Glossary of Real Estate, Mortgage, and Legal Terms

by William Bronchick, JD

Abstract of Title
A compilation of the recorded documents relating to a parcel of land, from which an attorney may give an option as to the condition of title. Also known in some states as a "preliminary title report."

Acknowledgment
A declaration made by a personal signing a document before a notary public or other officer.

Adverse Possession
Most states have laws which permit someone to claim ownership of property which is occupied by him for a number of years. This is common where a fence is erected over a boundary line (called an "encroachment") without the objection of the rightful owner. After a number of years, the person who erected the fence may be able to commence a court proceeding to declare that the property belongs to him.

All-Inclusive Deed of Trust
See "wraparound mortgage."

ALTA
American Land Title Association

Amortize
To reduce a debt by regular payments of both principal and interest.

Appraised Value
The value of a property at a given time, based on facts regarding the location, improvements, etc., of the property and surroundings.

ARM
An adjustable rate mortgage--that is, a loan whose interest rate may adjust over time depending on certain factors or a pre-determined formula.

Arrears
Payment made after its due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance.

Assignment of Contract
A process by which a person sells, transfers, and/or assigns his rights under and agreement. Often used in the context of the assignment of a purchase contract by a buyer or the assignment of a lease by a tenant.

Assumable Loan
A loan secured by a mortgage or deed of trust containing no "due on sale" provision. Most pre-1989 FHA loans and pre-1988 VA loans are assumable without qualification. Some newer loans may be assumed with the express permission of the note holder.

Assumption of Mortgage
Agreement by a buyer to assume the liability under an existing note secured by a mortgage or deed of trust.

Balloon Mortgage
A note calling for periodic payments that 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.

Basis
The financial interest one has in a property for tax purposes. Basis is adjusted down by depreciation and up by capital improvements.

Binder
A report issued by a title insurance company setting forth the condition of title and setting forth conditions that, if satisfied, will cause a policy of title insurance to be issued. Also known as a "title commitment."

Buyer's Agent
A real estate broker or agent who represents the the buyer's interests, although typically his fee is a split of the listing broker's commission. Also known as the "selling agent."

Capital Gain
Profit from the sale of a "capital" asset, such as real property. A long-term capital gain is a gain derived from property held more than 12 months. Long-term gains can be taxed at lower rates than short-term gains.

Chain of Title
The chronological order of conveyance of a parcel of land from the original owner to the present owner.

Closing
The passing of a deed or mortgage, signifying the end of a sale or mortgage of real property. Also known in some areas as "passing papers" or "closing of escrow."

Cloud on Title
An uncertainty, doubt, or claim against the rights of the owner of a property, such as a recorded purchase contract or option.

Commitment
A written promise to make or insure a loan for a specified amount and on specified items. Also used in the context of title insurance ("title commitment").

Community Property
In community property states (CA, LA, TX, WI, ID, AZ, NV, NM, WA), all property of husband and wife acquired after the marriage is presumed to belong to both, regardless of how it is titled.

Comparables
Properties used as comparisons to determine the value of a specified property.

Condominium
A structure of two or more units, the interior space of which are individually owned. The common areas are owned as tenants in common by the condominium owners, and ownership is restricted by an association.

Contingency
The dependence upon a stated event which must occur before a contract is binding. Used both in the context of a loan and a contract of sale.

Contract of Sale
A bilateral (two-way) agreement wherein the seller agrees to sell and buyer agrees to buy a certain parcel of land, usually with improvements. Also used in reference to an Installment Land Contract (see below).

Contract for Deed
See "Installment Land Contract."

Closing Cost
Expenses incurred in the closing of a real estate or mortgage transaction. Most fees are associated with the buyer or borrower's loan.

Conventional Mortgage
A loan neither insured by the FHA, nor guaranteed by the VA.

Cooperative Apartment
A cooperative is a corporation which holds title to the land and building. Each coop owner has shares of stock in the corporation, which corresponds to an equivalent proprietary lease of his apartment space. Coops were popular in New York City at one time, but are now less common because of their lack of marketability due to high association fees.

Deficiency
The difference between the amount owed to a note holder and the proceeds received from a foreclosure sale. The lender may, in some states, obtain a "deficiency judgment" against the borrower for the difference.

Depreciation
Decrease in value to real property improvements caused by deterioration or obsolescence.

Documentary Tax Stamps
Stamps, affixed to a deed, showing the amount of transfer tax. Some states simply charge the transfer tax without affixing stamps. Also known as "doc stamps."

Double Closing
A closing wherein a property is bought and sold simultaneously. Also called "double escrow" and "flipping."

Due on Sale Clause
A provision in a mortgage or deed of trust that gives the lender the option to require payment in full of the indebtedness upon transfer of title to the property (or any interest therein).

Easement
An interest that one has in the land of another. May be created by grant, reservation, agreement, prescription, or necessary implication.

Eminent Domain
A constitutional right for a governmental authority to acquire private property for public use by condemnation, and t