1031: Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment. A tax-deferred exchange is a method by which a property owner trades one or more relinquished properties for one or more replacement properties of "like-kind" while deferring the payment of federal income taxes and some state taxes on the transaction. The exchanger must identify the property to be purchased (generally called the target property or replacement property) with in 45 days following the sale of the relinquished property and close transaction with in 180 days.

Acceleration clause: The clause in a mortgage or trust deed that can be enforced to make the entire debt due immediately if the mortgagor defaults on an installment payment or other covenant.

Accrued Interest: The amount of interest earned on a note, but not yet received in payment. An example would be a straight note (no payments). At the end of the first year the balance owed would be the original principal plus one year's accrued interest.

Add-On Interest: The interest rate is applied to the loan amount to get yearly interest. This is multiplied by the number of years. This total interest is added on to the loan balance. The monthly payment is calculated by dividing this number (principal plus add-on interest) by the number of payments. This method contrasts with charging interest on the remaining principal balance.

Adjustable Rate Mortgage (ARM): A mortgage or other real estate loan wherein the interest rate and payments that correspond to the interest are adjustable from year to year according to some index such as the rate paid by the government on Treasury Bills.

All-Inclusive Trust Deed (AITD): See Wrap-Around Mortgage

Allonge: An assignment of a note and deed of trust or assignment of note and mortgage.

Agent: One who acts or has the power to act for another. A fiduciary relationship is created under the 'law of agency' when a property owner, as the principal, executes a listing agreement or management contract authorizing a licensed real estate broker to be his or her agent.

Alienation: The act of transferring property to another. Alienation may be voluntary, such as by gift or sale, or involuntary, as through eminent domain or adverse possession.

Alienation clause: The clause in a mortgage or trust deed that states that the balance of the secured debt becomes immediately due and payable at the mortgagee's option if the property is sold by the mortgagor. In effect, this clause prevents the mortgagor from assigning the debt without the mortgagee's approval.

Amendment of a note: Changing the interest, payment schedule, or due date on an existing note without writing a new note.

Amortized loan: A loan in which the principal as well as the interest is payable in monthly or other periodic installments over the term of the loan.

Annual Percentage Rate (APR): The true cost of a loan to a borrower as required by the Truth in Lending Laws.

APN: Assessor's Parcel Number.

Appraisal: An estimate of the quantity, quality or value of something. The process through which conclusions of property value are obtained; also refers to the report that sets forth the process of estimation and conclusion of value.

Appreciation: An increase in the worth or value of a property due to economic or related causes, which may prove to be either temporary or permanent; opposite of depreciation.

Arrears:

1. Behind in making payments, as in 'The payments were 3 months in arrears.'

2. Later than earned, as in 'Loan interest is paid in arrears. The interest for May is paid in the June payment.'

Assemblage: The combining of two or more adjoining lots into one larger tract in order to increase their total value.

Assessment: The imposition of a tax, charge or levy, usually according to established rates.

Assignee: The person acquiring a note from a previous holder.

Assignment: The transfer in writing of interest in a bond, mortgage, lease or other instrument.

Assignor: The person giving up ownership of a note to a new holder.

Assumption of mortgage: Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

Attachment: The act of taking a person's property into legal custody by writ or other judicial order in order to hold it available for application to that person's debt to a creditor.

Balloon payment: A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized. There can also be partial balloon payments during the note term.

Bargain and sale deed: A deed that carries with it no warranties against liens or other encumbrances but that does imply that the grantor has the right to convey title. The grantor may add warranties to the deed at his or her discretion.

Basis Point: 100 basis points equal 1% ( one percentage point )

Beneficiary:

1. The person for whom a trust operates, or in whose behalf the income from a trust estate is drawn.

2. A lender who lends money on real estate and takes back a note and trust deed from the borrower.

Binder: An agreement that may accompany an earnest money deposit for the purchase of real property as evidence of the purchaser's good faith and intent to complete the transaction.

Blanket mortgage: A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.

Blended Rate: The overall interest rate, when two or more loans are on a property. It is higher than the rate on the lowest rate loan and lower then the rate on the highest interest loan. Also called Overall Rate (OAR).

Boot: Money or property given to make up any difference in value or equity between two properties in an 'exchange.'

BPO: Brokers price opinion, the opinion of a local real estate broker or agent that knows the local market well.

Breach of contract: Violation of any terms or conditions in a contract without legal excuse; for example, failure to make a payment when it is due.

Broker: One who acts as an intermediary on behalf of others for a fee or commission.

Brokerage: The bringing together of parties interested in making a real estate transaction.

Bundle of legal rights: The concept of land ownership that includes 'ownership of all legal rights to the land'-for example, possession, control within the law and enjoyment.

Buy Down: In order to reduce the interest and payments on a loan for the buyer, the property seller may pay the lender some money up front to 'buy down' the interest and payments for a certain period of time. Example: The seller buys down a 30 year loan at 14% interest so that the buyer of the property only pays 11% interest for the first 2 years.

Capital gain: Profit earned from the sale of an asset.

'Carry Paper': For a property seller to take part or all of the sale price of the property in the form of a secured note.

