Abstract of Title - A summary or digest of all recorded transfers, conveyances, legal proceedings, and any other facts relied on as evidence of title to show continuity of ownership and indicate any possible impairments to title.

Acceleration Clause - A provision in a mortgage. trust deed, promissory note, or contract for deed (agreement of sale) that, upon the occurrence of a specified event, such as the sale of the property or the borrower’s default in payment, gives the lender (payee, obligee or mortgagee) the right to call all sums due and payable in advance of the fixed payment date.

Accession - The process of manufactured or natural improvement or addition of property.

Accretion - The gradual and imperceptible addition of land by alluvial deposits of soil through natural causes, such as shoreline movement caused by streams or rivers.

Accrued - Accumulated over a period of time, such as accrued depreciation, accrued interest or accrued expenses.

Acre - A measure of land equaling 160 square rods, 4,840 square yards or 43,560 square feet, or a tract about 208.71 feet square.

Adjustable rate mortgage (ARM) - A mortgage where the rate changes over time in line with movements in an index. Also called Adjustable rate loan, adjustable mortgage loan - and variable rate mortgage (VRM)- .

Ad valorem - A Latin phase meaning “according to value”, used to describe a tax charged in relation to the value of the property taxed.

Agency - A relationship that is created when one person, the principal, delegates to another, the agent, the right to act on his or her behalf in business transactions and to exercise some degree of discretion while so acting. This arises out of a contract whether express or implied, written or oral, by which the agent is employed by the principal to do certain acts dealing with a third party.

Alienation - The transferring of property to another.

Alluvion - The material that constitutes the increase of soil on a shore or riverbank, added by the process of accretion.

Amortization - Self-liquidating (literally, “killing off”). The gradual repayment or retiring of a debt by means of systematic payments of principal and/or interest over a set period, so that at the end of the period there is a zero balance.

Annual Percentage Rate (APR) - An expression of the relationship of the total finance charge to the total amount to be financed as required under the federal Truth-In-Lending Act.

Appurtenance - Anything affixed (attached) to or used with land for its benefit that is transferred with the land. It runs with the land. Typical appurtenances are rights-of-way, easements, water rights, condominium parking stalls and property improvements.

Arrears - 1. The state of being delinquent in paying a debt. 2. At or after the end of the period for which expenses are due or levied; the opposite of in advance. Mortgage interest and real estate taxes are often paid in arrears.

Assumption - The acts of acquiring property that has an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments. Assuming a loan.

Avulsion - The loss of land as a result of its being washed away by a sudden or violent action of nature. The boundary lines stay the same no matter how much soil is lost and the owner can reclaim the the loss. In contrast, an owner loses title to land washed by erosion, the gradual and imperceptible washing away of soil.

 

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Balloon payment - A final payment is substantially larger than previous installment payments and repays the debt in full; the remaining balance that is due at the maturity of the note or obligation.

Bill of sale - Written instrument that conveys title to personal property.

Blanket mortgage - A loan covering more than one property.

 

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Cap - A ceiling or limit on the adjustments made in the payments, interest rate, or balance of an adustable-rate loan.

Capital assets- Assets of a permanent nature used in the production of income, such as buildings, land, machinery and equipment; usually distinguished under income tax law from “inventory”.

Capital gain - The taxable profit derived from the sale of a capital asset. The capital gain is the difference between the sales price and the basis of the property, after making appropriate adjustments for closing costs, capital improvements and allowable depreciation.

Certificate of redemption - Issued by the county tax collector when all past due amounts have been paid.

Certificate of sale - Document received by the buyer at an execution or a judicial foreclosure sale.

Certificate of title - Statement of a property’s owner of record as well as any existing encumbrances.

Chain of title - The history of the conveyances and encumbrances affecting the present owner’s title to property, as far back as records are available.

Chattels - Personal property; any property that is not real property.

Closing - The completion of a real estate transaction, at which point required documents are transmitted and funds are transferred.

Cloud on the title - Any claim, condition or encumbrance that impairs title to real property.

Competitive market analysis - Informal estimate of market value performed by a real estate agent for either seller or buyer, utilizing the sales history of nearby properties; usually expressed as a range of values that includes the probable market value of the subject property.

