Realtors Agents

Real Estate Terms

Although list is complete, we are working on making it easier for you to browse through the terms. Feel free to take a look around but we have a bit of work left to do on it. However, all the real estate terms are already on here, we just need to pretty it up a bit.

A

abandonment :  The express or implied giving up of a legal right. For example, a partner may lose his status as a co-owner by abandoning the partnership through neglect, absence or other conduct. Or, an easement owner may lose his property rights to access by abandoning, or neglecting, the easement for a long period. Or, a tenant may lose possession of his apartment by abandoning, or vacating it. Usually the principle of abandonment requires proof of an intent to abandon in addition to mere absence or nonuse.

abatement :  Temporary suspension of a tenant’s duty to pay rent because the rented premises have become uninhabitable. As a practical matter, abatement of rent is not an effective remedy for a tenant unless a court judgment is obtained. Landlords, both commercial and residential, may be expected to commence eviction proceedings upon any default in rent, whether for “abatement pending repairs” or otherwise.

abatement of nuisance : A legal proceeding to terminate a nuisance. A nuisance is a land use that reduces nearby property values. A court will only abate illegal or improper (unreasonable) uses, not every use of property that tends to reduce other property values. The persistent failure to close a “drug house” will justify its abatement by court order.

absorption rate : The annual rate at which available office or other space is being utilized, that is, rented. The absorption rate of a prior year often is used to predict the space needs for next year. Commercial real estate brokers may limit their use of the term to the rate at which new space is being utilized. Developers, investors, and economists may be more interested in the rate at which all space, new and old, is being absorbed, or utilized. A net absorption rate takes into consideration any vacancy created by a tenant transferring from one office to another within the same metropolitan area. A gross absorption rate measures only the consumption of new space. Absorption rates are applicable to all real estate sub-markets–not just office space.

abstract of judgment : A short form document used to represent a complete judgment. A brief summary of essential provisions of a money judgment. A judgment is a court decision upon recordation of which a lien (that is, a claim) is created on the judgment debtor’s real property located in the county in which the abstract is recorded. If the abstract of judgment is not recorded, it does not create a specific lien against specific real property.

acceleration clause : A provision usually included in a promissory note that advances the due date of an installment loan to the present upon the happening of a specified event, such as default. That is, on default by the debtor, the entire unpaid balance of the loan becomes immediately due and payable. Acceleration clauses typically are contained in promissory notes, but may be repeated in deeds of trust as well. Acceleration may be declared by the creditor because of default in payment of an installment; because of default in any other obligation of the debtor, (for example, default in paying taxes or insurance); because the debtor sells the collateral (this is called a due-on-sale clause), or because of further encumbrance (another loan on the property) by the debtor. Acceleration cannot defeat the debtor’s right of reinstatement during foreclosure proceedings. See reinstatement. That is, even if the unpaid balance is accelerated and is thus due, the debtor can cure the default by simply bringing the loan payments current within the time prescribed by law, usually any time up to the date of private foreclosure sale. Acceleration upon any basis is possible only when it is authorized by the terms of the note. Assumable loans do not authorize acceleration, and specifically permit sale of the collateral and assumption of the loan by the purchaser/debtor. Federal Housing Administration, FHA, and Veterans Administration, VA, loans are assumable as of this writing.

acceptance : The unconditional assent by a seller of real property to all the terms contained in an offer to buy. (The prospective seller may reject an offer prior to its acceptance unless an independent contract, an option, exists to keep the offer open.) If the offer is accepted, a contract of sale is created. Typical deposit receipts (offers to buy) contain a printed acceptance and space for the seller’s signature. If the seller’s acceptance varies in any material way from the offer, it is considered a counteroffer. The acceptance is considered effective when it is communicated (delivered) to the buyer.

access : The legal right of ingress and egress to and from real property. Landowners whose property borders public roads and streets have a right of access. Generally there is no right to direct access (for example, a median may necessitate an indirect automotive route to an abutting landowner’s property). Whenever access is severed by a government, a compensable taking of a property right is involved. (That is, the Constitution requires the payment of Just Compensation when private property is taken or damaged for a public purpose.) Mere impairment of access, as by construction of a median in a street, is usually not compensable. The right of access may be created by contiguity; by easement; or by contract.