Cash flow: The net spendable income from an investment, determined by deducting all operating and fixed expenses from the gross income. If expenses exceed income, a 'negative cash flow ' is the result.

Certificate of Discharge: A document showing loan has been paid in full.

Certificate of sale: The document generally given to the purchaser at a tax foreclosure sale. A certificate of sale does not convey title; normally it is an instrument certifying that the holder received title to the property after the redemption period passed and that the holder paid the property taxes for that interim period.

Certificate of title: A statement of opinion on the status of the title to a parcel of real property based on an examination of specified public records.

Chain of title: The succession of conveyances, from some accepted starting point, whereby the present holder of real property derives title.

Closing: Completion of a transaction, including details like preparation and recording of legal documents, procurement of applicable insurance coverages, and transfer of funds.

Closing costs: The various fees and charges involved in closing a transaction.

Closing statement: A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made and all cash paid out in the transaction. (Also referred to as HUD-1.)

Cloud on the title: Any document, claim, unreleased lien or encumbrance that may impair the title to real property or make the title doubtful; usually revealed by a title search and removed by either a quitclaim deed or suit to quiet title.

Codicil: A supplement or addition to a will, executed with the same formalities as a will, that normally does not revoke the entire will.

Cognovit: See Confession of judgment clause.

Coinsurance clause: A clause in insurance policies covering real property that requires the policy- holder to maintain fire insurance coverage generally equal to at least 80 percent of the property's actual replacement cost.

Collateral: Property pledged as security for performance of an obligation.

Collection Service: A neutral third party, other than the borrower or lender. The collection agency, collection service or servicing agent collects the payments due on a note and forwards the proceeds to the proper recipients.

Community property: A system of property ownership based on the theory that each spouse has an equal interest in the property acquired by the efforts of either spouse during marriage. A holdover of Spanish law, found predominantly in Western states; the system was unknown under English common law.

Comparables: Properties used in an appraisal report that are substantially equivalent to the subject property.

Compound interest/compounding: The situation where interest accrues and then gathers interest. Example: A $100,000 straight note (no payments) with 12% compound interest earns 12% interest the first year ($12,000). Adding that to the original principal gives the next year starting balance of $112,000. This sum will earn 12% interest. The process repeats each year.

Condemnation: A judicial or administrative proceeding to exercise the power of eminent domain, through which a government agency takes private property for public use and compensates the owner.

Consideration:

1. That which is received by the grantor in exchange for his or her deed.

2. Something of value that induces a person to enter into a contract.

Constant (Loan Constant): The yearly payment on a loan divided by the remaining principal balance. As amortized loans are paid down, the Loan Constant increases.

Constructive notice: Notice given to the world by recorded documents. All people are charged with knowledge of such documents and their contents, whether or not they have actually examined them. Possession of property is also considered constructive notice that the person in possession has an interest in the property.

Contract: A legally enforceable promise or set of promises that must be performed and for which, if a breach of the promise occurs, the law provides a remedy. A contract may be either unilateral, by which only one party is bound to act, or bilateral, by which all parties to the instrument are legally bound to act as prescribed. In real estate, a contract must always be in writing.

Contract for Deed: A form of security instrument and debt contract wherein the owner of the property gives the buyer legal title only after the obligation has been paid in full. See Land Contract.

Cooperative: A residential multi-unit building whose title is held by a trust or corporation that is owned by and operated for the benefit of persons living within the building, who are the beneficial owners of the trust or stockholders of the corporation, each possessing a proprietary lease.

Cost approach: The process of estimating the value of a property by adding to the estimated land value the appraiser's estimate of the reproduction or replacement cost of the building, less depreciation.

Coupon: A note could have a coupon rate of 7 or 7 percent.

Counteroffer: A new offer made as a reply to an offer received. It has the effect of rejecting the original offer, which cannot be accepted thereafter unless revived by the offeror.

Credit: On a closing (HUD 1) statement, an amount entered in a person's favor-either an amount the party has paid or an amount for which the party must be reimbursed.

Cross Collateralize: To place a mortgage or trust deed on more than one piece of real estate could be across town or in two different states.

Current Principal Balance: The balance currently owed on a note, which may be smaller or larger than the original principal balance.

Dead equity: Equity in property, not earning interest, not being used to acquire more property.

Debt Service: The monthly payments required to keep the loans on a property current.

Decedent: A person who has died.

Deed: A written instrument that, when executed and delivered, conveys title to or an interest in real estate.

Deed in trust: An instrument that grants a trustee under a land trust full power to sell, mortgage and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.

Deed of trust: See Trust deed.

Deed restrictions: Clauses in a deed limiting the future uses of the property. Deed restrictions may impose a vast variety of limitations and conditions-for example, they may limit the density of buildings, dictate the types of structures that can be erected or prevent buildings from being used for specific purposes or even from being used at all.

Default: The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

Defeasance clause: A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

Deficiency judgment: A personal judgment levied against the mortgagor when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

Depreciation:

1. In appraisal, a loss of value in property due to any cause, including physical deterioration, functional obsolescence and environmental obsolescence.

