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ACCELERATION CLAUSE – A clause in a Deed of Trust (aka your mortgage) or Note that accelerates or hastens the time when the secured debt becomes due. For example, most Deeds of Trust of loans contain a provision that the Note will become due immediately upon the sale of transfer of title of the loan, or upon failure to pay an installment of principal or interest. This is also called a ‘due on sale’ clause.

ADJUSTABLE RATE MORTGAGE – These loans have interest rates that are tied to certain market indices. Initial period (i.e., the first fixed part of the loan) rates for an ARM usually starts lower than its fixed–rate loan brethren in most cases. But, after the initial period, the index can go up or down as a product of indices’ performance. This can lead to a change in the interest rate and payment schedule. Most of these types of loans will have a  pre–determined and contractually-stated maximum amount of interest that can be charged. These loans are much more common to tenancy in common financing here in San Francisco. In these cases the initial period is fixed for 3, 5 or 7 years. Folks tend to refinance in year 6 if it’s advantageous to do so.

AGENCY – Any relationship in which one party (the agent) acts for or represents another (principal) under the authority of the principal. Agency involving real property should be in writing, such as listing agreements, trusts, powers of attorney, etc. The duties and obligations agency relationships carry will vary from context to context; agency may also be implied from the circumstances.

ALL-INCLUSIVE DEED OF TRUST – Oftentimes called a wrap-around deed of trust. In any case this is a deed that secures a new note in the amount of the unpaid balance of a prior note plus any delta between that existing amount and the new agreed–upon purchase price. Situations in which wrap around deeds of trust are used are: when buyers have little by the way of hard cash for down payment and the seller agrees to carry the balance; if the seller previously received a much more competitive interest rate, than what is currently available, this device maybe used to lock that rate in for the contracted time.

AMORTIZATION – Payment of borrowed debt in regular, periodic installments of principal and interest, as opposed to interest only payments. Under most mortgages there is a logarithmic curve at work whereby more interest is paid initially than principal until the final payments are primarily principal.

APPRAISAL – An opinion of the fair market value of an asset based on factual analysis. Legally, an estimation of value by two discriminated persons of suitable qualifications. Appraisers do abide by certain professional standards (see USPAP) but should also be familiar with the market they are examining.

APR (Annual Percentage Rate) – The yearly interest percentage for a loan, as expressed by the actual rate of interest paid which can vary from the ‘interest rate’ quoted. The APR is disclosed as a requirement of Federal Truth in Lending Statutes.

AS IS – a term of art whereby seller affirmatively disclaims any warranty or representation over a property and its condition so that a buyer is on notice of this fact and agrees to proceed with a purchase of property regardless.

ASSESSED VALUE – Value placed upon property for property tax purposes by the Tax Collector. This is based on a number of factors but in San Francisco it is the sale price of the property or the fair market value of the property at the time of transfer. This value may change with any remodeling that takes place but is otherwise constrained in California by Proposition 13. Property owners can petition for reassessment on an annual basis.

ASSUMPTION – When a buyer takes over, or “assumes” the seller’s mortgage subject to the same terms and conditions the seller had.

ATTACHED HOUSING – Any number of houses or other dwellings which are physically attached to one another, such as a zero lot line where structures physically abut each other.  but are occupied by a number of different people. The individual houses may or may not be owned by separate people as well. Issues to consider involve common walls.

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BALLOON MORTGAGE – A mortgage loan in which the monthly payments are not large enough to repay the loan by the end of the term so at the end of the term, the remaining balance comes due in a single large payment or where there are large payments due at given times over the life of the loan.

BALLOON NOTE – A note calling for periodic payments which are insufficient to fully amortize the face amount of the note prior to maturity, so that a principal sum known as a “balloon” is due at maturity. Often used when borrower knows they will come into money via stocks, job, inheritance, etc. Akin to ARM loans.

BALLOON PAYMENT – The final large payment at the end of a balloon mortgage term.

BEAM – A structural supporting member that bears a structure’s load and weight that impacts structural stability and integrity.

BENEFICIARY – (1) One for whose benefit a trust is created. (2) In states in which deeds of trust are commonly used instead of mortgages, the lender (mortgagee) is called the beneficiary.

BILL OF SALE – A physical receipt indicating the sale of property.

BI–WEEKLY MORTGAGE – A mortgage where you make “half payments” every two weeks, rather than one payment per month. This results in making the equivalent of 13 monthly payments per year, rather than 12, significantly reducing the time it takes to pay off a thirty year mortgage.

BLIGHTED AREA – Any region of a city or town that has fallen into disrepair or otherwise. These areas could be destinations for redevelopment initiatives and/or be places where borrowers can get favorable CENSUS TRACT LOANS.

BORROWER – One who borrows funds, with the express or implied intention of repaying the loan in full, or giving the equivalent; named party on Note.

BONA FIDE – Any genuine offer, made without intent to defraud or deceive in good faith.

BREACH OF CONTRACT – Wrongful failure to perform a contract, in whole or in part, without legal excuse. Could lead to damages or, when concerning real property, specific performance mandated by a court.

BRIDGE FINANCING – An interim loan made to facilitate the purchase of a new home or fund a development project before the buyer’s current residence sells and its equity is available to fund the new purchase or until other financing is available. Interest rates are often higher.

BROKER – An individual who facilitates the purchase of property by bringing together a buyer and a seller. Sales Agents work under the supervision of brokers, but brokers can work independently.

BUILDING CODE – Regulations that ensure the safety and material compliance of new construction within a municipality. Building codes are localized to ensure they are adequate to meet the risk of common hazards.

BUILDING LINE or SETBACK – The statutory-mandated distance between buildings and the property line, imposed by municipalities, home associations, or other agreements. Used for fire prevention and/or as part of urban planning.

