Real Estate Glossary

Are you confused or overwhelmed by all the real estate jargon being used during your real estate transaction?  We have provided simple definitions to some of the most commonly used real estate terms that you might expect to hear during your real estate transaction.  


AddendumSomething added. A list or other material added to a document, letter, contractual agreement, escrow instructions, etc. (See also: Amendment)
Adjustable Rate Mortgage (ARM)Mortgage loan with an interest rate that changes every 6 months or so, adjusting up or down with the market. It usually has a “cap”, or maximum interest rate. ARMs are compared to fixed rate mortgages.
AmendmentA change, either to correct an error or to alter a part of an agreement without changing the principal idea or essence.
AmortizationA loan which is calculated, including compounded interest, to be paid off completely in a certain number of years. Each monthly payment includes an amount applied to the interest and the balance applied to the principal.
AppraisalAn opinion of value based upon factual analysis. An estimate of a property’s fair market value. An Appraisal Report is prepared by a licensed real estate Appraiser. The Appraisal usually compares the property to several other comparable (similar) properties in the same neighborhood which have recently sold.
Annual Percentage Rate (A.P.R.) A loan’s interest rate plus other loan fees, calculated over the life of the loan. It is a little higher than the interest rate. Disclosure of a loan’s APR is required at closing (on the Federal Truth-In-Lending Disclosure form).
Assumable Loan A mortgage which the buyer can assume (take over) from the property seller. The terms of the loan and the payments will remain the same. The buyer may have to qualify with the lender.
BankruptcyA legal alternative that allows the borrower to clear any debt obligations by restructuring the payment terms. A bankruptcy stops the foreclosure process until the bankruptcy process is completed or the court allows the lender to resume the foreclosure.
BeneficiaryThe person who receives or who is to receive the benefits resulting from certain acts in a Deed of Trust.
Cap The highest limit of the interest rate on an Adjustable Rate Mortgage (ARM).
Close of Escrow The date that title passes from seller to buyer and documents are recorded.
CC&R’sCovenants, Conditions, and Restrictions - A term used to describe the restrictive limitations which may be placed on a property. Rules and regulations which apply to a certain property. It can limit things such as what color the house can be painted. Usually found on condos, PUDs, and homes in newer developments.
Chain of Title The chronological order of conveyance of a parcel of land from the original owner to the present owner.
Cloud of Title An invalid encumbrance on real property, which, if valid, would affect the rights of the owner. The cloud may be removed by quitclaim deed, or, if necessary, by court action.
Closing CostsDollar amounts which the seller and buyer must pay in a real estate sale. May include appraisal, title policy, property inspection, brokerage commissions, recording fees, loan points, and credit check fees. Can typically equal to approximately 8-10 percent of the property sales price.
Comparable Sales Properties which are similar to a certain unit being compared. Appraisers find comparable properties to arrive at an estimate of the property being appraised.
ConveyanceTransfer of title to a property. Includes most instruments by which an interest in real estate is created, mortgaged or assigned.
Counter OfferAn offer (instead of acceptance) in response to an offer. For example: B offers to buy S’s house for $X dollars. S, in response, offers to sell to B at a higher price. S’s offer to B is a Counter Offer.
Debt to Income RatioThe amount of consumer debt (car payment and credit card payments) as compared to gross income. FHA lenders allow a borrower to have 28% debt to income ratio, whereas conventional lenders may allow up to 40%.
Deed of Trust / Trust Deed A written document by which the title to land is conveyed as security for the repayment of a loan or other obligation. It is a form of mortgage. The landowner or debtor is called the “trustor.” The party to whom the legal title is conveyed (and who may be called on to conduct a sale thereof if the loan is not paid) is the “trustee.” The lender is the “beneficiary.” When the loan is paid off, the trustee is asked by the beneficiary to issue a “recon” or reconveyance. This reconveyance corresponds to the release that the holder of a mortgage executes when the mortgage is paid off. The first trust deed is the mortgage. Junior trust deeds are those recorded in 2nd or higher positions. Trust deeds are recorded on file at the county courthouse...
Deed in LieuVoluntary conveyance of title in exchange for a discharge of debt. The house must be free of other liens and must have clear title. In simple terms, the borrower agrees to transfer title of the property to the lender, who accepts the property in exchange for the total debt.
DefaultOccurs when the borrower does not meet its legal obligations according to the terms of the mortgage loan.
Deferred MaintenanceLack of repairs and maintenance to a property. A property in this condition may be a considered a “fixer”.
Deficiency JudgementA judgement claim entered against a borrower on behalf of a lender, usually when the borrower relinquishes the property but still owes money on the loan.
DisclosureTo make something known. All disclosures should in writing when dealing with real estate interests and real property.
Discount PointsThe amount paid to increase the yield. Discount points are up-front interest charges to reduce the interest rate on the loan over the term of the loan. Each point equals one percent of the face value of the loan.