accommodation party : A person who cosigns a promissory note to assist another person to obtain credit. The cosigner is fully liable for the debt in the event the primary debtor becomes unable or refuses to pay.

accrued depreciation : An estimate to account for the passage of time when the replacement cost method of appraisal is used. That is, it refers to the difference between an appraised value and an estimated cost of replacement. Accrued depreciation only applies to depreciable improvements (not land). Accrued depreciation is not the depreciation used with respect to income taxation.

acknowledgement : A formal declaration before a notary public that the person signing a document is performing a free act and that the signature is genuine. A document affecting real property cannot be recorded (see recordation) unless it is acknowledged. On the other hand, acknowledgement is not required to make a document legal.

act of God : An act of nature, such as rain, lightning, tides, mud slides, floods, and earthquakes. Casualty insurance may not cover such damage unless a special form of coverage is purchased. Most contractors disclaim responsibility for construction delays caused by an act of God.

action : A legal action, or lawsuit. Lawyers may include more than one “cause of action” within a lawsuit. For example, a lawsuit might include one cause of action for fraud, and another for rescission. What constitutes a proper legal action in a given real estate transaction is a matter of procedural law, called “lawyer’s law” because of its esoteric rules, applications, and complexities all of which take time and money. See judicial remedies.

actual knowledge/actual notice : A legal concept that assesses responsibility on the basis of information either known specifically to a person, or information that should have been known to the person because of its nature, or obviousness. For example, tire ruts across land give actual notice to the observer of the possible existence of an easement. Such an observer cannot purchase the land and thereafter recover damages on the basis that the recorded easement did not appear on his title insurance policy. See constructive knowledge or notice.

adhesion contract : A contract, usually preprinted on a long and complicated form, which is entered into between parties of unequal bargaining power. A contract between a national corporation and an individual consumer usually leaves the consumer, who did not draft the document, at a great disadvantage. Courts may refuse to strictly enforce an adhesion contract on the grounds that it is oppressive and unfair. An apartment lease may be construed as such a contract in some situations. A deed of trust also may be construed an adhesion contract by a court. Under principles of managerial law, the standardized fee agreements used by most, if not all, attorneys should be considered adhesion contracts. Courts may interpret adhesion contracts against their drafters on the basis of public policy.

adjustable rate mortgage, (ARM)/ variable interest rate mortgage, (VIRM) :  A mortgage with an interest rate that changes periodically, in unison with an index, with monthly payments that go up or down accordingly. An ARM can be less expensive than a fixed-rate mortgage if interest rates remain steady or decline. But if interest rates increase they drive the monthly payments higher. In essence, an ARM offers a lower initial rate in exchange for assuming more risk. There is an adjustment period of time between a change in the interest rate and a change in the monthly payments. Common indexes to which the ARMs’ rates are tied are one, three, and five year treasury notes, averages of costs of funds to thrifts, and privately prepared indexes. Lenders add a few percentage points to the index rate to establish the rate the mortgagor pays. This add-on is called the margin or spread.
Some lenders offer “teaser” or discounted rates for a few initial years. These will be less than the index rate plus spread. However, when discounted rates are offered, lenders often charge several points and demand extra high interest following the teaser period. Sometimes a seller will “buy down” the rate of interest by paying a lump sum of cash to the lender as a sales inducement. However, this may result in a higher price on the home.
Many ARMs have “caps” that protect the mortgagor from extreme changes in either interest rates or monthly payments. The interest rate caps may be periodic caps, which limit the amount of change from period to period, or overall caps, which limit changes over the life of the loan. Payment caps limit the amount by which the monthly payment may increase. However, they do not limit interest rate changes. If interest rates go up, but the monthly payment is capped, negative amortization may occur. Some ARMs specifically put a cap on negative amortization.
ARMs typically begin at below market rates. They often require a special prepayment fee or penalty to guard against refinancing when interest rates rise. Some provide for conversion into a fixed rate mortgage, but then often require payment of a special conversion fee. ARMs are also called variable rate mortgages, VRMs, or adjustable mortgage loans. ARMs are usually assumable, but lenders often require payment of an assumption fee.
ARMs are available for both residential and commercial loans.