2. In real estate investment, an expense deduction for tax purposes taken over the period of ownership of income property.

Discount: A price less than the remaining principal balance of a note.

Discounted Paper: Real Estate Paper bought or sold at a price less than the principal balance.

Discount Points: A point is one percent of the principal amount.

Double escrow: Two separate but related escrows or closings, each contingent or dependent on the other. Example; You are buying a note and reselling it immediately for profit. The buy and resale escrows are contingent on each other and close at the exact same time.

Duress: Unlawful constraint or action exercised upon a person whereby the person is forced to perform an act against his or her will. A contract entered into under duress is voidable.

Earnest money deposit: Money deposited by a buyer under the terms of a contract, to be forfeited if the buyer defaults but applied on the purchase price if the sale is closed.

Easement: A right to use the land of another for a specific purpose, such as for a right-of-way or utilities; an incorporeal interest in land. An easement appurtenant passes with the land when conveyed.

Effective Interest Rate: The overall yield earned on an investment, taking into account the discount and all existing loan terms.

Eminent domain: The right of a government or municipal quasi-public body to acquire property for public use through a court action called condemnation, in which the court decides that the use is a public use and determines the compensation to be paid to the owner.

Encroachment: A building or some portion of it-a wall or fence-that extends beyond the land of the owner and illegally intrudes upon some land of an adjoining owner or a street or alley.

Encumbrance: Anything, such as a mortgage, tax, or judgment lien, an easement, a restriction on the use of the land or an outstanding dower right, that may diminish the value of a property.

Equitable title: The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another's name.

Equity: The interest or value that an owner has in property over and above any mortgage indebtedness.

Escrow: The closing of a transaction through a third party called an escrow agent, or escrowee, who receives certain funds and documents to be delivered upon the performance of certain conditions outlined in the escrow instructions.

Escrow instructions: A document that sets forth the duties of the escrow agent, as well as the requirements and obligations of the parties, when a transaction is closed through an escrow.

Estate for years: An interest for a certain, exact period of time in property leased for a specified consideration.

Estoppel: Method of creating an agency relationship in which someone states incorrectly that another person is his or her agent, and a third person relies on that representation.

Estoppel certificate: A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.

Eviction: A legal process to oust a person from possession of real estate.

Evidence of title: Proof of ownership of property, commonly a certificate of title, an abstract of title with lawyer's opinion or a Torrens registration certificate.

Exchange: A transaction in which all or part of the consideration is the transfer of like-kind property (such as real estate for real estate).

Face amount: The original principal balance appearing on the face of the note. Always check the current principal balance of a seasoned note because it may be drastically different than the face amount.

Fee simple estate: The maximum possible estate or right off ownership of real property, continuing forever. Sometimes called a fee or fee simple absolute.

FHA loan: A loan insured by the Federal Housing Administration and made by an approved lender in accordance with the FHA's regulations.

Fiduciary relationship: A relationship of trust and confidence, as between trustee and beneficiary, attorney and client, or principal and agent.

Fixture: An item of personal property that has been converted to real property by being permanently affixed to the realty.

Foreclosure: A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

FSBO: For sale by owner.

Free and clear: Property that has no loans on it whatsoever is free and clear.

Fully amortized: A loan whose payments include both interest and principal and will eventually be paid in full during its term with no balloon payment.

FV: Future value. The balloon payment of a loan or the loan balance as of some future date.

Gap: A defect in the chain of title of a particular parcel of real estate; a missing document or conveyance that raises doubt as to the present ownership of the land.

General warranty deed: A deed in which the grantor fully warrants good clear title to the premises. Used in most real estate deed transfers, a general warranty deed offers the greatest protection of any deed.

Grantee: A person who receives a conveyance of real property from a grantor.

Grantor: The person transferring title to or an interest in real property to a grantee.

Green note: A note that is created in the sale of property for the specific purpose of immediate resale to a prearranged investor. In this case it might be construed to be a direct loan of money from the investor to the property seller; and therefore subject to usury and truth in lending laws.

Ground lease: A lease of land only, on which the tenant usually owns a building or is required to build as specified in the lease. Such leases are usually long term net leases; the tenant's rights and obligations continue until the lease expires or is terminated through default.

Hard money: New money loaned against a property without a change in ownership. Example; A property owner puts a new second loan on the property to get cash. This is a hard money loan. Hard money loans generally involve personal liability in addition to the lien on the property.

Hard paper: Paper that has good strong terms and commands a good resale value in the paper marketplace. It would sell for a relatively small discount.

Heir: One who might inherit or succeed to an interest in land under the state law of descent when the owner dies without leaving a valid will.

Highest and best use: That possible use of land that would produce the greatest net income and thereby develop the highest land value.

Holder: The current owner of a note.

Homeowner's insurance policy: A standardized package insurance policy that covers a residential real estate owner against financial loss from fire, theft, public liability and other common risks.

Homestead: Land that is owned and occupied as the family home. In many states, a portion of the area or value of this land is protected or exempt from judgments for debts.

HUD-1: A Legal closing statement when signed by an official from a title company.

