Investing in bank owned real estate.
A guide to investing in reo properties, a glossary of real estate terms.
ABSOLUTE: Unconditional; complete and perfect in itself; without relation to or dependence upon other things or persons.
ABSTRACT: A succinct summary; (e.g. an abstract of title; an abstract of judgment, etc.)
ABSTRACT OF JUDGMENT: The essentials of a money judgment obtained via an adjudicated lawsuit. When an abstract is recorded in the recorder's office the judgment becomes a general lien on all the debtor's property located in that particular county.
ACCELERATION CLAUSE: Clause in a deed of trust or mortgage which "accelerates" the time when the indebtedness becomes due. As an example, many deeds of trust contain a provision that the note balance shall become due immediately upon the resale of the land or upon the default in the payment of principal and interest.
ACCOMMODATION RECORDING: The recordation of title documents as a courtesy by a title company , sans the assumption of responsibility for their correctness or validity.
ACCOMMODATOR: A party who temporarily holds the sale proceeds of a property, on behalf of the seller, who is involved in an 1031 exchange.
ACKNOWLEDGMENT: A formal declaration before a duly authorized officer (such as a notary public) by a person who has executed an instrument that such execution is his own. An acknowledgment is necessary to entitle an instrument (with certain specific exceptions) to be recorded, to impart constructive notice of its contents, and to entitle the instrument to be used as evidence without further proof. The certificate of acknowledgment is attached to the instrument or incorporated therein.
ACQUIESCENCE: Implied acceptance by an informed party. Witnessed by conduct that recognizes the existence of a transaction and permits it to be carried into effect; implied acceptance.
ACTUAL NOTICE: Notice in fact to a party, directly and personally.
ADJUDICATION: A judicial determination.
ADJUSTABLE RATE MORTGAGE (ARM): A loan with an interest rate that fluctuates based on a specified financial index, such as Treasury securities. LIBOR, etc.
ADVANCES: Moneys paid, on behalf of an owner, by a junior interest holder. Done to temporarily cure a delinquency on a senior encumbrance that threatens to extinguish the junior's position. Thereafter the junior lien holder can start their own foreclosure..
ADVERSE POSSESSION: A method of acquiring title to real property by physical possession of the property for a statutorily set time period, under certain conditions, by a person other than the owner of record.
AFFIDAVIT: A sworn, notarized statement that's signed by the affiant before witnesses.
AGREEMENT OF SALE: Also known as an agreement to convey. A signed, written contract entered into between the seller (vendor) and buyer (vendee) for sale of real property (land) under certain specific terms and conditions.
ALIENATION: The transfer of an interest in or title to property to another.
ALL-INCLUSIVE DEED OF TRUST (AITD): A junior trust deed that includes in its balance the amounts of the senior included trust deeds. Interest is charged on the over-all total of the AITD, invariably at a higher rate than that charged on the included trust deeds. The interest rate differential accrues to the benefit of the beneficiary of the AITD, boosting the effective yield on their equity in the all-inclusive. Also known as a "wrap-around", mortgage or deed of trust.
ALTA: Refers to title insurance adopted by the American Land Title Insurance Association and is used nationwide. It usually refers to a loan policy, but can also insure an owner.
AMORTIZATION: The gradual repayment of a debt in a series of equal periodic amounts until the total debt, including interest, is paid in full. Senior loans are typically amortized over 30 years, whereas junior loans are generally amortized over a much shorter time period.
APPRAISAL: Statement of value as of a certain date. It is commonly prepared by a licensed and/or credentialed expert who has complied with the training requirements of the state and/or one of several recognized appraisal institutes.
APPRECIATION: Increase in value or worth. The difference between the increased value of property and the original sales price.
ARREARS: Generally, being overdue in an installment payment.
ASSESSMENT: A bonded tax imposed to pay for public improvements (e.g. street/alley paving, curbs, sidewalks, etc.) beneficial to a limited area . Paid semi-annually over a 10 year period to the Bond Division of the city or county treasurer's office where the property is located.
ASSIGNEE: One to whom a transfer of an interest is made (i.e. assignee of a deed of trust).
ASSIGNMENT: Written document by which property, other than real property, is transferred from one person to another. Assignment of mortgage, assignment of deed of trust, assignment of lease, assignment of rentals, etc. are common assignments. The "assignee" receives the property assigned.
ASSIGNMENT OF RENTS CLAUSE: An additional clause in a deed of trust wherein the trustor agrees to let the beneficiary collect the rents generated by the secured property in the event of a foreclosure action. Actually accomplished by getting a court appointed receiver installed.
ASSIGNOR: One who transfers property by assignment.
ASSUMPTION OF MORTGAGE: A formal agreement with a lender in which a new property owner agrees to be personally liable for the repayment of a pre-existing lien. Generally entails paying the lender an assumption fee and sometimes a higher interest rate. Doesn't release the original borrower from further liability unless the agreement specifically provides for it.
ATTACHMENT: The seizing (by a Sheriff or other authorized officer) of property belonging to the defendant as security for any judgment the plaintiff may get in a court action.
ATTORNEY-IN-FACT: An agent authorized to act for another. Commonly evidenced by a recorded Power of Attorney. Holder of the power can exercise it only as long as it has not been revoked and the grantor remains alive and competent enough to act on their own behalf if need be.
BALLOON PAYMENT: A lump sum final installment payment of a promissory note that is much larger than the regular installment payments.
BANK RATINGS: Consumers can obtain a rating report on a specific bank by calling Veribanc at (800) 837-4246. The cost is $10 for one institution and $5 for each additional rating ordered at the same time. Ratings are available free from Bauer Financial Services by calling (800) 388-6686.