adjusted tax basis : The cost of property as decreased by accumulated tax depreciation (often called writeoff) and increased by the accumulated cost of all improvements. Maintenance expenditures are not considered improvements.

ad valorem : Based on value. Real property taxes, being based on the value of real property, are an ad valorem tax. An ad valorem tax is levied in proportion to value.

advance/draw : A loan draw. Advances include extra payments under an open-end mortgage or deed of trust and payments of installments due on a higher priority secured loan (a first deed of trust, or mortgage) by the holder of a lower priority (third deed of trust). A salesperson may receive an advance against future commissions. A progress payment by a lender to a builder, as work progresses, also is called an advance or draw on the construction loan.

adversary system : The jurisprudential system in which the parties to a legal dispute are opponents. Their attorneys advocate a great variety of theories of benefit to the cause of their clients both before and during the trial, and on any appeal. The adversary system does not require the attorneys to make a search for the truth. The combative nature of this system is thought by many to be the best method of eliciting the truth and producing a just result. There is substantial contrary opinion.

affidavit :  A written statement sworn or affirmed to, under penalty of perjury, before an authorized officer. The person making the sworn affidavit is called the affiant. The purpose is to support a statement with the threat of the crime of perjury.

AFR : applicable federal rate See applicable federal rate.

after-acquired title : Ownership subsequently acquired by a person who previously had transferred the property away. The law declares that after-acquired ownership automatically follows the earlier conveyance. For example, A intends to buy Greenacre from B, and immediately to sell it to C. In escrow, the deed from A to C is inadvertently recorded before A receives title. When A receives title from B, his after-acquired title automatically passes to C just as intended.

after-tax cash flow : The amount of cash a real estate investment will produce each year after payment of all operating expenses and debt service, plus all income tax savings.

AG agricultural land See agricultural land.

age segregated community : A large community project that limits buyers to persons of minimum age 50 or so. These communities include all services. An example is Sun City, Arizona.

agency : The relationship between a principal and agent based on a contract. The contract may be expressed (written or oral) or be implied by conduct. The agent is employed by the principal to do certain acts with customers, called third parties. Generally, under the law of agency, a principal is liable for contracts and torts entered into or caused by the agent who is acting in the scope of his duties. An apartment manager is an agent for the apartment owner. In real estate, a common relationship of agency exists between a real estate broker (the principal) and a licensed salesperson (the agent). An agency relationship also exists between a real estate broker and the employing property owner. The seller’s agent (listing broker) also may be held responsible as an agent of the buyer, that is, as a dual agent, in negotiating a sale of real property. Some agents have the authority to sign a binding contract on behalf of his or her principal. A travelling sales agent often has such authority. A real estate sales agent typically does not have the authority to bind his or her principal to a contract of sale. A power of attorney usually empowers an agent to sign contracts that bind his or her principal.

agent : A person who represents the principal, in dealing with third parties. A principal does not control the day to day activities of an agent. An employer, on the other hand, usually does control the day to day activities of an employee. See also agency.

agent tour : A tour of sales agents through properties for the purpose of familiarization with their features. Listing agents promote their new listings with other agents by conducting tours hoping that agents on tour will show the listed homes to their prospective buyers.

agricultural land (AG land) : Land that is zoned to permit production of livestock or cultivation for crops as well as limited residential, and sometimes recreational, uses. Land that is suitable only for grazing nonetheless will be zoned AG.

airspace rights : The right of owners to use airspace above their lands. Like mineral rights, airspace rights can be conveyed separately from surface rights. Ownership extends to the heavens subject only to easements given by law to the public for such necessities as air travel and use of the airways. There are limitations upon these public easements, for example, as to the minimum height of air travel and as to the maximum of noise decibels.