Hypothecation: The pledge of property as security for a loan.

Implied agreement: A contract under which the agreement of the parties is demonstrated by their acts and conduct.

Improvement:

1. Any structure, usually privately owned, erected on a site to enhance the value of the property, for example, building a fence or a driveway.

2. A publicly owned structure added to or benefiting land, such as a curb, sidewalk, street or sewer.

Imputed interest: In seller carryback financing, when the interest is below a certain rate determined by the IRS, the IRS imputes or charges the property seller tax on the higher rate of interest. (See your tax advisor on this).

Imputed principal: In seller carryback financing, when the buyer of the property gets an interest rate below a certain rate specified by the IRS, the IRS may impute or declare that the actual property sales price was lower than stated in the purchase contract. (See your tax advisor on this).

Income approach: The process of estimating the value of an income-producing property by capitalization of the annual net income expected to be produced by the property during its remaining useful life.

Installment contract: A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until a future date, which may be not until final payment. Also called a contract for deed or articles of agreement for warranty deed.

Installment note: A note that is payable in several individual payments called installments.

Installment sale: A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income until future years by paying tax each year only on the proceeds received that year.

Instrument: The legal document used as evidence of debt, title, lien, etc.

Interest: A charge made by a lender for the use of money.

Interest extra: The loan payment terms wherein the payment goes to principal and not to interest.

Interest included: The loan payment terms wherein the payment goes to interest first and any surplus goes to reducing the principal.

Interest only payments: The terms of the loan must include a balloon payment whereby the principle amount of the loan becomes due by a specific date.

Interim financing: A short-term loan usually made during the construction phase of a building project (in this case, often referred to as a construction loan).

(IRR) Internal rate of return: The yield or rate of return, used when working with a series of uneven cash flows; as contrasted to regular uniform payments.

Intestate: The condition of a property owner who dies without leaving a valid will. Title to the property will pass to the decedent's heirs as provided in the state law of descent.

Joint tenancy: Ownership of real estate between two or more parties who have been named in one conveyance as joint tenants. Upon the death of a joint tenant, the decedent's interest passes to the surviving joint tenant or tenants by the right of survivorship.

Joint venture: The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by agreement between the parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only, rather than for a continuing business relationship.

Judgment: The formal decision of a court upon the respective rights and claims of the parties to an action or suit. After a judgment has been entered and recorded with the county recorder, it usually becomes a general lien on the property of the defendant.

Judicial precedent: In law, the requirements established by prior court decisions.

Junior: Recorded at a later date (than the senior loans). The security instrument recorded next after the first loan would be a second. It is junior to the first.

Laches: An equitable doctrine used by courts to bar a legal claim or prevent the assertion of a right because of undue delay or failure to assert the claim or right.

Land contract: A security instrument wherein the seller (vendor) gives the buyer (vendee) possession of the property, but retains legal title (the deed) as security for a loan until specific payment has been made. The buyer of the property gets 'equitable title' and the right to use and enjoy the property and tax benefits prior to actually receiving the deed.

Lease: A written or oral contract between a landlord (the lessor) and a tenant (the lessee) that transfers the right to exclusive possession and use of the landlord's real property to the lessee for a specified period of time and for a stated consideration (rent). By state law, leases for longer than a certain period of time (generally one year) must be in writing to be enforceable.

Leasehold estate: A tenant's right to occupy real estate during the term of a lease, generally considered to be a personal property interest.

Legal description: A description of a specific parcel of real estate complete enough for an independent surveyor to locate and identify it.

Lessee: See Lease.

Lessor: See Lease:

Less than interest only: The loan payment terms wherein the payments are less than the monthly interest. This means the total debt grows with time.

Levy: To assess; to seize or collect. To levy a tax is to assess a property and set the rate of taxation. To levy an execution is to officially seize the property of a person in order to satisfy an obligation.

Lien: A right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale.

Life estate: An interest in real or personal property that is limited in duration to the lifetime of its owner or some other designated person or persons.

Life tenant: A person in possession of a life estate.

Liquidity: The ability to sell an asset and convert it into cash, at a price close to its true value, in a short period of time.

Lis pendens: A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.

(LTV): Loan to value: The maximum of loans that most lenders would lend on a property. Assuming an 80% loan to value ratio, the loan value on a $100,000 property would be $80,000.

MLB: Mortgage Loan Broker

Maker: The person who signs a note, agreeing to pay it.

Management agreement: A contract between the owner of income property and a management firm or individual property manager that outlines the scope of the manager's authority.

Marketable title: Good or clear title, reasonably free from the risk of litigation over possible defects.

Market value: The most probable price property would bring in an arm's-length transaction under normal conditions on the open market.

Maturity: The time when an obligation becomes due and payable in full.

Mechanic's lien: A statutory lien created in favor of contractors, laborers and material men who have performed work or furnished materials in the erection or repair of a building.

Mobile Home Note: May or may not be on real property.

Moratorium: A suspension of payments and possibly interest.

Mortgage: A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.