BANKRUPTCY: A proceeding in U.S. District Court wherein debtors who can not meet the claims of their creditors may be adjudged bankrupt by the court. There are three
Chapter 7 - "Debtor Wipeout". The court oversees the liquidation of
the debtors' non-exempt assets, distributing the cash proceeds
proportionally amongst their creditors. Most of the time this is not the
bankruptcy proceeding trustors will choose since their real
Chapter 11 - This is a business reorganization proceeding.
Chapter 13 - "Debtor Workout". This is the almost-automatic choice of most trustors seeking to use a bankruptcy filing to delay the inevitable trustee's sale as long as they can. It's hypothetically possible to drag out a Chapter 13 proceeding for several years. The purpose of this proceeding is to give a "wage earner" time for rehabilitation, a temporary respite free from the collection efforts of creditors.
"BARE BONES" PETITION: Initial, tentative filing of a bankruptcy petition that qualifies the petitioner to the benefits of the automatic stay pending the filing of the full petition within the following 15 days. Failure to complete the filing of the full petition will result in the dismissal of the "face sheet filing" and a bar to any subsequent refiling for the next 180 days.
BENEFICIARY ("Bene"): One for whose benefit a trust is created; a lender secured by a deed of trust.
BENEFICIARY'S DEMAND: Payment required by a beneficiary under a deed of trust before authorizing a reconveyance.
BENEFICIARY'S STATEMENT: Statement by a beneficiary under a deed of trust as to the total balance due on a promissory note and other information concerning the loan.
BID: Trustee's sales are conducted by verbal bid, with the auctioneer/trustee starting off with a minimum bid (total of all moneys due the beneficiary) on behalf of the beneficiary and then opening up the bidding to other qualified bidders.
BILL OF SALE: Written document by which title to personal property (goods or chattels) is transferred from one party to another.
BINDER: A deposit that secures the right to buy or rent something (e.g. real property; insurance; etc.).
BLANKET DEED OF TRUST: A deed of trust secured by more than one lot or parcel of land.
BLIND POOL: An investment pool, from which money is used to buy property, without prior commitment as to which particular properties are going to be purchased.
BONA FIDE PURCHASER: A buyer in good faith, for fair value and without notice of any off-record adverse claim or right of third parties, and who consequently, takes title free of such defects.
BONDED IMPROVEMENTS: See Assessment.
BOOTLEG IMPROVEMENT: Building, expanding, or modifying a structure without benefit of a required permit.
BUSINESS DAY: Any day except Sunday or the following business holidays: New Years Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving, and Christmas.
BUY-DOWN: An up-front payment to a lender to reduce a loan's interest rate, either temporarily (the first year or two) or permanently.
BUYER'S MARKET: A market with a lot fewer buyers than there are sellers. Indicated by a prolonged marketing time of more than 90 days and generally high mortgage interest rates of more than 12%.
CAP: A negotiated upper limit the interest rate on a variable rate mortgage can rise, both annually and over the life of the mortgage.
CASH FLOW: The surplus left over out of the rents after paying out all operating expenses and mortgage payments.
CASHIER'S CHECK: A check drawn on the issuing bank's funds and guaranteed payable (except in instances where it is lost or stolen).
CHAIN OF TITLE: A chronological list of documents that comprises the title record history to a specific parcel of real property.
CHATTEL MORTGAGE: A pledge of personal property to secure the repayment of a loan.
CLEAR TITLE: Title that is not encumbered or burdened with defects.
CLOSING COSTS: The miscellaneous costs that the buyer and seller incur to complete or "close" a real estate transaction. These costs are in addition to the price of the property.
CLOUDED TITLE: Any claim, encumbrance or defect that contradicts the title record as understood by the property owner. Intractable disputes are resolved judicially (quiet title action).
CODE: A collection of laws relating to a certain topic, such as real property, patents, etc.
COLLATERAL: Anything of value, like real property, pledged as security for a debt.
COLLATERAL ASSIGNMENT: Pledges the beneficial interest in a deed of trust as security for a loan.
COLLECTION SERVICE: A neutral third party who receives and disburses moneys according to a mutually executed collection agreement signed by the payor and payee of a debt.
COMMINGLE FUNDS: To put together in one mass. Combining monies belonging to multiple parties or entities in one account or in such a manner as to run the risk of being unable to trace what monies actuallly belong to what party.
COMMISSION: A fee paid to a real estate agent/broker by a principal as compensation for finding a buyer or seller and completing the sale. Usually a percentage of the sale price and commonly amounts to 6 to 7 percent on houses and 10 percent on raw land.
COMMITMENT: A promise or firm agreement; a lender's contractual obligation to make a loan to a qualified borrower.
COMMON AREA: Property in a condominium project that is jointly owned and used by all owners.
COMMON LAW: The unwritten body of English Law founded upon customs, precedents and usage.
COMMUNITY PROPERTY: A category of property, existing in some states (viz. California) in which all property acquired by a husband and wife, or by either, during marriage, is owned in common by the husband and wife.
COMPARABLES (Comps): Similar properties (situated near the property you're interested in) that are currently listed for sale or have recently sold.
CONCURRENT: A simultaneous occurrence. In most instances, it usually relates to the simultaneous recording of two or more documents affecting the same property. The weakness of a property profile, for example, is that it only reports those trust deeds recorded concurrently with the last ownership change rather than disclosing ALL the trust deeds of record.
CONDEMNATION: The taking of private property for public use by a governmental entity via the power of eminent domain.
CONDOMINIUM: The composite of individual ownership and exclusive possession of an enclosed cube of space in a multi unit building, plus a collective ownership of (and right to use) facilities common to all the separately owned units.