Distressed PropertyReal estate undergoing foreclosure, bankruptcy, or on the verge of doing so.
Due on Sale ClauseAn acceleration clause that required full payment of a mortgage or deed of trust balance when the secured property changes ownership.
Earnest MoneyMoney given by the buyer with an offer to purchase to Show Good Faith.
EasementA right created by grant, reservation, agreement, prescription, or necessary implication, which one has in the land of another. It is either for the benefit of the land (appurtenant), such as the right to cross A to get to B, or “in gross”, such as a public utility easement.
EscrowAn agreement between two or more parties providing that certain documents or property be placed with a neutral third party for safekeeping until all the terms and conditions of the sale are fulfilled.
EquityThe amount of an owner’s value in a property. For example, if a home is valued at $250,000 and the lender is owed $50,000, the owner has $200,000 equity.
Fair Market ValueThe highest price a willing and able buyer would pay for a property in the open market. A home’s selling price is usually a good indication of its fair market value.
FHAFederal Housing Administration, a government-backed program which underwrites loans. As such, they set loan standards for many loans in the industry which are then sold to FNMA (Fannie Mae) and FDMC (Freddie Mac) on the secondary loan market. Note: When an FHA property Forecloses it is sold as a HUD property.
ForebearanceUnder a forbearance agreement, the lender agrees to stop the foreclosure process and determines payment terms that, at a certain time, will bring the borrower current.
ForeclosureThe borrower of a loan on real estate defaults (does not make payments on time), and so the lender forecloses on the real estate to gain possession of the property. The beginning of a foreclosure process starts after a borrower defaults on mortgage payments and the lender files a Notice of Default or Lis Pendens.
Grant DeedA legal document conveying real estate title from one party to another. When property is sold, the seller usually signs a grant deed to convey interest in the property to the buyer.
Gross IncomeA borrower’s complete monthly or annual income, before taxes or anything else is deducted.Hazard Insurance - Real Estate insurance protecting against loss caused by fire, some natural causes, vandalism, etc., depending upon the terms of the policy.
Homeowners Association (HOA)For a real estate development which has common areas that are jointly owned by all of the owners, the owners form a homeowners association. Each owner pays a monthly fee to the HOA for upkeep of the common areas. Applies to condos and PUDs.
HUD (Housing and Urban Development)The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
Homestead ExemptionEvery person the age of 18 or over, married or single, who resides within California, is entitled to a homestead. This homestead is an exemption that precludes most creditors from reaching the first $100,000 of equity in a person’s residence. The homestead exemption does not apply to a consensual lien, such as a mortgage or deed of trust. Homeowners do not need to take any action to assert the homestead because the exemption attaches by operation of law. The homestead also attaches automatically to a person’s interest in identifiable cash proceeds from the voluntary or involuntary sale of the homestead property. Each person or married couple may hold only one homestead. Therefore, if a person has more than one property, a creditor may require the person to designate which property is protected by the homestead exemption.
ImpoundsWhen a lender collects a fixed amount each month from the borrower to pay other fees such as taxes and insurance. If the lender does not collect these fees into an impound account, the borrower is responsible for paying these himself.
InsuranceThe annual homeowners insurance premium is estimated at .35% of the value (usually the selling price) of the property. Fire and earthquake insurance are usually extra.
Joint Tenancy*A joint tenancy estate is owned by two or more persons in equal shares. The main feature is right of survivorship - when a joint tenant dies, title to the property immediately vests in the surviving joint tenant(s). Joint tenancy property is not subject to disposition by will.
LienAn encumbrance or legal claim on a property for the repayment of a debt that the property owner owes. Examples include judgements, taxes, mortgages and deeds of trust.
Lis Pendens (LIS)A publicly recorded notice of a pending lawsuit against a property owner that may affect the ownership of a property. This process is required in a few states to begin the foreclosure process if a borrower is in default.
Loan To Value (LTV) RatioThe ratio, expressed as a percentage, of the amount of a loan to the value or purchase price of real property. The higher the LTV, the less cash a borrower is required to pay as down payment.
Mediation / ArbitrationThe process of settling a dispute by meeting with a neutral party rather than suing in court (civil litigation).
ModificationA transaction in which a lender agrees to modify any or some of the terms of the mortgage. This is a process where an existing note is modified, but not cancelled. Changes may include: extending the term of the loan, changing the monthly payments, changing the interest rate, etc.
MortgageThe instrument by which real estate is pledged as security for the repayment of a loan. In California, this is usually a Deed of Trust.
Mortgage InsuranceA policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan; mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home’s purchase price. Also known as PMI.
Net IncomeA borrower’s complete monthly or annual income, after taxes are deducted.
Notice of Default (NOD) A document which is filed at the County Courthouse as a public record, giving notice that a borrower is in default on a mortgage loan. This process is required in California to begin the foreclosure process when a borrower is in default.