Mortgage Note: A mortgage note is usually a purchase money promissory note signed by the purchaser of real estate, promising to make specified payments to the seller over a specified period of time.

Mortgagee: A lender in a mortgage loan transaction.

Mortgage lien: A lien or charge on the property of a mortgagor that secures the underlying debt obligations.

Mortgage release: A release of a mortgage by the lender when the loan has been paid in full.

Mortgagor: A borrower who pledges property as security for a loan.

Negative amortization: A loan payment that is less than interest only. This means the obligation grows with time.

Negotiable instrument: A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.

Net lease: A lease requiring the tenant to pay not only rent but costs incurred in maintaining the property, including taxes, insurance, utilities and repairs.

Net present value (NPV): The value of a series of uneven cash flows discounted to a present value figure.

Nominal interest rate: The interest rate stated in a note. This may be quite different from the yield to an investor who buys the note at discount.

Nonconforming use: A use of property that is permitted to continue after a zoning ordinance prohibiting it has been established for the area.

Note: A written promise to pay, with all the terms and conditions of the obligation, signed, and in the proper legal format. A note can be secured or unsecured. See also Promissory note.

Note holder: The person currently in ownership and possession of a note and entitled to collect all its remaining payments. The holder might not be the original beneficiary.

Note Owner: See note holder.

Note payment book (record): A simple record of all payments made on a note showing how much was paid each payment. It breaks each payment down to principal and interest, and shows the current principal balance.

Notice of default (NOD): A written legal notice to a mortgagor (vendee) from a lien holder, notifying them that the lien is being foreclosed.

Novation: Substituting a new obligation for an old one, or substituting new parties to an existing obligation.

Obligee: The person to whom payments are owed according to the terms of a note.

Obligor: The person obligated to make the payments on a note.

Offer an acceptance: Two essential components of a valid contract; a 'meeting of the minds.'

Offset statement: A written statement by a lender or borrower concerning the current status of a loan. It includes the current principal balance, whether payments are current or not, and terms and conditions of the loan.

Open-end mortgage: A mortgage loan that is expandable by increments up to a maximum dollar amount, the full loan being secured by the same original mortgage.

Option: The right to buy something for a stated price and terms within a certain time period. Something must be paid for this right. This is called option consideration. The option will either be exercised (used) or abandoned (not used).

Optionee: The person who has the right to buy under an option.

Optionor: The person who has agreed to sell property under an option.

Original principal balance: The principal owed on a note the day it started.

Origination: The creation of something, in this case a note and security instrument.

'Or more' clause: A clause in a note stating that the monthly payments are to be so many dollars 'or more.' This eliminates any kind of prepayment penalty.

Or order: A clause in a note, such as 'Pay to Joe Jones or order.' The 'or order' would be an assignee or future owner of the note.

Overall rate (OAR): See Blended Rates.

Owner occupied: The owner lives in the house not a renter.

Parcel: A specific portion of a large tract of real estate; a lot.

Partial amortization: Loan payments that cover principal and interest for a certain period of time, but then the remaining balance is due in a balloon payment at the stop date.

Participation financing: A mortgage in which the lender participates in the income of the mortgaged venture beyond a fixed return or receives a yield on the loan in addition to the straight interest rate.

Partnership: An association of two or more individuals who carry on a continuing business for profit as co-owners. Under the law, a partnership is regarded as a group of individuals rather than as a single entity. A 'general partnership' is a typical form of joint venture, in which each general partner shares in the administration, profits and losses of the operation. A 'limited partnership' is a business arrangement whereby the operation is administered by one or more general partners and funded, by and large, by limited or silent partners, who are by law responsible for losses only to the extent of their investments.

Party wall: A wall that is located on or at a boundary line between two adjoining parcels of land and is used or is intended to be used by the owners of both properties.

Patent: A grant or franchise of land from the United States government.

Payee: The person to whom payments are due on a note.

Payment schedule: The specifics of how much each payment is and when each payment is due.

Payor: The person obligated to make the payments on a note.

Percentage lease: A lease, commonly used for commercial property, whose rental is based on the tenant's gross sales at the premises; it usually stipulates a base monthly rental plus a percentage of any gross sales above a certain amount.

Periodic estate: An interest in leased property that continues from period to period-week to week, month to month, or year to year.

Personal note: An unsecured note. The maker has personal liability on a personal note.

Personal property: Items, called chattels, that do not fit into the definition of real property; movable objects.

PITI: Principal, interest, taxes and insurance. On an amortized loan that has an impound or escrow account for taxes and insurance, the monthly payment consists of principal, interest, taxes and insurance.

Plat: A map of a town, section or subdivision indicating the location and boundaries of individual properties.

Power of attorney: A written instrument authorizing a person, the attorney-in-fact, to act as agent on behalf of another person to the extent indicated in the instrument.

P.O.C.: Paid outside of closing.

Points: A point is 1% of the principal. See also discount points.

Prelim: A preliminary title report is issued with cursory information of all present and past documents germane to a specific property with no guarantee of accuracy until The Title Policy is issued.