BUNGALOW – A one–story, home–style dating from the early twentieth century. Often characterized by a low–pitched roof and being “cute” by real estate marketers.

BUY DOWN – Extra money paid in a lump sum to reduce the interest rate of a fixed rate mortgage for a period of time. The extra money may be paid by the borrower, in order to have a lower payment at the beginning of the mortgage. Or paid by the seller, or lender, as incentive to buy the property or take on the mortgage.

BUYER’S AGENT – real estate professional who represents you in the purchase of a home. Typically there is no cost to you because they receive part of the commission as paid by the seller when the house sold and closed.

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CALL OPTION – A clause in a mortgage which allows the lender to demand payment of the outstanding balance at a specific time; triggered under certain (rare) circumstances. Most mortgages are bought and sold on the securities market so that loan owner may vary from originator who, in turn, varies from loan servicer thus breaking the chain of supervision.

CAL–VET LOANS – Real estate loans available to Armed Forces Veterans from California, at low interest rates without mortgage interest payment requirements and low down payment requirements below the customary 20% threshold.

CENSUS TRACT LOANS – Special government-sponsored loans from selected lenders that allow buyers (regardless of income) purchase homes with less-than 20 percent down payment (e.g., 5%, 10%) for designated census tracts of communities that have a lower-than-desired median income without the need to pay private mortgage insurance (PMI).

CERTIFICATE OF ELIGIBILITY – A document issued by the Veterans Administration that certifies eligibility for a VA loan.

CERTIFICATE OF OCCUPANCY – Issued by an appropriate jurisdictional entity, this document certifies that a building complies with all building codes and is safe for use or habitation. In San Francisco, the year this certificate is issued impacts rent control and condo status greatly. The date to be concerned about is June 13, 1979.

CERTIFICATE OF REASONABLE VALUE (CRV) – Usually based on an independent appraisal, a CRV for a particular property establishes the maximum amount which can be secured by a VA mortgage. There are other requirements for FHA loans, a condo Homeowners Association, for example, must be incorporated and approved independently by HUD.

CERTIFICATE OF TITLE – or simply, TITLE, The document designating the legal owner of a parcel of real property, which is usually provided by a title or abstract company and recorded with a county assessor/treasurer.

CERTIFIED GENERAL APPRAISER – Generally, a professional who has met the local or state requirements to value property objectively, who has otherwise passed the appropriate certification exam(s), and is capable of appraising any type of real property.

CERTIFIED RESIDENTIAL APPRAISER – A sub–classification of appraiser who is only licensed to appraise residential property, usually up to a four-unit building.

CHAIN OF TITLE – The complete history of ownership of a piece of property the links one owner to another and so forth. Important for lenders and title insurance purposes to ensure not outstanding ownership interests; settled expectations.

CHATTEL – Any personal property which is not attached to or an integral part of real property. Chattel is not commonly taken into consideration when appraising the value of real property. The term originates from the slave trade.

CLEAR TITLE – Presumptive or actual ownership rights over real property that is not otherwise encumbered (restricted) by a counter–claim, claim, secured claim or lien. This is essential for a lender and it is what title insurance is supposed to assure.

CLOSING – Close of Escrow – this is the stage in the purchase process during which documents are signed and down payment money and mortgage money is collected and transferred. Closing represents the culmination of all of our efforts. By the end of closing you should have had title changed and exchanged, previous loans paid off and new one started, if applicable. You should also have keys in hand. Some areas of the country do not have title escrow companies and periods but use lawyers instead.

CLOSING COSTS – These are the fees paid to the lender, third parties like couriers or notaries. Term also encompasses escrow company fees as well as title insurance premiums and recording fees. You will receive an estimate of these costs at various points before and during ESCROW.

CLOSING DISCLOSURE – The updated version of the closing statement, which is a document detailing the final financial arrangements, payouts, and transfers between the buyer, seller, taxes collected and fees paid to brokers. New lending regulations per Dodd-Frank reforms now mandate a mandatory waiting period from when buyers receive their CD to when they can sign loan documents and from when the transaction can close (see TRID or here).

CLOUD ON TITLE – An encumbrance or error actual or purported on real property, which, if valid, would affect the rights of the owner to sell clear title or a buyer to receive as such. For example: Mr. A sells Lot 1, tract 1 to Ms. B. The deed/title is mistakenly drawn to read Lot 2, tract 1. A cloud is therefore cast on Lot 2 by the recording of the incorrect deed. The cloud may be removed by quitclaim deed, or if necessary, by court action through a quiet title action; compare lis pendens.

CO–BORROWER – A second person sharing obligation on the loan and title on the property.

COLLATERAL – An asset which is placed at risk to secure the repayment of a loan; such as the house.

COLLECTION – The process a lender or creditor takes to pursue a borrower who is delinquent on his or her mortgage payments in order to bring a mortgage current again. Includes documentation that may be used in foreclosure proceedings.

CO–MAKER/CO-SIGNER – A second party who signs a loan, along with the borrower, and becomes liable for the debt should the borrower default.

COMMON LAW – As opposed to statute law. Laws that have been established by custom, usage and judicial precedent over time— stare decisis.

CAP – Associated with Adjustable Rate Mortgages. The upper limit on how high monthly payments or how much interest rates may change within a certain time period or the life of the mortgage.

CAPITAL – Accumulated goods and money which is most often used to generate additional income.

CAPITAL EXPENDITURE – An outlay of funds designed to improve the income–producing capabilities of an asset or to extend its economic life that may be tax-deductible. Home improvements to primary residences that is ‘remodeling’ are not generally deductible. Consider investment property improvement however.

CASH–OUT REFINANCE – Refinancing a mortgage at a higher amount than the current balance in order to transform a portion of the equity into cash if a property is appraised and worth more than the current mortgage amount.