CONFORMING LOAN: A loan (not over $203,000) that complies with national secondary market guidelines promulgated by FNMA "fannie mae".
CONSTRUCTIVE NOTICE: Notice imparted by the public records (e.g. the county recorder's records). The law presumes that one has knowledge of instruments that are properly recorded.
CONTIGUOUS: Two or more parcels of land that abut against each other.
CONTINGENT: Dependent upon an uncertain future event.
CONVEYANCE: A written instrument that transfers title to or an interest in land from one party to another (i.e. a deed, an assignment, a bill of sale, etc.)
COVENANTS, CONDITIONS, AND RESTRICTIONS (CC&R's): A recorded, controlling declaration or deed that limits and qualifies what individual unit owners are free to do (for purposes of maintaining uniformity) in a community such as a condominium project or planned urban development, etc.
CONVENTIONAL (Conforming) LOAN: A loan, secured by a trust deed that's truly based on the value of the property, rather than a loan that's primarily secured by a government guarantee (VA) or insurance (FHA).
CONVEY: The act of deeding or transferring title to another.
CRAMDOWN: A controversial procedure in bankruptcy wherein the court reduces a secured debt (i.e. trust deed or mortgage) to the current value of the property. The court actually splits the mortgage debt into two parts. The amount equal to the current value of the home is treated as a secured claim that the debtor must continue to pay. The portion of debt in excess of the property's current value becomes an unsecured claim that's usually not repaid in full.
CREDIT BID: The opening bid at a trustee's sale is made on behalf of the foreclosing beneficiary. If it is less than or equal to the total amount of money owed to the beneficiary it will be made on a credit basis. But once the bid surpasses the total payoff amount then the beneficiary must begin to bid with cash at hand, just like all other bidders.
CREDIT LINE MORTGAGE: A trust deed or mortgage that provides for an additional future advance(s) to the borrower. An uncertainty can exist regarding the priority of subsequent advances vis-a-vis subsequent junior lienors. It involves whether the advances made were obligatory or optional and whether or not the credit line lender had actual notice or just constructive notice of the existence of the junior lienor at the time an advance was made. .
DATE-DOWN: A supplement to the on-going title search that's undertaken during the foreclosure process via a trustee's sale guaranty. A date-down is done preparatory to recording the Notice of Trustee's Sale and then again, just before the actual trustee's sale.
DEALER: One who buys with the intent of reselling rather than holding for investment.
DECLARATION: A non-notarized statement made under of penalty of perjury.
DECLARATION OF TRUST: A written document that delineates the powers of a named trustee who holds title to certain property for the benefit of others (beneficiaries). Commonly used by the famous or wealthy to keep their ownership of property confidential.
DECREE: A judgment by court.
DEED: A written document that transfers ownership of land from one party to another. The seller is called the "grantor" and the buyer is called the "grantee". Deeds may be of many kinds. For example, there are grant deeds, quitclaim deeds, gift deeds, guardians' deeds, administrators' deeds, warranty deeds, etc. depending upon the language of the deed, the legal capacity of the grantor, and other circumstances.
DEED-IN-LIEU OF FORECLOSURE: Used by owners to voluntarily convey the title of their property to the beneficiary (lender) to avoid the negative credit consequences of a foreclosure. Lenders are generally reluctant to accept a "deed in lieu" unless the title is free and clear of any other encumbrances junior to theirs and the owners execute an estoppel affidavit acknowledging that they are acting volitionally, with informed consent.
DEED OF TRUST (TRUST DEED): A three party security instrument conveying the legal title to real property as security for the repayment of a loan. The owner is called the "trustor". The neutral third party to whom the bare legal title is conveyed (and who is called on to liquidate the property if need be) is the "trustee". The lender is the "beneficiary". When the loan is paid off the trustee is directed by the beneficiary to issue a deed of reconveyance to the trustor, which extinguishes the trust deed lien.
DEFAULT: Failure to make the loan payments as agreed in the promissory note.
DEFAULT JUDGMENT: A judgment against a defendant who made no appearance in court.
DEFEASIBLE: Subject to being defeated, annulled, or revoked.
DEFICIENCY JUDGMENT: A personal judgment against a debtor for the amount remaining due after a judicial foreclosure of a trust deed.
DEMAND: The payoff amount necessary to retire a secured debt.
DEPOSITION: Written testimony of a witness taken under oath, outside of court, rather than in open court.
DEPRECIATION: A decline in the value of property. Usually due to the obsolescence or wear and tear of the improvements on the land or adverse changes in the neighborhood.
DISCLOSURE: Regarding real estate, it is revealing all known facts concerning the property being transferred.
DOCUMENTARY TRANSFER TAX: A local tax levied on recorded transfers of title to real property. The tax declaration is generally found on the face of the deed.
DOWN PAYMENT: The up-front cash commitment paid by the buyer. It makes up the difference between the sales price of a property and the loan amount obtainable.
"DUE ON SALE" CLAUSE: Provision in a deed of trust calling for the total pay-off of the loan balance in the event of a sale or transfer of title to the secured real property.
EARNEST MONEY: An advance payment towards the purchase price of property that binds the parties to a purchase contract for property. It is usually not refundable if the purchase doesn't go through as a fault of the buyer, unless specified otherwise.
EASEMENT: A right of way allowing someone to cross over another's property for a limited, specific purpose. A typical example is an easement granted to a utility company.
EMERGENCY PETITION: SEE "Bare Bones" petition.
ENCROACHMENT: An intrusion or overlap of an adjoining neighbor's improvement (building, wall, roof, fence or other fixture) into a contiguous neighbor's property.
ENCUMBRANCE: A legal right, claim or lien upon real property that diminishes the owner's equity or the land's value. Typical encumbrances are trust deeds, judgments, assessments, mechanic's liens, C C & R's, easements, etc.