Prepayment penalty: A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost

Present value (PV): Money has a time value. Money now is worth more than money later. The worth of a future amount of money is less than having that same amount of money now. Example: You might only be willing to pay $2,500 now in order to receive $10,000 payable in 10 years. The present value of that $10,000 is $2,500 in your mind. Present value can be the worth of a stream of future payments discounted to today's dollars or to an amount of money today.

Principal: 1. A sum lent or employed as a fund or investment, as distinguished from its income or profits. 2. The original amount (as in a loan) of the total due and payable at a certain date. 3. A main party to a transaction-the person for whom the agent works.

Principal balance: The remaining amount of principal due on a note as of a certain date. This may be more or less than the original face amount of the note. See also Amortization, Negative amortization, interest only.

Priority: The order of position or time. The priority of liens is generally determined by the chronological order in which the lien documents are recorded; tax liens, however, have priority even over previously recorded liens.

Private party financing: See seller carry back financing.

Probate: A legal process by which a court determines who will inherit a decedent's property and what the estate's assets are.

Promissory note: A financing instrument that states the terms of the underlying obligation, is signed by its maker and is negotiable (transferable to a third party).

Puffing: Exaggerated or superlative comments or opinions.

Purchase money: Money that is loaned for the purchase of real property. This can be in the form of seller carry back financing or a new bank loan. It is contrasted to Refinance money or Hard money. In certain cases it may carry no personal liability and may not be subject to deficiency judgments.

Purchase-money mortgage: A note secured by a mortgage or trust deed given by a buyer, as mortgagor, to a seller, as mortgagee, as part of the purchase price of the real estate.

PV: see present value

Quitclaim deed: A conveyance by which the grantor transfers whatever interest he or she has in the real estate, without warranties or obligations.

Rate of return: see yield

Ready, willing and able buyer: One who is prepared to buy property on the seller's terms and is ready to take positive steps to consummate the transaction.

Real estate: Land; a portion of the earth's surface extending downward to the center of the earth and upward infinitely into space. Including all things permanently attached to it, whether naturally or artificially; any and every interest in land.

Real estate investment trust (REIT): Trust ownership of real estate by a group of individuals who purchase certificates of ownership in the trust, which in turn invests the money in real property and distributes the profits back to the investors free of corporate income tax.

Real estate mortgage investment conduit (REMIC): A tax entity that issues multiple classes of investor interests (securities) backed by a pool of mortgages.

Real property: The interests, benefits, and rights inherent in real estate ownership.

Recast: To decide new terms for an existing loan. This may be associated with the situation wherein a debtor cannot pay according to the original terms, but can pay some other way.

Reconciliation: The final step in the appraisal process, in which the appraiser reconciles the estimates of value received from the market data, cost and income approaches to arrive at a final estimate of market value for the subject property.

Reconvey: When a trust deed is paid off, the trustee reconveys his title back to the property owner and releases the lien from the property. It means to convey title back to the owner of the property.

Reconveyance: see reconvey

Reconveyance deed: A deed used by a trustee under a deed of trust to return title to the trustor.

Recording: The act of entering or recording documents affecting or conveying interests in real estate in the recorder's office established in each county. Until it is recorded, a deed or mortgage ordinarily is not effective against subsequent purchasers or mortgagees.

Recourse: When signing (endorsing) a note from one party to another, you do so either with or without recourse. With recourse means that you still have contingent liability to the buyer of the note. In the event the maker doesn't pay as promised, you have to pay. See without recourse.

Redemption: The buying back of real estate sold in a tax sale. The defaulted owner is said to have the right of redemption.

Redemption period: A period of time established by state law during which a property owner has the right to redeem his or her real estate from a foreclosure or tax sale by paying the sales price, interest and costs. Many states do not have mortgage redemption laws.

Redlining: The illegal practice of a lending institution denying loans or restricting their number for certain areas of a community.

Regulation Z: Implements the Truth-in-Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit.

Reinstatement period: The period specified by local law, within which the debtor has the right to catch up the payments plus foreclosure fees and stop foreclosure.

Release deed: A document, also known as a 'deed of reconveyance', that transfers all rights given a trustee under a trust deed loan back to the grantor after the loan has been fully repaid.

Release of liability: The appropriate documentation from a creditor to a debtor, releasing the debt and any liens associated with it.

Release of mortgage: A written instrument releasing a mortgage lien from a property. Also called a Certificate of discharge.

Remainder: The remnant of an estate that has been conveyed to take effect and be enjoyed after the termination of a prior estate, such as when an owner conveys a life estate to one party and the remainder to another.

Remainderman: Payee's equity position in a note that has been sold or modified.

Renegotiable rate mortgage: A mortgage loan in which the interest rate may increase or decrease at specified intervals, within certain limits based upon an economic indicator.

Renegotiate: To change the terms and conditions of an existing note by mutual agreement of payor and payee. Either party can ask the other to renegotiate. Asking for a discount for early payoff is a form of renegotiation.

Reproduction cost: The construction cost at current prices of an exact duplicate of the subject property.

Request for reconveyance: An instrument executed by a trust deed holder, directing the trustee to convey his title lien on the property back to the trustor (property owner). The Request for Reconveyance is usually printed on the back of the trust deed.