CAVEAT EMPTOR – Literally translated: ‘’Let the buyer beware.’’ A common business tenet whereby the buyer is responsible for verifying any and all claims by the seller of property. In other words, buyers are to do full diligence before completing a purchase, although instances of fraud or misrepresentation are not covered by this proviso. Used more so in commercial transactions as California has implemented wide consumer protection laws.

CENSUS TRACT LOAN PROGRAM – A fixed rate loan with a low 3 to 5% Down payment, no cash reserve requirement, no mortgage insurance premiums and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a 6-hour training course on home ownership as well as geographic location of a qualified census tract that has been determined as a targeted neighborhood in which median incomes are too low.

CERTIFICATE of DEPOSIT – A document showing that the bearer has a certain amount of money, at a particular amount interest, on deposit with a financial institution.

CERTIFICATE OF DEPOSIT INDEX – An index based on the interest rate of a six month CD.

COMMISSION – A percentage of the sales price or a fixed fee negotiated by an agent to compensate for the effort expended to sell or purchase property via LISTING AGREEMENT or MLS AGREEMENT and paid directly by seller or landlord.

COMMON AREA ASSESSMENTS – For TICs and condominiums, assessed fees that are charged to the tenants or owners of properties to cover the costs of maintaining common areas shared with other tenants or owners in accord with governing documents like a TIC AGREEMENT or CC&Rs.

COMMON AREAS – For condos and TICs, any area, such as entryways, foyers, pools, yards, building exterior, garage space, laundry rooms, roofs, recreational facilities or the like, which are shared by the tenants or owners of property near by owned by the Homeowner Association or equivalent.

COMMUNITY HOME BUYERS’ PROGRAM – A fixed rate loan with a low 3 to 5% Down payment, no cash reserve requirement, and easier qualifying ratios. Subject to borrower meeting income limits and attendance of a 4 hour training course on home ownership.

COMMUNITY PROPERTY – In some jurisdictions like California (and coastal states), any property which has been acquired by a married couple during the marriage with the presumption that the ownership of property is considered equal unless stipulated otherwise by both parties as separate property; consider there is a right to will (devise) property to others than the other spouse.

COMPARABLE SALES – COMPS – An abbreviated term used by appraisers to describe properties which are similar in size, condition, location and amenities to a subject property who’s value is being determined. The Uniform Standards of Professional Appraisal Practice (USPAP) establish clear guidelines for determining a comparable property.

COMPOUND INTEREST – Interest paid on the principal amount, as well as any accumulated interest that has been capitalized.

CONCESSIONS – Additional value granted by a buyer or seller (or neighbor) to entice another party to complete a transaction typically granted during an escrow period for discoveries or developments previously unknown. Certain lenders will have an upper limit on seller-based concessions so as not to impact a loan made in a material manner.

CONDOMINIUM – A property within another envelope where an individual three-dimensional space — a unit — is individually owned and titled differently from other units, but common areas and amenities are shared by all owners through a homeowner association. Importantly, condominium homes are exempt from rent control laws in San Francisco; governed by the Davis-Sterling Act, which regulate common interest developments in California.

CONDOMINIUM CONVERSION – The conversion of a property with one title over several individual, contained and discrete living areas (e.g. rental property such as an apartment complex) into several individual-titled properties (condos) through subdivision that are adjacent to each other.

CONSIDERATION – Anything which is, legally, of value, that induces one to enter into a contract. In other words, a buyer offers money to purchase a property. The consideration is the money. I promise to give you my property the consideration is the property.

CONSTRUCTION LOAN – A loan made to a builder or homeowner that finances the initial construction of a property, but is replaced by a traditional mortgage once the property is completed. Usually requires owner to put down a much higher down payment that will become the equity in the completed property that will be worth more, e.g., 40% down payment will become the 20% equity in a completed development.

CONTINGENCY – Some action, event or condition that must occur before something else can take place. In real estate buying the number of conditions/contingencies are contained and defined by the purchase offer contract. The number and extent of conditions may impact an offer’s strength or weakness.

CONTRACT – A legally binding agreement, oral or written, between two parties. Importantly, for any transaction involving real property transfers or obligations greater than 1 year (e.g., annual lease) must be in writing according to the Statute of Frauds.

CONVENTIONAL MORTGAGE – A traditional, real estate financing mechanism that is not backed by any government or other agency (FHA, VA, etc.) that conforms to their guidelines.

CONVERTIBLE ARM – A mortgage that begins as an adjustable, that allows the borrower to convert the loan to a fixed rate within a specific timeframe. There should be an upper limit for interest rates.

CONVEYANCE – The transfer of title to land or associated rights related to land. Includes most instruments by which an interest in real estate is created, mortgaged or assigned. It’s the formal term of a seller relinquishing their ownership over property or a lender giving up their mortgage lien upon repayment.

COOPERATIVE (CO–OP) – A form of ownership where each resident of a multi-unit property owns a share in a cooperative corporation that in turns owns the building, with each resident having rights to a specific unit within the building. There are only 13 buildings of this kind in San Francisco; much more common in New York City for example.

CORPORATE RELOCATION – A situation where a person’s employer pays all or some of the expenses associated with moving from one location to another, usually over a substantial distance. Relocation expenses often include the amounts, such as brokerage fees, incurred in the selling and buying of the employee’s primary residence.

COST OF FUNDS INDEX (COFI) – An index of financial institution’s costs used to set interest rates for some Adjustable Rate Mortgages.

COVENANT – An agreement that is solemn and serious and seldom changeable absent some effort whereby one party commits and agrees to X;  e.g. stipulation in any mortgage that, if not met, can be cause for the lender to foreclose. Covenants also govern condo developments and will ‘run with the land.’

CREDIT – A loan of money for the purchase of property, real or personal. Credit is either secured by an asset, such as a home, or unsecured like a line of credit or credit card.