OriginationThe process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Origination FeeThe charge for originating a loan; is usually calculated in the form of points and paid to the lender at closing.
PITIThe total monthly payment of a loan and the cost of the home, including Principal, Interest, Taxes, and Insurance.
PointsAn abbreviation for percentage points. For example, 3 points is 3%.
Power of AttorneyAn authority by which one person (principal) enables another (attorney in fact) to act for him.
Pre ApproveLender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Pre QualifyA lender informally determines the maximum amount an individual is eligible to borrow.
PrincipalThe amount borrowed from a lender, not including interest or additional fees.
Pro RateThe process of dividing a fee into smaller equal chunks. For instance, rent that is $300 per month would be divided between 30 days per month and pro-rated at $10 per day.
Promissory Note Following a loan commitment from the lender, the borrower signs a note promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its repayment. Also referred to as the “Note”.
PUDA zoning classification that applies to subdivisions. PUDs include individually owned units as well as some common space that is jointly owned, similar to a condominium. Many times a PUD includes a monthly HOA fee.
Purchase AgreementAn agreement between a Buyer and Seller of real property, setting forth the price and terms of the sale.
Quit Claim DeedA document in which the legal property owner transfers title to a new owner, without any warranties, guarantees, or claims of title. Often used to transfer title between spouses, or move property into a family trust.
Real Estate AgentA sales associate who is licensed to negotiate and arrange real estate sales without the Realtor Designation; works for a real estate broker.
Realtor® A designation given to a real estate broker or sales associate who is a member of a Board associated with the National Association of Realtors or with the National Association of Real Estate Boards.
RecordingFiling documents affecting real property with the County Recorder as a matter of public record.
ReinstatementOccurs when the property owner pays off the amount in default to bring the loan payments current in order to stop the foreclosure process and return to the original terms of a loan.
REO (Real Estate Owned)REO Property owned by a bank after an unsuccessful sale at a foreclosure auction.
Short Sale (Short Pay)A process in which a lender agrees to receive a lower amount of an owed debt in exchange for the sale of the property to a third party.
TaxesThe property taxes which must be paid to the County twice per year. Annual taxes are usually calculated at 1.25% of the value (usually the selling price) of the property.
Tenants in Common*A method of holding title. Co-owners own undivided interests, but not necessarily equal interests. There is no right of survivorship; each tenant owns an interest which on his or her death vests in his or her heirs. Compare to Joint Tenancy.
TitleThe evidence one has of right to possession of land. Evidence of ownership. Title is vested in a certain manner. Often clarified or qualified by an adjective such as absolute, good, clear, marketable, defective, or legal.
Title InsuranceInsurance that protects the lender against any claims that arise from arguments about ownership of the property. The premium is paid by the buyer when purchasing a home, and the insurance is in effect until ownership changes.
Transfer FeesRecording fees collected at closing. These fees cover the costs of recording the deed conveying the property and mortgage established at the time of purchase. Refer to Closing Costs.
TrustTitle to real property in California may be held in a title holding trust. The trust holds legal and equitable title to the real estate. The trustee holds title for the benefit of the Trustor/Beneficiary who retains all of the management rights and responsibilities.
TrustorBorrower who borrowers a mortgage loan with a lender on a Deed of Trust.
TrusteeOne who holds the property in trust for another to secure performance of an obligation; the neutral party in a trust deed transaction.
Truth in Lending StatementA standardized disclosure that must be provided to a borrower when a mortgage loan application is submitted. The statement clearly indicates the contract interest rate on the loan, the amount of monthly payments required to cover principal and interest, and the APR of the loan.
Vesting*A way of holding title. Could be vested as Sole Ownership or as Co-Ownership (Community Property, Tenants in Common, or Joint Tenants).
VA LoanA loan guaranteed by the Veterans Administration insuring payment in case of default by the borrower. Available to qualified veterans. Most VA loans require no down payment, and the borrower pays minimal closing costs. There are certain limitations, such as the amount of money borrowed. Compare to a Cal-Vet loan, which is administered by the State of California.
Warranty DeedA deed that conveys fee title to real property from the Grantor (usually the Seller) to the Grantee (usually the buyer).
1031 Exchange A tax deferred or 1031 exchange is a transactions involving the transfer of investment or income property and the receipt of like-kind property which will be used as income or investment property. When certain criteria are met, as set forth in section 1031 of the Internal Revenue Code, the income taxes on any gain realized from the sale of the relinquished property are deferred.


*NOTE:  On Vesting Title, there are significant tax and legal consequences on how one holds Title.  Therefore, we strongly suggest contacting an Attorney and/or CPA for specific advice on how you should actually vest your Title.

Disclaimer:  These are not legal definitions.  Please consult your real estate attorney or your accountant if you need clarification of terms.