Compound interest - Interest paid on original principal and also on the accrued and unpaid interest that has accumulated as the debt matures.

Consideration - An act or promise which is offered by one party to induce another to enter into a contract that which is given in exchange for something from another; also the promise to refrain from doing a certain act, like filing a justifiable lawsuit (the forbearance of a right).

Contingency - A condition that must be satisfied before a contract is binding, such as a sales agreement may be contingent upon the buyer obtaining financing.

Covenant - An agreement or a promise to do or not to do a particular act, usually imposed by deed.

 

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Deed - Written instrument that, when properly executed and delivered, conveys title to real property from a grantor to a grantee.

Devise - Transfer of title of real property by a will. The donor is the devisor and the recipient is the devisee.

Dual agency - A situation in which an agent represents both principals (the seller and the buyer) to a transaction.

Due-on-sale clause - An acceleration clause found in most mortgage loans, requiring the mortgagor to pay off the mortgage debt when the property is sold, resulting in automatic maturity of the note at the lender’s option.

 

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Earnest money - The cash deposit paid by the prospective buyer of real property as evidence of good-faith intention to complete the transaction.

Easement - The right to a specific use of or the right to travel over the land of another.

Economic life - The period of time over which an improved property will yield a return on investment over and above the return attributable solely to the land.

Economic obsolesce - Economic or environmental obsolescence; loss in value due to outside causes, such as changes in nearby land use.

Effective gross income - The anticipated income resulting from the estimated potential gross income from a rental property less an allowance for vacancy and collection losses.

Emblements - Crops produced annually by labor which are regarded as personal property even before harvest; thus, a tenant has the right to take the annual crop resulting from his or her labor, even if the crop doe not occur until after tenancy has ended.

Encroachment - The unlawful intrusion of a property improvement onto adjacent property.

Encumbrance - Any claim, lien, charge or liability attached to and binding on real property that may lessen its value or burden, obstruct or impair the use of a property but not necessarily prevent transfer of title.

Escrow - The deposit of funds with a neutral third party to carry out the provisions of an agreement or a contract.

Estate at will - A tenancy in which the tenant’s time of possession is indefinite.

Estate for years - A tenancy for a fixed term.

Exchange - A means of trading equities in two or more real properties, treated as a single transaction through a single escrow.

 

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Fee simple absolute - A fee simple estate with no restrictions on its use.

Fee simple defeasible - An interest in land, such as a fee simple conditional or fee simple with special limitation, that may result in the estate of ownership being defeated.

Fee simple estate - The greatest interest in real property one can own, including the right to use the property at present and for an indeterminate period of time in the future.

Fiduciary - A person in a position of trust and confidence who owes a certain loyalty to another, such as an agent to a principal.

Flood plain - The flat portions of land located along watercourses and streams, which are subject to overflow and flooding.

Foreclosure - Sale of real property by mortgagee, trustee or other lien holder on default by the borrower.

Freehold estate - An estate in land in which ownership is for an indeterminate length of time, as in a fee simple or life estate.

Functional obsolescence - Loss in value due to adverse factors within a structure that affect its marketability, such as its design, layout or utility.

 

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General partnership - An association of wo or more persons to carry on a business as co-owners for profit.

Grant deed - A type of deed in which grantors warrant that they have not previously conveyed the estate being granted to another, that they have not encumbered the property except as noted in the deed, and that they will convey to a grantee any title to the property they may later acquire. Grant deeds are very common in California, especially where the buyer also receives a title insurance policy.

Gross income multiplier - A numerical factor that expresses the relationship of gross income to sales price or value. It is calculated by dividing price by gross annual income. The ratio to convert annual income into market value.

Gross lease - Provides for the tenant to pay a fixed rental over the least term, with the landlord paying all expenses of ownership, such as taxes, assessments and insurance.

Gross rent multiplier - A useful rule of thumb for estimating the market value of income-producing residential property.

Guarantee of title - Guarantee of title as determined from examination of the public records and described in the guarantee document.

 

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Hard money loans - Cash loans made by individual investors.

Home warranty plan - A warranty that protects against failure of mechanical systems within the property. Usually this includes plumbing, electrical, heating systems and installed appliances.