CREDIT HISTORY – A record of debt payments, past and present. Used by mortgage lenders in determining credit worthiness of individuals. Lenders typically rely on information from the three major consumer credit rating respository or FICO scores.

CREDITOR – A person (or entity) to whom money is owed, like your bank, seller or family.

CREDIT REPORT – A detailed report of an individual’s credit, employment and residence history prepared by a credit bureau. Used by lenders to determine credit worthiness of individuals.

CREDIT REPOSITORY – Large companies that gather and store financial and credit information about individuals who apply for credit, like TransUnion, Equifax and Experian.

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DATE OF APPRAISAL – The specific point in time as of which an appraiser designates the value of a home. Often stipulated as the date of inspection; may have impact on estate issues and capital gains if property passes by inheritance.

DEBT – An obligation to repay an amount owed. This may or may not be monetary.

DEBT EQUITY RATIO – The ratio of a borrower’s gross monthly income.

DEBT TO INCOME RATIO – DTI — The ratio of the amount a mortgagor still owes on a property to the amount of equity they have in the home. Equity is calculated at the fair–market value of the home, less any outstanding mortgage debt.

DEED – A document indicating the ownership of a property; another term for TITLE.

DEED–IN–LIEU (OF FORECLOSURE) – A document given by a borrower to a lender, transferring title of the property. Often used to avoid credit–damaging foreclosure procedures; surrendering the property.

DEED OF TRUST – When a home mortgage is used, this is the document that the title company holds over the property in trust on behalf of the bank for the use and benefit of the borrower.  For example, in a typical home loan, the borrower makes monthly payments to the bank. If the borrower goes into default, the title company initiates a non-judicial foreclosure as the bank’s agent.

DEED OF RECONVEYANCE – A document which transfers ownership of a property from a Trustee back to a borrower who has fulfilled the obligations of a mortgage.

DEED OF RELEASE – A document which dismisses a lien or other claim on a property; for example when a tradesperson drops a mechanic’s lien claim on the property.

DEED OF SURRENDER – A document used to surrender any claim a person has to a property; used commonly in the foreclosure era after the 2008 crash.

DEFAULT – The condition in which a borrower has failed to meet the obligations of a loan or mortgage.

DELINQUENCY – The state in which a borrower has failed to meet payment obligations on time.

DEPOSIT – Cash given along with an offer to purchase property. This is also known as earnest money and is usually 3% of the purchase price. This amount will be the amount of liquidated damages, which is typically the maximum amount at stake during escrow and amount a buyer could lose if a deal falls apart.

DEPRECIATION – The natural decline in property value due to market forces or depletion of resources.

DETACHED SINGLE–FAMILY HOME – A single-standing home with side yards, driveways or some other distance from the next building; compare zero lot-line.

DISCOUNT POINTS – Points paid in addition to the loan origination fee to get a lower interest rate. One point is equal to one percent of the loan amount; sometimes mandatory, other times optional

DISPOSABLE INCOME – Monthly income left over after fixed obligations and living expenses are paid for that period. This is important when considering debt to income ratio calculations when applying for mortgage loans.

DOCUMENTARY TRANSFER TAX – A state tax on the sale of real property, based on the sale price assessed and collected at the point of sale. Depending on jurisdiction, either the seller or buyer will pay or the amount may be shared. In San Francisco, the seller pays this tax.

DISTRESSED PROPERTY – A mortgaged property either facing the threat or are is in foreclosure proceedings that may be subject of a short sale.

DOCUMENTATION – for a mortgage underwriter this is any paperwork, financial statements or other records that may be required to verify income, assets and – most important these days – source of funds to see if they comply with lending guidelines issued in part by the government. Document everything to provide a chain of custody of all funds and income sources.

DOWN PAYMENT – An amount paid in cash for a property from the buyer directly, with the intent to mortgage (borrow) the remaining amount due.

DUE–ON–SALE PROVISION – A clause in a mortgage giving the lender the right to demand payment of the full balance when the borrower sells the property.

DUPLEX – A single building which is divided into two units each of which serves as a home to two families, separate entrances for each and no internal connectedness.  More commonly referred to as a two-unit in San Francisco. This type of building is more valued here because of the possibility of expedited condominium conversion between two separate owners (each holding a 25% or greater ownership interest) provided various conditions are satisfied.

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EARNEST MONEY DEPOSIT – A cash deposit made to a home seller to secure an offer to buy the property. This amount may be forfeited if the buyer decides to withdraw his offer, see also GOOD FAITH DEPOSIT, LIQUIDATED DAMAGES and 3% DEPOSIT.

EASEMENT – The right of a non–owner of property to exert control over a portion or all of the property in favor of their property. For example, power companies often own an easement over residential properties for access to their power lines.

EAVE – The part of the roof that extends beyond the exterior wall.

ECONOMIC DEPRECIATION – The decline in property value caused by external forces, such as neighborhood blight or adverse development or economic factors like employment and growth.

ECONOMIC LIFE – The amount of time which any income–producing property is able to provide benefits to its owner.

EFFECTIVE AGE – The subjective, estimated age of a property based on its condition, rather than the actual time since it was built. Excessive wear and tear can cause a property’s effective age to be greater than its actual age.

EMINENT DOMAIN – The legal process whereby a government can take ownership of a piece of property in order to convert it to public use. Often, the property owner is paid fair–market value for the property.

ENCROACHMENT – A building or other improvement on one property which invades another property or restricts its usage.

ENCUMBRANCE – A claim against a property. Examples are mortgages, liens and easements.

ENERGY EFFICIENCY RATIO – An efficiency rating system for air conditioning units that corresponds to the number of BTU’s output per watt of electricity used.

Entitlement – the right to develop land with relevant government approvals for zoning density, utility installations, occupancy permits, use permits and streets. There is increasing value to securing entitlements through San Francisco’s arduous and tedious planning, building and historical review processes.