Restriction: A limitation on the use of real property, usually originated in a deed by the owner or subdivider.

Reversion: The remnant of an estate that the grantor holds after granting a life estate to another person.

Right of Survivorship: See Joint tenancy.

Rollover note: A relatively short-term (5year) note that renews each time at some new interest rate pegged to the cost of money at that time.

Rule of 78: A banker's interest computation invention that allows for greater than normal interest in the early part of the loan. Also a rule of thumb for determining how long it takes to double your money at a certain interest rate. Divide 78 by the interest rate and this is close to the number of years it will take to double the money.

Sale and leaseback: A transaction in which an owner sells his or her improved property and, as part of the same transaction, signs a long-term lease to remain in possession of the premises.

Sales contract: A contract containing the complete terms of the agreement between buyer and seller for the sale of a particular parcel or parcels of real estate.

Satisfaction of mortgage: Completion of the terms of repayment and release from liability on a mortgage.

Section: A portion of a township under the rectangular survey (government survey) system. A township is divided into 36 sections, numbered 1 to 36. A section is a square with mile-long sides and an area of one square mile, or 640acres.

Secured loan: A loan (note) which has specific collateral pledged to secure its payment. In the event payment is not made, the collateral will be sold to provide funds to pay the note.

Security Deposit: A payment by a tenant, held by the landlord during the lease term and kept (wholly or partially) on default or destruction of the premises by the tenant.

Seller carry back financing: When the seller of a property takes a note secured by the property as part of the payment.

Senior lien: A lien recorded before others. A lien can be senior to some and junior to others. Example: A second is a senior to a third but junior to a first.

Seniority: The order in time in which documents are recorded. The first lien recorded is the 'First,' the next is the 'Second,' etc. Recording, not when notes were created, is what counts. In the event of foreclosure, the lien foreclosing is paid first and the leftover funds, if any, go to the juniors. Senior liens are more secure than junior liens.

Separate property: Under community property law, property owned solely by either spouse before the marriage, acquired by gift or inheritance after the marriage or purchased with separate funds after the marriage.

Severalty: Ownership of real property by one person only, also called sole ownership.

Severance: Changing an item of real estate to personal property by detaching it from the land; for example, cutting down a tree.

SFR: Single family residence

Shared appreciation mortgage: A mortgage loan in which the lender, in exchange for a loan with a favorable interest rate, participates in the profits (if any) the mortgagor receives when the property is eventually sold.

Simple interest: Interest based on the principal balance of the loan only. It doesn't add on to the principal. It does not compound. It is less than compound interest.

Simultaneous closing: Two transactions or two parts of a transaction that are completed at the same time. Such transactions are often dependent and contingent upon each other. One cannot happen without the other. See double escrow.

Soft paper: Paper with low interest, a long term, low or no payments, and perhaps questionable security. It has little or no marketability for cash and is used mainly in trade. One would like to borrow on soft paper and sell on hard paper.

Special assessment: A tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer.

Special warranty deed: A deed in which the grantor warrants, or guarantees, the title only against defects arising during the period of his or her tenure and ownership of the property and not against defects existing before that time, generally using the language, 'by, through or under the grantor but not otherwise.'

Specific lien: A lien affecting or attaching only to a certain, specific parcel of land or piece of property.

Statutory Lien: A lien imposed on property by statute-a tax lien, for example-in contrast to an equitable lien, which arises out of common law.

Stop date: The date of the last payment on a note. It may be fully amortized or there may be a balloon payment. Also referred to as Call Date.

Straight-line method: A method of calculating depreciation for tax purposes, computed by dividing the adjusted basis of a property by the estimated number of years of remaining useful life.

Straight note: A note having no payments during its term, with a balloon payment at the end. It may have either simple or compound interest.

Subdivision: A tract of land divided by the owner, known as the subdivider, into blocks, building lots and streets according to a recorded subdivision plat, which must comply with local ordinances and regulations.

'Subject to' clause: A clause in a deed specifying exceptions and reservations affecting the title.

Subordination: Relegation to a lesser position, usually in respect to a right or security.

Subordination agreement: A written agreement between holders of liens on a property that changes the priority of mortgage, judgment and other liens under certain circumstances.

Subrogation: The substitution of one creditor for another, with the substituted person succeeding to the legal rights and claims of the original claimant. Subrogation is used by title insurers to acquire from the injured party rights to sue in order to recover any claims they have paid.

Substitution: An appraisal principle that states that the maximum value of a property tends to be set by the cost of purchasing an equally desirable and valuable substitute property, assuming that no costly delay is encountered in making the substitution.

Substitution of Trustee: Replacing one trustee for another.

Surface rights: Ownership rights in a parcel of real estate that are limited to the surface of the property and do not include the air above it (air rights) or the minerals below the surface (subsurface rights).

Survey: The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions and position of a house on a lot, including the determination of any existing encroachments or easements.

Syndicate: A combination of people or firms formed to accomplish a business venture of mutual interest by pooling resources. In a 'real estate investment syndicate', the parties own and/or develop property, with the main profit generally arising from the sale of the property.