Impound account - Also called escrow account. A trust account, established by the mortgage lender, to set aside funds for future needs relating to a parcel of real estate such as taxes, assessments and insurance.

 

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Index - A benchmark on which changes to an ARM’s interest rate are based.

Injunction - An order by a court to restrain a party from doing some act such as violating deed restrictions or house rules prohibiting pets.

 

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Joint tenancy - An estate or unit of interest in real estate that is owned by two or more persons all owning equal shares with rights of survivorship. Title is held as though all owners collectively constituted one person. The death of one joint tenant does not destroy the owning unit. The surviving joint tenants receive the deceased tenant’s interest by the right of survivorship.

 

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Leasehold estate - A tenant’s right to occupy real estate during the term of the lease.

Leverage - The use of borrowed funds to purchase property with the anticipation that the acquired property will increase in return so that the investor will realize a profit not only on his or her own investment but also on the borrowed funds.

Lien - A charge or claim that one person (lienor) has on the property of another (lienee) as security for a debt or obligation.

Life estate - Any estate in real or personal property that is limited in duration to the life of its owner or the life of some other designated person.

Limited partnership - A partnership agreement in which one person (the general partner) or group of persons, organize, operates, and is responsible for the entire partnership venture. The other partnership members are merely investors and have no say in the organization and direction of the operation. These passive investors (the limited partners) share in the profits and compensate the general partner for his or her efforts out of such profits. Unlike a general partnership, in which each member is responsible for the total losses (if any) of the syndicate, each limited partner stands to lose only as much as he or she invests - usually nothing more.

Lis pendens - A recorded document that gives constructive notice that an action affecting a particular piece of property has been filed in a court. Latin for “action pending”. This action affects title, or right of possession, of real estate.

Littoral land - Land bordering on the shore of a sea or ocean and thus affected by the tide currents.

Loan-to-value - The ratio of a mortgage loan principal to the property’s appraised value or its sales price, whichever is lower.

Lock-in clause - A condition in a promissory not that prohibits prepayment of the note.

 

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Margin - The amount (the number of points) added to the index rate that represents the lender’s cost of doing business in an adjustable rate loan. Generally the margin stays constant during the life of the loan.

Mechanic’s lien - A statutory lien against real property in favor of persons who have performed work or furnished materials for the improvement of the property.

 

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Net income - The sum arrived at after deducting for gross income the expenses of a business or investment, including taxes, insurance, and allowances for vacancy and bad debts. Net income is what the property will earn in a given year’s operation.

Net lease - A lease, usually commercial, in which the lessee not only pays the rent for occupancy but also pays maintenance and operating expenses such as taxes, insurance, utilities and repairs.

 

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Origination fee - A fee charged by a lender for work involved in evaluating, preparing and submitting a proposed mortgage loan.

 

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Partially amortized - A loan repayment schedule wherein payments on principal are insufficient to amortize the loan over its term. At maturity, the remaining principal balance is due in full.

Points - One point represents one percentage point of a loan amount; may be charged by lenders a the time of loan funding to increase the loan’s effective interest rate.

Preapproved loan - A pending loan in which all of the underlying documents are in file and there is a strong probability that there are no credit or income issues stopping the loan from closing. It does not necessarily mean that the file has been underwritten by the lender who will commit to provide the funds for closing.

Preliminary report - A title report made before issuance of a title insurance policy or the opening of escrow.

Prepayment penalty - A fee charged to a borrower who pays a loan before it is due.

Private Mortgage insurance (PMI) - Insurance protecting the lender against loss if the borrower defaults on the mortgage. Generally required for 80% loans. -

Promissory note - A written promise to repay a loan under stipulated terms; establishes personal liability for payment by the person making the note.

Proration - Adjustment of interest, taxes, insurance and other costs of property ownership on a pro rata basis as of the closing or agreed-upon date; usually apportions those costs based on seller’s and buyer’s respective periods of ownership.

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

 

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Quiet title action - A court action intended to establish or settle the title to a particular property, especially where there is a cloud on the title.

Quitclaim deed - A deed that conveys any interest the grantor may have in the property at the time of the execution of the deed, without any warranty of title or interest.