ENDORSEMENT: Guaranteeing a loan in the event the trustors fail to pay as promised.
EQUITABLE TITLE: The present right to possession, coupled with the right to acquire legal title once some condition precedent has been met.
EQUITY (IN PROPERTY): The property's current value minus the sum of all liens against it.
EQUITY LINE OF CREDIT: A loan that works much like a charge card, wherein a homeowner borrows money as needed, up to a pre-negotiated limit. Interest is paid only on the amount of the loan used and the borrower can pay off the balance as quickly or as slowly as they like.
ESCROW: An impartial third party that acts on behalf of both seller/buyer or borrower/lender in carrying out the principals' instructions through to an eventual "closing". Escrow acts as the custodian for the documents and funds involved - and makes disbursements, delivers documents and effects the consequential changes to the title record of the subject property.
ESTATE: The degree, nature and amount of interest or ownership a person may have in any property. Usually used to describe property that's left after death.
ESTOPPEL: A bar to the assertion of a right or a defense in consequence of a previous position, act or representation.
EXCEPTION: An interest in real property that is excluded from conveyance to the grantee and remains in the grantor.
EXCHANGE: The reciprocal transfer of real property that has certain tax advantages over a sale of the same properties.
EX PARTE: On one side only.
FAIR MARKET VALUE: The highest price a property will bring on the open market, given an informed and freely willing buyer and seller.
"FANNIE MAE": Federal National Mortgage Association . . . the largest secondary-market investor in residential mortgages in the United States. Provides a constant and orderly market for banks to go to when they need to sell mortgages in order to keep their loan portfolios in balance with government-mandated liquidity ratios.
FEE SIMPLE: The most absolute, complete ownership of land without any limitation to any particular class of heirs or other restrictions.
FHA: Federal Housing Administration (formed in 1934). It's now a branch of H.U.D. It's basic function is to spur housing in the directions that Congress mandates by issuing mortgage insurance to institutional lenders on the loans they make under the different loan programs that FHA now sponsors.
FICTITIOUS DEED OF TRUST: A recorded, comprehensive deed of trust containing all of the general terms and provisions (boilerplate sections) of a standard deed of trust. It is used, by reference, in the "short form" deeds of trust in order to cut down the length, and hence the cost, of recording repetitious, multi-page documents.
FICTITIOUS NAME: A name adopted for business purposes that is other than the true name of the business owner.
FINANCING STATEMENT: The document prescribed by the Uniform Commercial Code (UCC) which provides notice that a security agreement encumbering personal property exists between parties. It is recorded locally or filed with the Secretary of State (depending upon the type of collateral). The procedure does not apply to real estate mortgages. A financing statement is often recorded by a lender.
"FIRST" TRUST DEED: A lien on real property which is superior to any other lien (except property taxes/assessments) of record.
FIXED RATE LOAN: A loan bearing a constant interest rate that does not vary over the life of the loan. Monthly payments on a fully amortized, fixed rate loan will not change over time.
FLIPPING: Buying and then reselling property within a very short holding period.
FORCED SALE: When one sells or loses his property without actually wanting to dispose of it.
FORBEARANCE AGREEMENT: A formal agreement between a borrower and a lender to temporarily postpone an on-going foreclosure.
FORECLOSURE: The forced sale of property pledged as security for a debt that went into default.
FREE AND CLEAR: Ownership of property free of all indebtedness. When an owner's equity is equal to the fair market value of her property.
FRIENDLY FORECLOSURE: A foreclosure that is actually instigated by the trustor for some ulterior reason - generally to clear up clouded title, etc.
FUTURE ADVANCES: Additional moneys lent that are secured by an already existing promissory note and trust deed.
GENERAL INDEX: A title company's record of negative items (involuntary liens, bankruptcy, etc.) affecting title to property. It is an alphabetized name index (of individuals or entities) rather than a geographic index by legal description.
GENERAL LIEN: A lien against an individual. By operation of law it will automatically attach to any real property the individual owns or comes into title to, once the lien is recorded and becomes part of the public record.
GLOSSARY: A collection of glosses or explanations of words and passages of a work or author; a partial dictionary of a work, an author, a dialect, art, or science, explaining archaic, technical, or other uncommon words.
GRACE PERIOD: A period of days during which a debtor may cure a delinquency without penalty (before triggering a late charge, a foreclosure or an acceleration of the balance due).
GRANTEE: The person acquiring title to real property by a deed.
GRANTOR: The person transferring title to real property by a deed.
HAZARD INSURANCE: Protects against damage to property from fire, windstorms and other common hazards.
HOMEOWNER'S' ASSOCIATION: A private, nonprofit organization of homeowners operating in accord with the recorded "covenants, conditions and restrictions" of their particular development. Its primary purpose is to provide for the maintenance of the common area facilities and amenities by assessing each unit owner their proportionate share of the project's operating expenses.
HOMEOWNER'S WARRANTY (HOW): An insurance policy that insures the new homeowner against defects in systems such as wiring, plumbing, heating and air-conditioning.
HOMESTEAD EXEMPTION: The dwelling in which an owner resides is protected to a limited extent from forced sale by a recorded declaration of homestead. It has no effect against voluntary liens, like trust deeds, regardless of their priority. But it does protect the owner's equity from involuntary liens as long as the property's value doesn't surpass the total of all liens plus the homeowner's homestead exemption.
IMPOUNDS: Moneys collected monthly (from the owner by the lender) sufficient to pay the annual real estate taxes and insurance premiums on the secured property. Rarely collected any more in states that require lenders to pay interest to owners on their impound balances. Federal law exempts FHA and VA lenders from paying interest on impounds.