A variety of acceleration clause that triggers the due date of a loan upon sale of the collateral. Found in a promissory note, it calls for the immediate payment of the unpaid balance of the loan, at the beneficiary’s option, in the event of a sale or transfer of the real property to a third person. An alienation clause (or due-on-sale clause) diminishes the free transferability of any interest in real estate. Alienation is a legal term that describes the act of transferring an ownership interest in real property. Since historical legal principles prohibit restraints against alienation, or sale, contracts that unreasonably inhibit the free transferability of property interests are not ordinarily enforceable in court. Because of that principle, many states declare alienation clauses to be unenforceable as against public policy. But, since most mortgage loans are from federally licensed lenders, the federal laws that permit alienation clauses supersede state laws. See also acceleration.

all egation : An unproved contention of fact. A plaintiff’s allegations are contained in a document called a complaint. A defendant’s responsive allegations (usually of denial) are contained in another document called an answer, or perhaps in a cross-complaint or counterclaim. Allegations may or may not be made under oath and may or may not be true or accurate. Allegations are composed by lawyers and are stated in legalese. Accusatory terms such as fraud, misrepresentation, conspiracy, and so forth are often used. However, allegations are only contentions until finally proven in a court of law. Allegations that are contained in the documents of civil litigation are available to the public at county courthouses. These public records are a valuable source of information for managers.

allegations of fact :  Plaintiff’s statement of alleged facts, contained in the complaint that serves to commence a civil action. Defendants make allegations of facts in their answers to complaints, or in cross-complaints.

alligator investment : Any investment with a negative cash flow. An alligator investment “eats” equity because it lives on a diet of principal, interest, and property tax payments but does not produce adequate income to service those demands. Raw land is an example of an alligator investment, as is any income property with a negative cash flow.

all-inclusive note and deed of trust/wraparound mortgage, creative financing and seller’s financing : To be more descriptive, the phrase should be called an “all-inclusive note secured by a deed of trust.” It is also commonly called simply an “all-inclusive”, or “wraparound” mortgage or deed of trust. It is best described with an example. Assume that an owner sells Greenacre for $100,000. The property is subject to an existing loan of $60,000 at eight percent, secured by a deed of trust held by Savings & Loan. The buyer pays $10,000 cash and gives an “all-inclusive” note to the seller, secured by a second mortgage for $90,000 with interest at ten percent. As the buyer makes monthly payments, based on ten percent, to the seller, the seller continues to make payments based on eight percent to the Savings & Loan. Note in this example that:
1. The buyer pays interest of ten percent on $90,000 instead of eight percent on $60,000 plus interest on $30,000, at the market rate, of, say, thirteen percent, which would have been the case if the first loan had been assumed.
2. The seller’s security is a second priority deed of trust because the priority of the Savings and Loan has been unaffected.
3. The seller has increased his interest income by obtaining the “extra” two percent interest on the $60,000 owing the Savings and Loan.
4. The buyer has purchased “subject to” an existing encumbrance, and has avoided qualification for a new institutional purchase money mortgage.
5. The buyer is in possession while the seller retains liability for any deficiency judgment.
Due to the variations and complexities involved in the use of all-inclusive notes and deeds of trust, great care ought to be exercised. Confusion especially prevails where transactions are “wrapped around” several times. For example, the buyer in the example above may one day become a seller and sell the property for $125,000. Let’s say he takes a cash payment of $10,000 and an all-inclusive for $115,000. This all-inclusive is wrapped around the first wraparound, which is still owed to the initial seller. In other words, the recent seller is now the holder of a third priority deed of trust. In effect, somewhat of a paper empire has been created with the last purchaser supporting all the intermediate paper. Wraparounds are sometimes called overlapping mortgages.

all-suite hotel : A hotel in which each room includes a living space separate from its bedroom.

alternative dispute resolution, (ADR) : A term that describes various methods of resolving disputes through means other than the judicial process. Arbitration and mediation are the two most common forms of ADR.

amenity : The quality of real property that gives satisfaction, rather than money income, to its owner. A swimming pool is an amenity, as may be a nearby park. Amenities are more important to owner-occupants than to investors, who focus on rental income. One person’s amenity, such as a swimming pool, may be another’s nightmare.

amenity gap : The gap between the amenities found in older housing and those found in new construction. Older homes may be “out-amenitied” by the newer.