 

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Rate of return - The relationship (expressed as a percentage) between the annual net income that is generated by a business and the invested capital (or the appraised value or the gross income) of the business. The rate of return is the percentage yield to the investor based on the property’s production of income.

Recoveyance deed - Instrument of which the trustee returns title to the trustor after the debt underlying a deed of trust is paid.

Rescission - The legal remedy of canceling, terminating or annulling a contract and restoring the parties to the same position they held before the contract was formed.

Reverse Mortgage - Mortgage where the borrower receives payments and does not repay loan until the property is sold or the borrower dies. This is usually used to enable elderly homeowners to borrow against equity in their homes so they can receive monthly payments needed to help meet living costs.

Riparian rights - The right of a landowner whose property borders a lake, river or stream to the use and enjoyment of the water adjacent to or flowing over the property, provided the use does not injure other riparian landowners.

 

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Sale-leaseback - A transaction in which at the time of sale the seller retains occupancy by concurrently agreeing to lease the property from the purchaser.

Second mortgage - A mortgage (or trust deed) that is junior or subordinate to a first mortgage; typically an additional loan imposed on top of the first mortgage taken out when the borrower needs more money.

Seller’s market - Real estate market where there are more buyers than sellers.

Short sale - A sale for less than is owed on a loan where the lender agrees to accept sale proceeds to extinguish the debt.

Staging - Preparing a house for sale showings.

Step-up lease - Lease with set rent that provides for periodic rent increases.

Subprime lender - A lender who will take loans that are considered too risky by other lenders. Subprime loans bear a higher rate of interest.

Syndication - A descriptive term for a group of two or more people united for the purpose of making and operating an investment. A syndication is not a form of legal ownership, but rather a term used to describe multiple ownership of an investment.

 

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Tenancy at sufferance - A tenancy (or estate) that exists when a tenant wrongfully holds over after the expiration of a lease without the landlord’s consent, as where the tenant fails to surrender possession after termination of the lease.

Tenancy at will - A tenancy (or estate) in which a person holds or occupies real estate with the permission of the owner, for a term of unspecified or uncertain duration: i.e., there is no fixed term to the tenancy.

Tenancy for life - A freehold estate of uncertain duration, which is not an estate of inheritance; a life estate. (see life estate- ).

Tenancy for years - A less-than-freehold estate (or tenancy) in which the property is leased for a definite, fixed period of time.

Tenancy in common - Co-ownership of property in equal or unequal shares by two or more persons, each holding an undivided interest without right of survivorship.

Tenancy in severalty - Ownership of property vested in one person alone, rather than held jointly with another; also called sole tenancy- .

Term mortgage - A short-term mortgage securing a loan that requires interest-only payments until the maturity date, at which time the entire principal is due and payable.

Tight money market - An economic situation in which the supply of money is limited and the demand for money is high, as evidenced by high interest rates.

Title insurance - Insurance to protect a real property owner of lender up to a specified amount against certain types of loss affecting title or marketability.

Triple net lease - Guarantees a specified net income to the landlord, with the tenant paying that amount plus all operating and other property expenses, such as taxes, assessments and insurance.

Trust deed - A legal document in which title to property is transferred to a third-party trustee as security for an obligation owed by the trustor (borrower) to the beneficiary (lender). Also called a deed of trust- .

Trustee’s deed - Deed give to the purchaser at a foreclosure sale by the trustee acting under a deed of trust.

Turnkey project - A development term meaning the complete construction package from ground breaking to building completion. All that is left undone is to “turn over the keys” to the buyer.

 

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Value added - The anticipated increase in property value expected from fixing a condition causing accrued depreciation.

Value in use - The subjective value of property to its present owner, as opposed to market value, which should be objective.

This glossary was put together with your questions in mind. I compiled these definitions from John W. Reilly’s The Language of Real Estate, sixth edition. La Crosse, WI: Dearborn Financial Publishing, Inc. 2006; and from the Kaplan School text book by Pivar, William H.,Anderson, Lowell, Otto, Daniel S. California Real Estate Practice, Seventh Edition. La Crosse, WI: Dearborn Financial Publishing,Inc., 2010.