IMPROVEMENTS: Man-made additions to and on real property that enhance its value.
INDEPENDENT CONTRACTOR: A non-supervised individual who undertakes to perform services for another and is independent in the method used to accomplish the task.
INDEX: A constantly changing record of the general movement of interest rates. Used by lenders to calculate the interest rate adjustments on their variable rate loans. Most lenders use either the LIBOR or the 1-year Treasury Rate as their index base. To that they will add their margin or spread to arrive at the actual rate they're charging their borrowers at that time.
INJUNCTION/TRO: Defensive courthouse tactic compelling the postponement of an ongoing foreclosure action long enough for a judge to determine if the proceeding is just and proper.
IN LIEU OF: Substituting for; in place of. An alternative. (See "deed-in-lieu of foreclosure").
INSTRUMENT: Any legal document such as a deed, trust deed, reconveyance, etc. Also referred to as a document.
INSURABLE INTEREST: An interest in property substantial enough to cause the owner of it an actual loss if it were damaged or destroyed. The beneficiary of any insurance policy, even a title insurance policy, must show an "insurable interest" in order to be covered by it.
INTEREST: The cost of using borrowed money. It's quoted as an annual percentage of the loan amount. The rate can either be fixed or fluctuate ("adjust") over the life of the loan.
INTER PLEADER: A court filing (by a third party holding contested funds) that petitions the court to take custody of a sum of money and distribute it amongst the disputants as it sees fit - absolving the third party from any liability therefrom. If the proposed division of a trustee's sale overbid is disputed between junior equity holders the trustee would probably file a Bill of Inter pleader with a local court, forcing the claimants to submit to a binding judicial allocation.
INVOLUNTARY LIEN: A lien imposed upon property by the operation of law rather than at the will of the owner. Property taxes, federal income taxes, bonded assessments and abstracts of judgment are examples of involuntary liens.
JOINT TENANCY: An estate owned by two or more parties in equal shares that is created by a single transfer document. Upon the death of a joint tenant the surviving joint tenants take the entire decedent's share of the property, so nothing passes to the heirs of the deceased.
JOINT VENTURE: The association of two or more individuals in a business transaction.
JUDGMENT LIEN: A general lien (good for 10 years) created by a court ordering a debtor to pay a certain amount of money to the judgment creditor. The lien will bind to the debtor's real property once an abstract of the judgment is recorded. Thereafter the debtor won't be able to resell, refinance or buy any other property in the county without paying off the lien.
JUDICIAL FORECLOSURE: A foreclosure that's processed via a court action. Usually limited to a collection action on an involuntary, judgment lien that automatically attached against a debtor's real property by operation of law (such as a recorded abstract of judgment).
JUMBO LOAN: A loan that exceeds $417,000 dollars. It's also called a non-conforming loan.
JUNIOR BENE BUYOUT: The purchase of a junior beneficiary's trust deed position at a steep discount because of an impending foreclosure on a senior trust deed. If done correctly the new beneficiary will be paid in full via the resale or refinancing of the real property.
JUNIOR LIEN: A lien that does not have first claim on the property it is secured by because it was recorded later than a competing lien secured by the same property.
JURAT: The portion of a document that states when, where, and before whom it was sworn.
LAND CONTRACT: An agreement for the installment sale of property wherein the buyer receives possession of the property, but the title thereto is withheld until all or most of the purchase price is paid.
LEASE OPTION: A lease coupled with an option to buy the property being leased.
LEGAL CITATION: A "cite" refers to a state or federal legal point that was established either by a code, a regulation or a court case.
LEGAL DESCRIPTION: A formal description of real property sufficient to locate it by reference to government surveys or approved recorded maps. There are five common forms of legal descriptions: 1) Lot, Block & Subdivision; 2) Metes & Bounds; 3) Sectionalized; 4) Ranchos; and 5) Condominiums.
LIEN: A claim against real property.
LIS PENDENS: A recorded notice of pending litigation, the outcome of which could affect the title to a particular piece of property.
LISTING AGREEMENT: A limited-time agreement with a licensed real estate broker that authorizes the broker to represent the seller in the sale of their property.
LOAN-TO-FACILITATE: A loan made by a lender "to facilitate" the resale of property owned by the lender.
LOAN-TO-VALUE ratio (LTV): Lenders require a protective equity cushion between their loan positions and the fair market value of a secured property. Non-guaranteed lenders generally require that their loans amount to no more than 75% to 85% of their appraiser's estimate of the market value of the encumbered property.
LOCK-IN: A paid-for guarantee from a lender to hold an interest rate or loan points at a set amount for a certain, set time period (usually 30, 45 or 60 days) prior to the close of escrow.
LOT BOOK/JUDGMENT LIEN REPORT: A title record report similar to that of a prelim but absent any information regarding easements.
MARGIN: The lender's profit that's added to the cost of funds index the lender uses to determine the overall interest rate to charge borrowers on their variable rate loans.
MARKETABILITY: The condition of title that's clear enough that a buyer wouldn't object to it.
MARKET VALUE: The current value of property as determined by exposure to offers from willing buyers in the open market.
MECHANIC'S LIEN: A non-voluntary, statutory lien recorded against a specific property in favor of contractors/materialmen for unpaid improvements made to the property. A mechanic's lien priority is established when the improvements were begun (visible to the eye test) rather than when it was recorded. The lien must be coupled with a court action to be perfected.
MERGER: The absorption of two or more interests into one.
MEMORANDUM OF AGREEMENT: A writing meant to memorialize the essentials of a transaction or act as an actual contract.
MICROFICHE: A local, property/ownership information service that cross indexes property, comps, tax and title data according to 5 or 6 common search classifications. It is generally fairly current, being updated on a semiannual basis.