EQUAL CREDIT OPPORTUNITY ACT (ECOA) – U.S. federal law requiring that lenders afford people equal chance of getting credit without discrimination based on race, religion, age, sex etc

EQUITY – The difference between the fair market value of a property and that amount an owner owes on any mortgages or loans secured by the property, i.e., the gain in value over time.

EQUITY BUILDUP – The natural increase in the amount of equity an owner has in a property, accumulated through market appreciation and debt repayment.

ERRORS AND OMISSIONS INSURANCE – An insurance policy taken out by appraisers to cover their liability for any mistakes made during the appraisal process. Similar insurance applicable to HOA Board Members and/or management, compare Director’s Liability Insurance.

ESCROW – refers both to the service and or title company itself that holds money in trust during the title transfer process and the time period between contract ratification and completed title transfer. An escrow holder is one that cannot execute until some condition has been fulfilled meaning that when items and documents are sent to escrow, the understanding is that the escrow holder will hold documents and monies so that they will not be released until certain conditions have been met by both of the parties as agreed upon in writing within the purchase contract or subsequent agreements, i.e., mutuality.

ESCROW ACCOUNT – An impound account setup by a mortgage servicing company to hold funds with which to pay expenses such as homeowners insurance and property taxes paid into on a monthly basis by a homeowner. These impound account requirements may be dropped after 1 year from closing.

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FEE SIMPLE – A complete, unencumbered ownership right in a piece of property. Terms like “fee” are derived from English common law governing estates, rights to land and inheritance starting in medieval times onwards.

FEE SIMPLE ESTATE – A form or ownership, or holding title to real estate. It is the most complete form of title whereby an owner has an unconditional and unlimited interest of perpetual duration; what buyers want to buy.

FHA MORTGAGE – A mortgage that is insured by the Federal Housing Administration (FHA); compare FHA PROGRAM loan whereby a buy may borrow and purchase properties (up to 4 units) with a down payment less than 20% provided borrow pays certain amounts in monthly mortgage insurance premiums. Most loans for a single-family residence or condominium (must be approved) will have a maximum price of $729,750; 4 units $1,403,400 with a minimum down payment of 3.5%.

FHLMC (FREDDIE MAC) – Federal Home Loan Mortgage Corporation. A Federal Agency purchasing first mortgages, both conventional and federal insured, from members of the Federal Reserve System and the Federal Home Loan Bank System.

FINAL VALUE ESTIMATE – The estimated value of a piece of property resulting from an appraisal following the USPAP guidelines.

FIRST MORTGAGE – The primary loan or mortgage secured by a piece of property; first note that is the first creditor to be paid on sale or foreclosure.

FIT AND FINISH WARRANTY — Requirement under California law that a  builder  provide a homebuyer with a minimum one-year express written limited warranty covering the fit and finishes of cabinets, mirrors, flooring, interior and exterior walls, countertops, paint finishes and trim; for new construction, protection is  in conjunction with Right to Repair Act 10-year protection period.

FIXED–RATE MORTGAGE (FRM) – A mortgage which has a fixed rate of interest over the life of the loan, most commonly 30-years.

FIXTURE – Any piece of personal property which becomes permanently affixed to a piece of real property so long as intent can be shown; may be exempted form purchase but must be stated as such by seller or lessee. Important to exclude such items from sale if they are to be kept, e.g., chandeliers, window treatments, shelving.

FLASHING – The metal used around the base of roof mounted equipment, or at the junction of angles used to prevent leaking.

FLOOD INSURANCE – Government-backed supplemental insurance which covers a home owner for any loss due to water damage from a flood. Often required by lenders for homes located in FEMA–designated flood zones.

FLOOR PLAN – The representation of a building which shows the basic outline of a structure, as well as detailed information about the positioning of rooms, hallways, doors, stairs and other features. Often includes detailed information about other fixtures and amenities. Keep in mind that this is tied closely to square footage in San Francisco of which there are multiple measures that are perfectly valid. Also, many use the term to refer to how rooms are connected and interconnected with each other. There is a common preference for ‘open floor plans’ that emphasize more public areas with fewer dividing walls. Other considerations include location of sleeping areas, room size, ceiling height among other features.

FLUE – The furnace exhaust pipe, usually going through the roof. Also, the chimney of a fireplace. Most fireplaces in San Francisco that are not of modern construction are wood burning ones, which need proper evaluation before use.

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IMPROVED LAND – Any parcel of land which has been changed from its natural state through the creation of roads, buildings or other structures; most of San Francisco is improved.

IMPROVEMENTS – Any item added to vacant land with the intent of increasing its value or usability. 

IMPROVEMENT RATIO – The comparative value of an improved piece of land to its natural, unaltered state.

IMPOUND ACCOUNT – Account held by lender for payment of taxes, insurance, or other periodic debts against real property. The borrower pays a portion of, for example, the yearly taxes, with each monthly payment. The lender will pay the tax bill from the accumulated funds; forced savings plan. Impound account may be required only for the first months or years of mortgage payment. 

INCOME APPROACH – For valuing investment properties earning rent—estimating the value of the property by considering the present cash value of income/revenue stream as generated by the property.

INCOME PROPERTY – A piece of property whose highest and best use is the generation of income through rents or other sources.

INDEPENDENT APPRAISAL – An estimation of value created by a professional, certified appraiser with no vested interest in the value of the property.

INDEX – An index used to adjust the interest rate of an adjustable rate mortgage loan. For example: the change in U.S. Treasury securities (T–bills) with a 1 year maturity. The weekly average yield on securities, adjusted to a constant maturity of one year, which is the result of weekly sales, may be obtained weekly. This change in interest rates is the “index” for the change in the specific adjustable rate mortgage.

INSPECTION – The examination of a of property, its buildings or other amenities. 

