Dictionary

abstract (of title): A summary of the public records relating to the title of a particular piece of land. An attorney or title insurance company reviews this to determine if any defects need to be cleared before a buyer can make the purchase.

 

acceleration clause: A condition in a mortgage that may require the balance of the loan to become due immediately if regular mortgage payments are not made or when a breach of other conditions of the mortgage occurs.

 

adjustable mortgage: A mortgage that is raised or lowered at periodic intervals according to the current market interest rates.

adjustable-rate mortgage (ARM): A loan with an interest rate that changes periodically in keeping with a current index. Typically ARMs don't jump more than two percentage points per year or six points above the starting point.

agreement of sale: Also known as contact of purchase, purchase agreement, or sales agreement, the agreement of sale is a contract in which a seller agrees to sell and a buyer agrees to buy, under certain terms and conditions, and is signed by both parties.

amortization: A payment plan that enables the borrower to reduce his debt gradually through monthly payments of principal.

appraisal: An expert judgment or estimate of the quality or value of real estate at a given time.

balloon mortgage: A balloon mortgage is one in which monthly payments are made for a specified period of time, with the balance of the loan paid in full at the end of the loan term. Like an ARM, interest rates on a balloon mortgage are typically lower than on a fixed rate mortgage.

 

bankruptcy: The legally declared inability or impairment of ability of an individual or organization to pay their creditors.

 

bankruptcy alternatives: Any number of ways that a debtor may avoid the negative consequences of personal bankruptcy so that the debtor may borrow money in the future.

 

Bankruptcy Abuse Prevention and Consumer Protection Act: A specific act that provides for significant changes in bankruptcy laws.

 

bankruptcy fraud: The falsification of bankrupt claims in order to incur some type of payments under the creditors.

broker: A middleman or agent who buys and sells real estate or mortgages. The broker does not have title to the property, but generally represents the property owner.

 

chapter 7: A specific chapter in the United States Bankruptcy Code that governs the process of liquidation under the bankruptcy laws of the United States.

 

chapter 9: A specific chapter in the United States Bankruptcy Code that governs the process of municipal bankruptcy.

 

chapter 11: A specific chapter of the United States Bankruptcy Code which permits reorganization under the bankruptcy laws of the United States.

 

chapter 12: A specific chapter of the United States Bankruptcy Code that is only available only to family farmers and fisherman in certain situations.

 

chapter 13: A specific chapter of the United States Bankruptcy Code that enables individuals to undergo a financial reorganization supervised by a federal bankruptcy court.

 

chapter 15: A specific chapter of the United States Bankruptcy Code that deals with issues of jurisdiction.

closing costs: The expenses that buyers and sellers normally incur to complete a transaction in the transfer of ownership of real estate. These costs are in addition to the price of the property and are prepaid at the closing day. The agreement of sale negotiated may state who will pay for each of the closing costs. Typical closing costs include:

closing day: The day on which the formalities of a real estate transaction are concluded.

cloud on title: An outstanding claim or encumbrance that adversely affects the marketability of a title.

 

commitment letter: A written promise from a lender that you will receive a mortgage of a specified amount at a specified rate.

conditions offer: An offer to buy a property, but only under certain circumstances (for example, the buyer receives financing or sells the current home).

conventional mortgage: A mortgage loan not insured by HUD or guaranteed by the Veteran's Administration. It is subject to conditions established by the lending institution and state statutes. The rate may vary with different institutions and between states.

 

credit counseling: A process of offering education to consumers about how to avoid incurring debts that cannot be repaid.

 

creditors: A person or organization that has a claim to the services of a second party, or debtor.

 

credit history: A record of an individual’s or organization’s past borrowing and repaying, including the information about late payments and bankruptcy.

 

credit rating: A process that assesses the credit worthiness of an individual or organization.

 

credit rating agency: A company the assigns credit ratings for issuers of certain types of debt obligations.

 

credit risk: A risk of loss due to a debtor’s non-payment of a loan or other line of credit.

 

credit score: A numerical expression based on a statistical analysis of a person’s credit files in order to represent the creditworthiness of a person, or to see if a person can pay their debts in a timely manner.

 

debt: The amount of that which is owed, generally in the form of financial assets.

 

debt consolidations: When a debtor takes out a loan in order to pay off many others. This can be done for the purpose of a lower interest rate, or to secure a fixed interest rate for the convenience of servicing only one loan.

 

debt management plan: A method used for paying personal unsecured debts that involves cataloguing all the debts, assessing income and budget and then re-negotiating interest rates and payments to lenders.

 

debtor: A person who owes something, generally someone who has already received something, usually financial, from a creditor and the debtor must make a repayment at a later time. If payment is not made, a formal collection process can begin.

 

debt settlement: An aggressive approach to debt reduction, which allows a debt settlement agency to negotiate with creditors to settle the debt for a lower amount than owed, as the debtor saves their money for a lump-sum settlement payment.

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 on closing day. The two parties of the deed are the grantor and the grantee. (See also Deed of Trust, General Warranty Deed, Quitclaim Deed, and Special Warranty Deed.)

deed of trust: The three parties of the deed are the borrower, trustee, and lender (or beneficiary). 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/beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, the borrower defaults, 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 to treat the deed of trust like a mortgage.

 

dissolution: The last stage of the process of liquidation.

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

 

encumbrance: A legal right or interest in a land that affects a good or clear title, and diminishes the value, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. It does not legally prevent property transfer. A title search is generally all that is necessary to revel an encumbrance. The buyer must determine whether he wants to purchase with the encumbrance or what can be done to remove it.

 

equity: The portion of the property owned outright (for example, with a 20% down payment the buyer has 20% equity). Equity increases as the mortgage is paid off.

 

escrow: Funds paid by one party to another (the agent) to hold until the occurrence of a specified event after which the funds are released to a designated individual.

 

escrow account: Also called an impound account, in FHA transactions an escrow account usually refers to the funds a mortgagor pays the lender and whichare held in trust. It contains funds adequate to cover yearly, anticipated costs for mortgage insurance premiums, taxes, hazard insurance, premiums, and special assessments.