American Arbitration Association, (AAA) : Private nonprofit organization that provides education, training, and administrative assistance to parties who use nonjudicial methods-that is, alternative dispute resolution (ADR)-for resolving disputes. The AAA is involved primarily with binding arbitration and mediation.

American Land Title Association insurance policy, (ALTA) : An extended coverage policy of title insurance favored by lenders. It may include encroachment, easement and boundary dispute protection, as well as guarantee that official records have been properly searched. It is contrasted to the California Land Title Association (CLTA) version.

American Society of Real Estate Counselors : An association of professional real estate counselors who act as advisors and consultants to the general public. Members identify themselves by the designation CRE.

amortization : The repayment of a mortgage loan. Most mortgage loans require monthly payments of both principal and interest over a specified term. Amortization occurs whenever a portion of the payment is applied to reduce the unpaid balance of the loan. A non-amortizing loan is an interest-only loan. Amortization tables and pocket calculators are widely used to determine the necessary monthly payments to amortize a particular loan. A loan may be amortized at a long-term rate, say, forty years, but carry a balloon payment in, say, five years. This creates low monthly payments for the five-year period.

amortize : To repay a note secured by mortgage through agreed upon payments of principal and interest over the life of the loan. A mortgage loan amortizes very slowly during early years of its term because most of each monthly payment represents interest on the borrowed money. As the unpaid balance decreases, however, increasing amounts of each monthly payment are allocable to principal reduction (because less money is increasingly owed) and amortization thusly increases at an increasing rate.

anchor tenant/prime tenant : The key tenant in a shopping center or other commercial project whose presence or commitment justifies the development.

annexation : A change in jurisdiction. For example, an area of a county may be annexed to and thereby become part of a city. In this connection, the annexation involves a change in the jurisdiction of government, from county to city. Annexation ordinarily requires the consent of the city, the county, and a majority of the inhabitants of the land.

annual constant/constant : The sum of one year’s payments on a mortgage expressed as a percentage of the loan amount. Thus, if the sum of one year’s payments is $15,000, and the loan balance is $150,000, the constant is ten percent. The lower the constant, the less net operating income is required for debt payment. Investors are often more concerned about the constant in a proposed acquisition than in the interest rate in the financing.

annualized percentage rate, (APR) : The rate of interest a borrower pays, taking into consideration certain costs and expenses common to real estate loans. The computation of the APR is required by federal law to guarantee that consumers are informed of the real rate of interest involved. The APR will exceed the rate of interest expressed in the promissory note because the note disregards such additional fees (included within the APR) as points, appraisal fees, and recording fees.

annuity : he periodic receipt of income over a period of time extending into the future. In one sense, an investment property produces a flow of income in the future, and is, thus, an annuity. In present value concepts, each future payment is discounted to a present value, using a selected discount rate of interest. The sum of those values is the present value of the annuity. Present value tables and pocket calculators are widely used to determine the present value of annuities.

answer : A document containing a defendant’s allegations of fact, usually amounting to a denial of the plaintiff’s allegations.

anti-deficiency loan/nonrecourse loan : A real estate loan in which the lender cannot obtain a deficiency judgment following foreclosure. A deficiency exists whenever proceeds from foreclosure sale are less than the unpaid mortgage debt. Under these circumstances, the creditor desires to obtain a personal judgment for the difference. In many states, including California, non-judicial foreclosure (by trustee’s sale) precludes recovery of any deficiency by the foreclosing lender. Judicial foreclosures, on the other hand, can result in deficiency judgments except against borrowers of purchase-money mortgages.

appeal : Formal request to a higher court to review any action of a lower court.

appellant : The party who appeals to a higher court for review of lower court rulings.