INSTRUMENT – A legal document, such as a deed, mortgage, will, lease, etc.

INSURABLE TITLE – The title to property which has been sufficiently reviewed by a title insurance company, such that they are willing to insure it as free and clear.

INTEREST RATE – Compensation for the use of money — in this context, amount owed to a lender in return; expressed as a percentage based mortgage value. 

INTEREST RATE CAP – The maximum interest rate increase permitted for an adjustable rate loan. For example: a 6% loan with a 5% interest rate cap would have a maximum interest for the life of the loan which would not exceed 11%; consider usury laws.

INVESTMENT PROPERTY – Any piece of property that is expected to generate a financial return and not necessarily as a primary residence. This may come as the result of periodic rents or through appreciation of the property value over time.

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LATE CHARGE – A charge to the borrower for failure to pay an installment payment on time; most lenders give 10- or 15-day grace periods however.

LATENT DEFECTS – Any defect in a piece of property which is not readily apparent, but which (if known) will have an impact of the value. Unseen structural damage, soil issues, rot , sewer lateral damage or termite infestation would be examples of latent defects; consider disclosures and inspections vs.  “as is.”

LEASE – An agreement by which an owner of real property gives the right of possession and occupancy to another for a specified period of time and for a specified consideration (rent); leases over 1 year in duration must be in writing. While access interests and other rights are conferred, title is not. In San Francisco, annual leases will automatically convert into month-to-month leases despite language to the contrary.

LEASE OPTION – A lease agreement that gives the tenant an option to buy the property. Usually, a portion of the regular monthly rent payment will be applied towards the down payment, rent-to-own. Considerations include what purchase price, what terms and how long the right exists.

LEGAL DESCRIPTION – The description of a piece of property, identifying its specific location in terms established by the municipality or other jurisdiction in which the property resides as recorded with the applicable authority. Often related in specific distances from a known landmark or intersection in metes and the like. Found on plat maps and historic maps.

LENDER – The person or entity who loans funds to a buyer. In return, the lender will receive periodic payments, including principal and interest amounts.

LIABILITIES – A person’s outstanding debt obligations or responsibilities.

LIABILITY INSURANCE – Insurance that covers against potential lawsuit brought against a property owner for alleged negligence resulting in damage to another party, property or interests. Oftentimes required by mortgage lenders.

LIEN – Any claim against a piece of property resulting from a debt or other obligation that otherwise impedes the marketability of title, consider Cloud on Title & Title Insurance.

LIFE CAP – A limit on how high an interest rate can move for an Adjustable Rate Mortgage typically 10-12% in 2013.

LIKE–KIND PROPERTY – Any property which is substantially similar to another investment property; used in IRS sec. 1031 tax deferment arrangements whereby capital gains taxes are deferred when an investment property is sold and exchanged for a like-kind property that is purchased with net proceeds within 180 days of escrow among other criteria. A formidable way of leveraging cash that would otherwise be taxed. While 1031 exchanges cannot be used for your personal residence the character of an investment property may change over time to become your personal residence whereby you could use personal exemptions under IRS sec. 121.

LIQUEFACTION – Liquefaction happens when loosely packed sandy or silty materials saturated with water are shaken hard enough to lose strength and stiffness. Liquefied soils behave like a liquid and are responsible for tremendous damage in an earthquake, causing pipes to leak, roads and airport runways to buckle, and building foundations to be damaged.

LIQUIDATED DAMAGES – originally a euphemism for forfeiture or penalty. Used here, a contractual term whereby monetary damages are predetermined relatively to contract price — 3% in California and San Francisco. These damages will be deemed sufficient penalties for breach of purchase contract, typically by buyer with little or no fault of seller absent bad faith and/or fraud. Among others, the following are invalid bases for liquid damages: if sum far exceeds probable and actual damages; a simple delay in payment is the only fault listed in clause; if a notice to perform isn’t delivered or any reasonable opportunity to cure isn’t offered. Recall, escrow holder cannot release monies without mutual consent.  Interpretation of the rule is supposed to guard against windfall.

LIS PENDENS –  Pending lawsuit; legal notice recorded to show pending litigation relating to real property, the outcome of which  may impact an interest in said property; jurisdiction of presiding court over property exists during lawsuit’s duration. Notice may appear in chain or title/preliminary title report.

LOAN – Money borrowed, to be repaid with interest, according to the specific terms and conditions of the loan.

LOAN OFFICER – A person who represents the lender to the borrower.

LOAN ORIGINATION – How a lender refers to the process of writing new loans.

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

LOAN PACKAGE – The file of all items necessary for the lender’s underwriters to decide to give or not to give a loan. These items would include the information on the prospective borrower (loan application, credit report, financial statement, employment letters, etc.) and information on the property (appraisal, survey, etc.).

LOAN SERVICING – The processing of payments, mailing of monthly statements, management and disbursement of escrow funds etc typically carried out by the company you make payments to which may be different from lender.

LOAN–TO–VALUE RATIO (LTV) – The comparison of the amount owed on a mortgaged property to its fair market value; think, down payment vs. remaining owed.

LOCK–IN – An agreement between a lender and a borrower, guaranteeing an interest rate for a loan if the loan is closed within a certain amount of time.

LOCK–IN PERIOD – The amount of time the lender has guaranteed an interest rate to a borrower; typically 30-90 days may be extended via fee. Critical when interest rates fluctuate.

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NEGATIVE AMORTIZATION – When the balance of a loan increases instead of decreases. Usually due to a borrower making a minimum payment on an Adjustable Rate Mortgage during a period when the rate fluctuates to a high enough point that the minimum payment does not cover all of the interest; consider short sale.

NO–POINT LOAN – A loan with no “points.” The interest rate on such a loan will be higher than a loan with points paid. Also sometimes refers to a refinance loan where closing costs are included in the loan.