MODIFICATION AGREEMENT: A mutual agreement between the parties to a deed of trust and promissory note to change one or more of the terms in the promissory note.
MORTGAGE: A written pledge of property that is put up as security for the repayment of a loan. The lender is the mortgagee and the property owner is the mortgagor.
MORTGAGE BANKER: A loan originator that uses its own funds to make real estate loans which it then resells to long term mortgage investors.
MORTGAGE BROKER: An agent that matches borrowers with lenders in exchange for a referral fee that amounts to part or all of the "loan points" being charged the borrower.
MULTIPLE LISTING SERVICE (MLS): The combined property listings of local real estate agent/members that are pooled together in an MLS book and computer network for the widest marketing exposure to their membership at large.
NEGATIVE AMORTIZATION: The gradual increase in the balance of a loan. Caused by payments that amount to less than the interest being charged. The shortfall is added to the total balance due, causing it to grow, rather than diminish, over time. The practice is not permitted in some states to protect consumers from the hopelessness of an ever-increasing debt balance.
NEUTRAL MARKET: A real estate market that doesn't favor buyers or sellers. A "flat market" ...one that requires a marketing time of 61 to 90 days and mortgage interest rates in a range of 10+% to 12%.
NOTARY PUBLIC: A bonded officer licensed by the state to "acknowledge and attest" to the validity of signatures of others. Notarized signatures are required of the general public for any documents that individuals record in order to prevent the perpetration of fraud by forgery.
NOTICE OF DEFAULT: The first phase of the two step foreclosure process. The notice, which is prepared and recorded by the foreclosing trustee, contains particulars regarding the default in payment, the affected deed of trust, etc. The default period runs a minimum of three months.
NOTICE OF NON-RESPONSIBILITY: A statutorily provided notice wherein the owner of real property avers that she will not be responsible for any liability arising out of any work being done on her property at the behest of any tenant, any buyer or any other party. Said notice is usually prominently displayed on the property within 10 days of learning of such work effort.
NOTICE OF TRUSTEE'S SALE: The second and final phase of the foreclosure process in California. The notice is prepared and recorded by the foreclosing trustee. It recites the legal description of the property being foreclosed upon and gives the date, time and place of the pending trustee's sale. This publication phase has to be a minimum duration of three weeks.
OFF CALENDAR: An on-going foreclosure that's been taken off the trustee's sale calendar. A new Notice of Trustee's Sale will have to be recorded to establish a new sale date.
OFFICIAL RECORD: The record in which all instruments filed in the County Recorder's Office are recorded. In the instance of determining the validity of "wild" deeds or ambiguous legal descriptions, names, etc. courts are required to make their determination in accord with the "official record" as it appears in the county recorder's records.
OPTION: A legal right to purchase property at some future date for a specified price and terms. The right is forfeited if not exercised in time.
ORAL: By mouth; not written; verbal; spoken; parol.
OVERBID: That amount of money bid in excess of the trustee's or sheriff's minimum bid. It is distributed, pro tanto, to the succeeding equity holders.
OWNER CARRY BACK: When a property owner takes back a portion of their sales price in the form of a purchase money deed of trust.
P.I.T.I.: Refers to the monthly housing expenses of: Principal, Interest, Taxes and Insurance.
PARCEL: Any area of land contained within a single description.
PARTITION ACTION: A lawsuit instituted by a co-owner to force the sale or division of property jointly owned with others.
PERFECTED TITLE: Generally it means a title interest that's been recorded.
PERIPHERY: The perimeter or border area of an object, lot, land, etc.
PERSONAL PROPERTY: Property that is movable or harvestable, i.e. securities, furniture, cars, promissory notes, clothing, intangibles, etc.
PETITION: A formal, written request to an authority that something be done.
PLAT, PLOT, or SURVEY: A map made by a licensed surveyor showing how a parcel of land has been divided into separate lots.
POINTS: A charge made by a lender that's part of the borrower's cost of obtaining a loan. Each point equals one percent (1%) of the loan amount. Points increase the effective yield on the loan above the nominal interest rate being charged.
PORTFOLIO LOAN: A loan that a lender intends to hold in inventory rather than resell in the secondary market. Such a loan only has to satisfy the lender's guidelines rather than the arbitrary rules of the secondary mortgage market.
POST: After, afterward, (i.e. post sale)
POSTING: Giving notice by physically attaching it to a prescribed bulletin board and/or attaching it to the affected property itself.
POSTPONEMENT: An oral announcement, made in lieu of a scheduled trustee's sale, that reschedules the pending sale. The rescheduled sale will always be at the same location unless it's changed by re-recording a new Notice of Trustee's sale that recites a different sale locale.
PREEMPTION: Usurping another person's opportunity.
PRELIMINARY TITLE REPORT ("Prelim"): A title company report showing the open title record of a property prior to the issuance of a title insurance policy.
PREPAYMENT PENALTY: A fee charged by a lender if a loan is paid off earlier than required. Commonly associated with fixed rate loans and is usually the equivalent of six months of interest. .
PRINCIPAL: The amount of money owed on a loan, excluding interest and other charges.
PRIORITY: The superiority of an interest relative to other interests on the same property. Generally, the first to record is first in right.
PRIORITY CLAUSE: A clause in a subordinate lien (such as a 2nd trust deed) which states that it is subject to a prior lien.
PRIVATE MORTGAGE INSURANCE (PMI): Insurance against a loss by a lender, due to a default in payments from a borrower. Often required when a buyer is paying a small down payment (less than 20% of the appraised value of the secured property . . . especially if the property is a condominium).
PRIVATE OFFERING: An investment issue which is exempt from registration with the SEC and state regulatory agencies if it adheres to both state and federal mandates concerning same.
