.  An "escrow" or "Custodial" account.

Trust Deed:  See Deed of Trust

Trustee:  A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law (see deed of trust).

Trustee's Deed:  Deed given by the trustee when property is sold under the power of sale in a trust deed.

Trust Fund:  A fund set up by one party for the benefit of another.  An escrow account.

Trust Ledger:  A record of all funds received by a broker (cash, check, other) whether placed in his trust account, given to the seller, or placed in escrow.

Trustor:  Borrower in a loan secured by a Deed of Trust.

Truth-In-Lending:  A federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for the loan. Also known as Regulation Z.

Turpitude, Moral:  An act of baseness or vileness of principle or action.  Anything done contrary to justice, honesty, modesty, or good morals.

Two-Step Mortgage:  A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often five or seven), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. the lender sometimes has the option to call the loan due with 30 days' notice at the end of five or seven years. 

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Underwriter:  A company or person who has the power or authority to accept financial risks, as in a mortgage or insurance policy.  The underwriter makes the decision of whether to make a loan or issue insurance based on credit, employment, assets, and other factors and matches the risk to an appropriate rate, term, and amount. 

Undivided Interest:  The interest of a co-owner in the entire property, the interest being indistinguishable.

Undue Influence:  Taking unfair advantage of one's power, position, or relationship to induce someone to enter into a contract.

Unearned Increment:  An increase in the value of a property, not anticipated by the owner, due primarily to the operation of social forces.

Unencumbered:  Free and clear of all liens.

Unenforceable:  A law or contract that one cannot compel the observance of.

United States Government Survey System:  See Rectangular Survey System.

Unity of Ownership:  The four unities that are traditionally needed to create a joint tenancy -- unity of title, unity of time, unity of interest, and unity of possession.

Unlawful Detainer:  The statutory proceedings by which a landlord removes a tenant who holds over after his lease has expired or after his tenancy has been terminated by notice or after default in payment of rent or other obligations.

Unilateral Contract:  One in which one party makes an express undertaking without receiving in return any promise of performance from the other.  Revocable by the party who makes the promise.  See Bilateral Contract.

Usable Square Feet:  The space actually occupied by a tenant and used for his sole benefit, not including hallways, common restrooms, and elevator lobbies.  Note that common areas can represent up to 20% of the total gross square footage, depending on age, type, size, and design of the building.

Use Clause:  A lease provision that states the type of activity that can be conducted on the property.

Unsecured:  No particular property is attached to a debt or lien.

Urban Property:  City property.

Urban Renewal:  The acquisition of run-down property for purposes of redevelopment.

Usary:  Charging more than the maximum legally permitted rate of interest as specified by a state.  The legal rate varies by state and often depends upon the type of lender and/or borrower.

Useful Life:  In real estate, the number of years a property will be useful to investors.

Utility:  Use or usefulness; one of the four essential elements of value.

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VA Loan:  A long-term, low- or no-down-payment loan guaranteed by the Department of Veterans Affairs and made through a private lender.   Under  Servicemen's Readjustment Act of 1944, as amended; only honorably discharged veterans and their widows are eligible.

Vacate:  To set aside, to annul, to cancel, to give up possession of.

Valid:  Legally sufficient and authorized by law.

Validated:  Made valid.

Value:  The worth of a thing in money or goods at a certain time.

Valuation:  An estimate of the value or worth of a property.

Variance:  Change in zoning of a single parcel. Called "legal non-conforming" in some states.

VA Mortgage Funding Fee:  A premium of up to 1-7/8 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Rate Mortgage (VRM):  See Adjustable Rate Mortgage.

Vendee:  The purchaser of real estate under a land contract.

Vendible:  Marketable, saleable.

Vendor:  The seller of real estate, often referred to as the party of the first part in the beginning of a contract.

Verbal:  That which has words.  Can be either oral or written.  Often mistakenly used to mean "not written" in place of the term "oral" which means spoken.

Verification:  The act of verifying or confirming something; substantiation..  A sworn statement before a duly-qualified officer as to correctness of the contents of a document.

Verification of Deposit (VOD):  A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE):  A document signed by the borrower's employer verifying his/her position and salary. 

Variable Rate Loan (VRL):  See adjustable rate mortgage

Verification of Deposit (VOD):  A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment (VOE):  A document signed by the borrower's employer verifying his/her position and salary.

Vested:  Fixed, accrued, settled, absolute, not contingent.  In real estate, title held by.

Vocation:  Occupation, profession.

Void:  Having no force or effect, as if it had never been, unenforceable.

Voidable:  That which is capable of being made void, but is not void unless action is taken to make it so.

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Waiver:  Relinquishment, renunciation, abandonment, or surrender of some claim, right, or privilege.

Waiver of Lien:  A document signed by a supplier or contractor giving up a claim against a property to which materials have been supplied or services rendered.

Waiver of Right of Redemption:  A clause in a mortgage contract whereby the mortgagor agrees to five up his right to redeem the property if foreclosed upon.  Many states (e.g., Michigan) forbid enforcement of the clause.

Warehouse Fee:  Many mortgage firms must borrow funds on a short term basis in order to originate loans which are to be sold later in the secondary mortgage market (or to investors). When the prime rate of interest is higher on short term loans than on mortgage loans, the mortgage firm has an economic loss which is offset by charging a warehouse fee.

Warranty Deed:  A deed conveying the title to a property with a warranty of clean, clear marketable title.

Warranty of Habitability:  An often implied warranty that a property will be habitable for its intended use. A landlord's obligation to provide housing that is decent, safe and sanitary as defined by government standards. See our Warranty of Habitability Pages

Wear and Tear:  That deterioration which occurs as a result of intended use, without negligence, carelessness, accident, misuse or abuse. See our Wear & Tear Page

Whole Loan:  Secondary mortgage market term that distinguishes an investment representing an original residential mortgage loan (whole loan) from a loan representing a participation with one or more lenders representing a pool of mortgages.

Wraparound Financing:  A junior loan that increases a borrower's indebtedness while leaving the original financing in force.  The debt secured includes one or more existing debts already on the property.  The payments made to the holder of the wraparound include payments due on the existing loan and the holder must forward the appropriate portion of each payment to the existing note holder.  Often used to avoid a Prepayment Penalty or a Due-On-Sale Clause. Can refer to a wraparound Deed of Trust or Contract For Deed.

Wraparound Mortgage:  Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

Writ of Execution:  In landlord tenant actions, a writ is a judge's order, usually issued 10 days after judgment, allowing an eviction to proceed. Some states allow immediate removal of a tenant and their property, others require up to a 48 hour notice of intent to proceed.

Write-off:  Charging an asset amount to expense or loss.

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X or XD:  Symbols used in newspapers to signify that a stock is trading Ex-Dividend, that is, without dividend.

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Year-To-Year Tenancy:  A lease of real property for the term of one year, renewable for each succeeding year, at the option of either party.

Yield:  Return on investment.

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Zoning Ordinances:  The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage and development.

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1031 Tax Deferred Exchange:  A method of exchanging real estate whereas the parties involved .  Section 1031 of the Internal Revenue Code allows investors to exchange like kind investments for another of equal or greater value, deferring taxation of any Capital Gains.  The tax basis in the original property is retained in the new property, so it is a deferment of, not elimination of, the tax due on any realized capitol gain. See our Exchange Pages

1231 Property:  Property that is purchased for the production of income and/or capital gains. If it is purchased for "resale" or "change of use" it may be treated as "dealer" property by the IRS, not 1231.

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