NON–CONFORMING USE – The use of land for purposes contrary to the applicable municipal zoning specifications. Often occurs when zoning changes after a property is in use.

NONLIQUID ASSET – Any asset where holder is unable to convert asset into cash or transferrable liquidity easily.  

NOTE – A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time; in order to be valid for real property document must be recorded.

NOTE RATE – The interest rate stated on a mortgage note.

NOTICE OF ACTION – A recorded notice that real property may be subject to a lien, or even that the title is defective, due to pending litigation. Notice of a pending suit, consider “Lis Pendens.”

NOTICE OF CESSATION – A notice stating that work has stopped on a construction project. Done to accelerate the period of filing a mechanic’s lien; stop work order.

NOTICE OF COMPLETION – A notice, recorded to show that a construction job is finished. The length of time in which mechanic’s liens may be filed depends upon when and if a notice of completion is recorded; job card.

NOTICE OF DEFAULT – A notice filed to show that the borrower under a mortgage or deed of trust is in default (behind on the payments).

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OCCUPANCY – A physical presence within and control of a property.

OFFER – A presentation or proposal for acceptance, in order to form a contract. To be legally binding, an offer must be definite as to price and terms.

OCCUPANCY RATE – The percentage of properties in a given area that are vacant or otherwise occupied, usually referenced to tenants vs owners.

ORIGINAL EQUITY – The amount of cash a home buyer initially invests in the home.

ORIGINAL PRINCIPAL BALANCE – The total amount of principal owed on a mortgage loan at the time of closing of escrow when property was first transferred to current owner.

ORIGINATION FEE – Refers to the total number of points paid by a borrower at closing.

OWNER FINANCING – A transaction where the property owner provides all or part of the financing, usually for a short period; seller carry-back.

OWNER OCCUPIED – Property where the owner of record resides on his or her property, compare tenant-occupied.

OWNERSHIP – Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

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PARTIAL INTEREST – A shared ownership in a piece of property. May be divided among two or more parties.

PARTIAL PAYMENT – A payment of less than the regular monthly amount. Usually, a lender will not accept partial payments.

PAYMENT CAP – A maximum amount for a payment under an adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.

PAYOFF – The payment in full of an existing loan or other lien.

PERIODIC PAYMENT CAP – The limit on how many regular monthly payments on an Adjustable Rate

Mortgage can change during one adjustment period.

PERIODIC RATE CAP – Maximum interest limit on how much the interest rate on an Adjustable Rate Mortgage may change during any one adjustment period.

PERSONAL PROPERTY – Owned items which are not permanently affixed to the land. If made part of real estate purchase and otherwise not considered a fixture (or seller wishes to exclude as such) must be addressed separately in contract. 

PIGGYBACK LOAN –  (80:10:10) A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. One 90% loan, for example, any have one lender loaning 80% and another (subordinate) lender loaning the top 10% (high risk portion).

Possession is 9/10’s of the law – maxim dating back to the 17th century based on the idea that possession of a property itself burdens any other party seeking possession to have a superior claim. Not necessarily applicable nor relevant but possession of a property such as a holdover tenant, owner who fails to vacate a property after close of escrow.

POWER OF ATTORNEY – An authority where one person (principal) delegates and confers to another person (attorney–in–fact) to act for him or her, used in real estate for the following: general power to authorize sale, sale terms, mortgaging, etc., of all property of the principal. (special considerations needed) invalid in some jurisdictions and contexts.

PRE-APPROVAL – The process of applying for a mortgage loan and becoming approved for a certain amount at a certain interest rate before a property has been chosen. Pre–approval allows the borrower greater freedom in negotiations with sellers.

PRELIMINARY TITLE REPORT – A report showing the condition of title before a sale or loan transaction. After completion of the transaction, a title insurance policy is issued.

PREPAYMENT – Payment made that reduces the principal balance of a loan before the due date and before the loan has become fully amortized; may be an overpayment each month or complete for a refinance.

PREPAYMENT PENALTY – A fee that may be charged to a borrower who pays off a loan before it is due. If there is a penalty it is usually tiered in the following: 5 percent if paid off within 1 year, 4 percent if paid off in 2 years and so on. Important if a property is held for a short time only or if refinancing is a viable option within a mortgage loan’s first 5 years.

PRE–QUALIFICATION – Less formal than pre–approval, pre–qualification usually means a written statement from a loan officer or mortgage broker indicating his or her opinion that the borrower will be able to become approved for a mortgage loan only based on the would-be buyer’s representations. May be less persuasive in a competitive bidding process. 

PRIME RATE – The interest rate that banks and other lending institutions charge other banks or preferred customers as based on the Federal Reserve’s Fund Rates. 

PRINCIPAL – The amount owed on a mortgage which does not include interest or other fees.

PRINCIPAL BALANCE – The outstanding balance of principal on a mortgage. Does not included interest due. 

PRINCIPAL, INTEREST, TAXES, AND INSURANCE (See PITI)

PRIVATE MORTGAGE INSURANCE (PMI) – A form of mortgage insurance provided by private, non– government entities. Normally required when the LOAN TO VALUE RATIO (down payment) is less that 20%. Once threshold is achieved, this payment is no longer needed, but .

PROMISEE – One to whom a promise has been made, such as the lender under a promissory note. 

PROMISOR – One who makes a promise. The borrower under a promissory note.

PROMISSORY NOTE – a written legal note whereby the lender and borrower agree to an amount loaned/borrowed whereby borrower will repay specified amounts during a defined time period, or upon demand, or event, to a named person or the bearer.

PROPERTY – Any item which is owned or possessed; personal property is anything that can be moved; real property relates to land/black acre; property may include related and associated rights, e.g. mineral rights, riparian rights, intellectual rights. 