PROBATE: The process by which a court changes the title to a deceased person's real property. The property is from a decedent to either: 1) his or her heirs (as determined under the laws of intestacy), called an "intestate estate"; or 2) pursuant to the terms of his or her will or trust, called a "testate estate". All techniques which "avoid probate" involve changing title to the decedent's real property without court involvement.
PROMISSORY NOTE: An unconditional instrument of indebtedness between borrower and lender (containing all of the terms of the loan) that is commonly secured by a deed of trust. Since the note is not recorded its terms aren't freely available.
PROPERTY PROFILE: Sometimes called an O&E, a complimentary title company copies of some of the documents pertaining to the ownership, legal description, concurrent liens, and property data of a specific parcel of land. A tax roll, plat map and comps are also generally included.
PRO TANTO: As far as it goes; for so much; in its entirety. An allocation to the full extent of one's interest, in descending order, rather than in proportion to one's interest. The overbid at a trustee's sale is distributed to the junior lienors on a pro tanto basis.
"PURCHASE MONEY" DEED OF TRUST: A trust deed, given as part or all of the purchase price of real property, that is secured by the property being bought.
QUALIFYING: The process of registering with the auctioneer before the trustee's sale begins by showing the auctioneer how much money you brought and the form it is in.
QUIET TITLE: An action at law to remove an adverse claim or cloud from the title of property. The court decree obtained is a "Quiet Title" decree.
QUIT CLAIM DEED: A form of deed containing no warranties as to the quality or validity of the title being transferred. It's frequently used to remove a cloud, claim, or ambiguity in the title record.
RECONVEYANCE: A recorded document issued by a trustee that extinguishes a trust deed lien when the note it secured is paid off. The trustee will require the original note, a copy of the deed of trust, a request for reconveyance, and their trustee's fee (from $65 to $80).
RECORDING: Filing a document with the county recorder to have it entered into the public record, giving constructive notice to the public at large of its contents. Establishes priority amongst competing claims.
REDEMPTION RIGHT: Generally refers to a debtor's right to reacquire title to property lost via a judicial foreclosure (germane to mortgage states) within a year or so afterward. It also refers to IRS's right to redeem property that had secured a federal tax lien prior to a non-judicial foreclosure by a senior lien. IRS's right is limited to120 days after the trustee's sale and requires reimbursement to the winning bidder of the trustee's sale.
REINSTATEMENT RIGHT: A trustor's or junior lienor's statutory right to cure a default in the payment of a promissory note rather than having to pay off the whole loan.
RELIEF FROM STAY: An order from the bankruptcy court allowing a lender to proceed with his default remedies (e.g. trustee's sale) against a debtor . . . exempt from the automatic, protective shield of the bankruptcy court.
RENT SKIMMING: The illegal practice of persuading owners in default to move out and deed over their house before the trustee's sale occurs, under the guise of saving the owners' credit standing because of the substitution. The real objective is to milk the property for all the monthly rents and deposits possible, right to the end of the post-sale eviction action.
R.E.O.: "Real estate owned" by a beneficiary/lender because it wasn't bought by an outside bidder at the trustee's sale.
REQUEST FOR NOTICE: A recorded document that requires a trustee to send to the requester (within 10 business days) a copy of any Notice of Default or Notice of Trustee's Sale that the trustee records concerning a specific deed of trust that's in foreclosure. Though the requester can be anyone, it's usually a junior lienor who wants to be alerted to the foreclosure action of a senior lien that could wipe out his/her junior lien.
RESCISSION: The act of canceling or annulling the effect of a document. If the document was recorded then the subsequent recission will be recorded also.
RESTRAINT ON ALIENATION: Interfering with or limiting one's power to freely transfer (alienate) the title to their property to another.
REVERSE MORTGAGE: A home loan tailored to senior citizens (65 years or older) who own their home free and clear or almost so. It's a loan that pays the borrowers a monthly cash amount until their deaths or for a certain time period whereupon the home is sold to repay the loan and accumulated interest.
SEARCHER: A person, often a title company employee, who examines the links of ownership, interests or rights (chain of title) to a piece of real property.
SECONDARY MARKET: Most lenders sell the loans they originate to large-scale, national investors such as "Fannie Mae" and Freddie Mac". The reason they do is to recycle their money to create more loans (on which they collect loan origination fees, points, etc.). In order to sell their loans originating lenders have to adhere to Fannie Mae's underwriting guidelines.
SECTION 8: A federal, rental assistance program under HUD for very-low-income families. The money is funneled to local housing authorities who pay (directly to landlords) the difference between market rent and what eligible families can afford to pay. The housing "voucher" program is a more flexible variant where the recipient families freely rent whatever they want for whatever rental amount they choose to pay.
SELLER'S MARKET: A market with a lot fewer sellers than there are buyers. The number of days it takes to market property in a seller's market will average 60 days of less and mortgage interest rates will generally be less than 10%.
SHORT RATE: The adjusted, pro-rated premium for a canceled insurance policy. The rate is higher than that regularly charged to compensate for a period shorter than originally contemplated.
SHORT SALE: The sale of property at a fair market price that's lower than the loan balance(s).
SIMULTANEOUS PRIORITY: Two or more liens recorded one right after the other in the same transaction, against the same property, are of equal parity unless there's a written indication on one of them as to their respective priorities.
SOLDIER'S AND SAILOR'S RELIEF ACT: Protects certain military personnel from losing their homes to foreclosure while on they're on active duty.