Tax deed: An instrument, similar to a certificate of sale, given to a purchaser at a tax sale. See also Certificate of sale.

Tax lien: A charge against property, created by operation of law. Tax liens and assessments take priority over all other liens.

Tax lien Certificate: A tax lien or tax certificate is a lien issued by the county or other taxing entity against a real property resulting from the owner being delinquent in payment of real estate taxes. These can be purchased by an investor.

Tenancy by the entirety: The joint ownership, recognized in some states, of property acquired by husband and wife during marriage. Upon the death of one spouse, the survivor becomes the owner of the property.

Tenancy in common: A form of co-ownership by which each owner holds an undivided interest in real property as if he or she were sole owner. Each individual owner has the right to partition. Unlike joint tenants, tenants in common have right of inheritance.

Term: The length of time a loan runs. Example: A 5-year term.

Terms: The main features of a loan: Principal amount, interest rate, payment schedule, due date.

Testate: Having made and left a valid will.

Time is of the essence: A phrase in a contract that requires the performance of a certain act within a stated period of time.

Title insurance: A policy insuring the owner or mortgagee against loss by reason of defects in the title to a parcel of real estate, other than encumbrances, defects and matters specifically excluded by the policy.

Torrens system: A method of evidencing title by registration with the proper public authority, generally called the registrar, named for its founder, Sir Robert Torrens.

Township: The principal unit of the rectangular survey (government survey) system. A township is a square with six-mile sides and an area of 36 square miles.

Township line: Lines running at six-mile intervals parallel to the base lines in the rectangular survey (government survey) system.

Trust: A fiduciary arrangement whereby property is conveyed to a person or institution, called a trustee, to be held and administered on behalf of another person, called a beneficiary. The one who conveys the trust is called the trustor.

Trust deed: An instrument used to create a mortgage lien by which the mortgagor conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a deed of trust.

Trustee: See Trust.

Trustee's deed: A deed executed by a trustee conveying land held in a trust.

Trustor: The person who owes the money on a note secured by Trust Deed. The property owner.

Undivided interest: See Tenancy in common.

Uneven payments: When the payments of a loan vary from time to time, they are said to be 'uneven' payments. Example: $100/month the first year, then $200/month the second year, and then $300/month thereafter. See Internal rate of return.

Uniform Commercial Code: A codification of commercial law, adopted in most states, that attempts to make uniform all laws relating to commercial transactions, including chattel mortgages and bulk transfers. Security interests in chattels are created by an instrument known as a security agreement. To give notice of the security interest, a financing statement must be recorded. Article 6 of the code regulates bulk transfers-the sale of a business as a whole, including all fixtures, chattels and merchandise.

Unilateral contract: A one-sided contract wherein one party makes a promise in order to induce a second party to do something. The second party is not legally bound to perform; however, if the second party does comply, the first party is obligated to keep the promise.

Unimproved land: Land which has no utilities (power, water, septic system or sewer) cable or telephone and may or may not be on a road.

Unmarketable note: A note which has such soft terms that it cannot be sold for cash. However, it might be used in trade as part of the down payment on real estate. Also, a note on real estate with no title insurance or a questionable transaction.

Unsecured loan: An unsecured note or personal note. It is secured only by the maker's written promise to pay. No specific security has been pledged to back up the promise to pay.

Useful life: In real estate investment, the number of years a property will be useful to the investors.

Usury: Charging interest at a higher rate than the maximum rate established by state law.

Valid contract: A contract that complies with all the essentials of a contract and is binding and enforceable on all parties to it.

VA loan: A mortgage loan on approved property made to a qualified veteran by an authorized lender and guaranteed by the Veterans Administration in order to limit the lender's possible loss.

Value: The power of a good or service to command other goods in exchange for the present worth of future rights to its income or amenities.

Variable rate mortgage: A mortgage loan in which the interest rate may increase or decrease at specified intervals within certain limits, based upon an economic indicator.

Variance: Permission obtained from zoning authorities to build a structure or conduct a sue that is expressly prohibited by the current zoning laws; an exception from the zoning ordinances.

Vendee: A buyer.

Vendor: A seller.

Voidable contract: A contract that seems to be valid on the surface, but may be rejected or disaffirmed by one or both of the parties.

Voluntary transfer: See Alienation.

Walking backwards: A note whose payments are less than Interest Only. This means the amount owed increases with time. See also Negative Amortization, Straight Note.

Without recourse: The way of endorsing a note to an assignee. This protects the assignor from any further liability on the sale, even in the event the Maker fails to pay on the note. This is the way to sell a note to protect yourself. See also Recourse.

Wraparound mortgage: A method of refinancing in which the new mortgage is placed in a secondary, or subordinate, position; the new mortgage includes both the unpaid principal balance of the first mortgage and whatever additional sums are advanced by the lender. In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount without disturbing the existence of the first mortgage.

Yield: The true rate of return on investment on a note bought at discount, taking into account the actual amount invested and the remaining payments and their timing. The yield is often far greater than the interest rate specified in the note itself when the note is bought at discount.