PRORATION – To divide by time amounts otherwise calculated on an annual basis (prorate), e.g., property taxes, insurance premiums, rental income, etc., between buyer and seller proportionately to time of use, or the date of closing on a daily basis.

PUBLIC RECORDS – Usually at a county level, the records of all documents which are necessary to give

notice. The records are available to the public. All transactions for real estate should be recorded.

PURCHASE AGREEMENT – A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold. Most brokered transactions will use a pre-printed form contract of some kind —either a statewide version or locally-drafted versions. 

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SALES CONTRACT – Another name for a sales agreement; purchase agreement, etc. Document that will contain all agreement terms, conditions and contingencies. Often modified by written addenda. Must be in writing for land transactions by Statute of Frauds.

SALE PRICE – Actual price a property sells for, exclusive of any special financing concessions as reported to MLS.

SALES COMPARISON APPROACH – An appraisal practice which estimates the value of a property by comparing it to comparable properties which have sold recently.

SCARCITY – An economic principle that dictates the price of a good or service through the interaction of supply and demand. When an item is scarce, its price tends to rise, given a constant or rising demand. Real Estate is a classic example of scarcity.

SECOND MORTGAGE/NOTE – A loan secured by the equity in a home, when a primary mortgage already exists.

SECONDARY MORTGAGE MARKET – An economic marketplace where mortgage bankers buy and sell existing mortgages packaged; consider Financial Crisis and Subprime Mortgages; consider portfolio lender.

SECURED LOAN – A loan that is backed by collateral. In the case of a mortgage loan, the collateral is the house, so long as proper recording procedures are followed.

SECURITY – The property used as collateral for a loan.

SEMI-DETACHED HOUSING – Two residences which share a common wall.

(LOAN) SERVICER – A financial institution, organization or entity that collects mortgage payments from borrowers and applies the appropriate portions to principal, interest and any escrow accounts.

SERVICING – The processing of mortgage payments, mailing of monthly statements, management and loan fees, etc.Typically carried out by the company you make payments to.

Setback – to the non-lawyer this term means and unexpected interruption of progress. But in real estate it refers to the amount of space required between a lot line and the building line to ensure that enough light and ventilation reach the ground; consider footprint percentage.

SHEATHING – The covering on outside walls beneath the siding or exterior finish, typically plywood.

Short sale –  where a lender (or lenders) agrees to accept less than the balance on a mortgage.  A 2012 California law bars any first and second lien holders from going after sellers for money owed after a short sale closes. New rules in 2012 also fast track the short sale lender approval process. 

SILL PLATE – A horizontal wood plate piece that is bolted to the foundation thus tying the framing system to the foundation to prevent movement and provide stability.  

SIMPLE INTEREST – Interest computed on principal alone, as opposed to compound interest where interest capitalizes on itself growing exponentially larger.

SINGLE–FAMILY PROPERTY – A property designed and built to support the habitation of one family.

SPECIFIC PERFORMANCE – An action to compel the performance of a contract, when money damages for breach would not be satisfactory. Because the law deems property to be unique and 

STATEMENT OF IDENTITY – Also called Statement of Information, which is a confidential form filled out by buyer and seller to assist a title company determine if any liens are recorded against either. Very helpful when people with common names are involved.

SUBJECT PROPERTY – A term which indicates a property which is being appraised.

SURVEY – A specific map of a piece of property which includes the legal boundaries and any improvements or features of the land. Surveys also depict any rights–of–way, encroachments or easements.

STATUTE – A law which is created by a legislative body; written and codified law, rather than presidential interpretive case law established by court cases. Courts examine statutes.

SUBORDINATE – To make subject to or junior to; usu. first note and second note.

SUCCESSION – The passing of real property by will or inheritance, rather than by grant or deed or any other form of purchase; consider estate planning.

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TAX–EXEMPT PROPERTY – Any property which is not taxed, usu. church property, Native tribal lands.

TENANCY – The right to occupy property, e.g., a building or unit.

TENANCY IN COMMON – A form of holding title, whereby two or more people hold a single title to a property; ownership does not pass on to the others upon the death of one individual and need not be held in equal shares and are usually delineated in a TIC Agreement; compare JOINT TENANCY.

THIRD PARTY ORIGINATION – When a  mortgage broker or lender otherwise uses a third party to originate a given loan, that loan may be then packaged with loans for sale to the secondary securities market (Fannie Mae, Freddie Mac).

TITLE – (1) the legal link between a person and object of property whereby that person has exclusive possession thereof, e.g., ownership, possession, custody; (2) legal ownership of property; (3) the grounds by which a land owner has rights of possession; or (4) legal instrument of possession ownership rights, or the means by which an owner comes to have those rights. all the elements constituting legal ownership

TITLE COMPANY – An organization which researches and certifies ownership of real estate before it is bought or sold. Title companies also act at the facilitator ensures all parties are paid during the real estate transaction.

TITLE INSURANCE – A policy which provides insurance coverage to a property owner should a claim arise against the property after the purchase has been completed; coverage provided should include legal defense and/or coverage for damages. This also covers a lender should a question of ownership arise.

TITLE SEARCH – The process whereby the TITLE COMPANY researches a properties title history and ensures that no outstanding claims exist.

Time is of the essence – a contractual stipulation or condition whereby timely performance is considered so important enough a condition  that a party’s failure to meet the stipulation or condition automatically justifies the other party’s right to rescind the contract. Because the use of the phrase has become so widespread it is now considered a popularized legal technicality by some.

TRANSFER OF OWNERSHIP – Process and means by which the ownership of a property changes hands. 

TRANSFER TAX – Taxes payable when title passes from one owner to another.

TRUSTEE – A fiduciary who holds or controls property for the benefit of another.

TRUTH IN LENDING – A federal law requiring full disclosure by lenders to borrowers of all terms,conditions and costs of a mortgage.