SPECIAL RECORDING: Title companies are allowed exclusive access to the county recorder's office at 7:00 A.M. (an hour before opening time) to record their documents before the doors open to the public at 8:00 A.M. Thus they are assured that the recorder's records, as of the closing the day before, reflect the true state of title when they record their particular transaction early the next morning. Therefore, it is rare that a title company would agree to record documents (on a transaction it is insuring) during the day - exposing itself to the possibility that someone could have already recorded a superior instrument since opening time. Such an exception is called a "special recording".
STANDING MORTGAGE: A synonym for an "interest only" mortgage; where the periodic payments only cover interest expense-so there's no amortization of the principal balance.
STARTER: The most recent title record search done by a title company. It is used as a starting point whenever a current title search is undertaken.
STRAIGHT NOTE: A loan without any interim payoff of the principal balance. It may call for the interim payment of interest or it may postpone any payments whatsoever until both the principal and accumulated interest amounts are due at the end of the term of the loan.
STRAW MAN: A person acting as a front or a dummy buyer for another.
SUBDIVISION: The division of a parcel of land into smaller lots, by means of a map, for resale or development into residential or agricultural use.
SUBJECT TO: The purchase of a property with an existing lien against the title without assuming any personal liability for its payment.
SUBORDINATION AGREEMENT: An agreement wherein an earlier recorded lien holder agrees to be junior in priority to a later recorded lien holder.
SYNDICATION: A group of persons or legal entities combining their financial and managerial resources to earn a profit. A syndicator is the party that forms the syndicate.
TAX SEARCH: A search made at the offices of the various taxing authorities to determine the amount of taxes which may be a lien against a particular property.
TENANT: Any person in possession of real property with the owner's permission.
TITLE: The evidence of a person's right or interest in real property.
TITLE HOLDING TRUST: Also known as a "land trust". Devised by Chicago Title Insurance Co. in 1891 as a legal, time-tested, fictitious entity that's primarily used to hold the title to real property to shield it from any clouds or liens that all individuals are susceptible to when they get sued, go through a divorce, die, etc. It's especially useful when several, non-related individuals jointly buy investment property.
TITLE INSURANCE POLICY: A "contract of indemnity" protecting the insured from loss due to unknown, hidden clouds, liens or defects affecting the title to the covered property. Since insurance benefits will be paid only to the "named insured" in the title policy, it's important that an owner purchase an "owner's title policy" (CLTA) that's separate from the "lender's policy" (ALTA).
TITLE PLANT: The records of a title company, collected over the years, that enable it to accurately ascertain the current condition of title to specific property.
TITLE SEARCH: A detailed check of the title records at the recorder's office to make certain that the buyer is purchasing a property from the legal owner and that there are no more liens against the property's title than those already disclosed by the seller.
TOWNHOUSE: A two-story dwelling clustered with others such that it shares a common wall with a neighboring unit. In almost all respects it's identical to a condominium unit except, unlike a condo, the ownership of a townhouse includes title to the ground it stands on.
TRANSFER TAX: A tax collected from sellers upon the transfer of their title to real property.
TRUSTEE: The third party to a deed of trust, usually an entity like a title company, that holds the bare legal title to property tendered by the trustor as security for the repayment of a loan.
TRUSTEE'S DEED: The deed issued by a trustee to the highest bidder at a trustee's sale. The deed discloses on its face what the opening or minimum bid was at the sale and what the final winning bid actually amounted to.
TRUSTEE'S SALE: A non-judicial auction sale of real property, conducted by a trustee in the exercise of the power of sale clause, pursuant to the terms of the defaulted deed of trust.
TRUSTOR: The property owner who voluntarily puts a deed of trust against his/her property.
"TWO STEP" MORTGAGE: A 30 year mortgage split into two separate, fixed rate segments. A "7-23" mortgage is a typical arrangement where the monthly payment for the first seven years is designed to be a lot lower than the monthly payment for the subsequent 23 years.
UNDERBID: A minimum bid that only reflects the beneficiary's actual cost in the defaulted loan (it doesn't include the unpaid interest). Done when the beneficiary guesses they won't be bought out by any bidders at the trustee's sale. Thus, if they are going to get title to the property, they don't want included in its value the profit (interest charges) they never received! That way there's no income tax liability on phantom profits. If an outside bidder does appear the beneficiary will instruct the trustee to increase its opening bid to include the unpaid interest.
UNLAWFUL DETAINER: An eviction lawsuit brought to recover the possession of real property from a holdover occupant. In a foreclosure situation a holdover tenant must be given a 30 day notice to quit by the new owner of record whereas a holdover owner merits only a 3 day notice to quit.
USURY: A rate of interest charged on a loan that is in excess of the statutory maximum.
VA: Veterans Administration...established under the Servicemen's Readjustment Act of 1944. It provides two very helpful housing benefits to servicemen and veterans by guaranteeing a lender's housing loan made to an eligible vet without any down payment requirement and by requiring that the subject property conform to VA's housing standards as determined by an on-site appraisal conducted by an approved VA appraiser..
VARIABLE RATE LOAN: A loan bearing an interest rate that fluctuates according to some specified financial index of the current cost of money - wherein both the interest rate and the monthly payment are subject to adjustment at some pre-established interval.
VESTING: The names or manner in which the fixed, determinable title to real property is held.
VOLUNTARY LIEN: Any lien placed on property with the consent and cooperation of the owner.
WAIVER: A release or abandonment of a right or privilege.
WARRANTY DEED: A deed containing express and implied covenants as to good title and right to possession.
WRAP-AROUND TRUST DEED: Same as an "all-inclusive" trust deed. A junior trust deed that "wraps around" a senior trust deed, incorporating the senior's unpaid balance into the overall balance of the wrap-around.
YIELD: The annualized profit from an investment, divided by the original investment amount.
ZONE: Area in a community that's designated for a specified use and purpose
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