appellate court : Court that reviews decisions of prior courts for substantive and procedural correctness. The court has authority to affirm, modify, or reverse rulings of the lower court. Also known as an appeals court.

appellee : The party, on appeal, who defends the earlier court determination. Also called the respondent.

applicable federal rate, (AFR) : An index published by the U.S. Department of the Treasury, based on various U.S. government securities. The AFR is used to set minimum interest rates in seller-financed mortgages and other types of loans. The IRS does not recognize interest-free loans, but will accept loans with an interest rate equal to or above the AFR.

apportionment : The appropriate allocation of income and expenses between seller and buyer. What is appropriate is left to the agreement of the parties, or to custom. The calculation is usually performed by an escrow or title company as part of its escrow service. Examples of items typically subject to apportionment include prepaid rental income, accrued expenses (including deposits), taxes, insurance, continuing employee wages, and security deposits. See also proration.

appraisal : An opinion of the market value of real property as of a specified date. An estimate of value. A formal appraisal should be in writing and include the information (such as market data) on which the opinion of value is based. Professional appraisal associations have requirements concerning the contents of an appraisal.

appraiser : A person qualified by education, experience, and membership in a professional association to estimate the market value of real or personal property.

appreciation :  The accumulated increase in market value of an owner’s property. Appreciation is the opposite of depreciation in value.

appurtenant : Belonging to. Buildings and improvements are appurtenant to and accompany conveyances of land, even if not mentioned in their deeds. The benefit of an easement is appurtenant to the dominant tenement (i.e., the contiguous land whose owner has the right to use the easement).

arbitration : A process to resolve a disagreement. Binding arbitration is a substitute for court action. Parties to a contract can agree to various terms of arbitration, such as, for example, the majority vote of three arbitrators. Sophisticated business persons may negotiate tailored arbitration clauses in their contracts that create advantages if a dispute arises in the future, as for example, the authorization of specified discovery procedures. Most arbitrators follow the rules of the American Arbitration Association which makes available a standard clause for inclusion in contracts.

arbitrator :  A private person selected by parties who are in conflict to hear and decide their dispute. Arbitrators are usually selected because of their expertise in the subject area of the dispute.

arcade : Rows of retail shopping outlets separated by a covered passageway. The arcade was the precursor to today’s covered shopping malls.

arm’s-length transaction : Any transaction in which all parties act as if they were strangers. For example, a transaction between father and son is suspect of not being at arm’s length. If a transaction is not at arm’s length, the IRS may reconstruct it for income tax purposes, or it may be set aside by a court in order to achieve a more equitable or proper outcome. A comparable sale between related persons may be adjusted by an appraiser to make its price more accurately reflect an arm’s-length sale.

articles of incorporation : The legal documents filed with a state government giving life and purpose to a corporation, according to the applicable provisions of state law.

asbestos inspection : An inspection of a structure, usually an office building, to determine whether or not it contains asbestos insulation or other specified materials. Asbestos inspections are required by some lenders and by some investors prior to making loan and purchase commitments. Economic feasibility of an acquisition may be affected by the future cost of asbestos removal or future liability for personal injury to occupants of the building.

as is : The words intended to absolve the seller of real property from any and all lingering guarantees or warranties. The term is in disfavor with the law, and is often summarily discharged by courts as being virtually meaningless. Nonetheless, the term persists and, in some instances, serves to minimize the responsibilities of the seller. Some responsibilities are imposed on a seller by law and are not capable of waiver. An example would be the intentional concealment of a known latent defect, such as gradual subsidence near a cliff house. The buyer of a property on an “as is” basis cannot later complain about the existence of defects that were visible at the time of purchase.

asking price : The price a seller initially asks for property held for sale. An owner is free to ask any price. By custom, an asking price implies a willingness to negotiate, that is, to come down in price. That is why most buyers initially offer to purchase at less than the asking price.

assemblage : The combination of two or more parcels into a single larger parcel. The purpose may be to improve the highest and best use of the parcels. Appraisers describe increases in value from assemblage as plottage.

assessed value  : The value assigned to a parcel of real estate by the county tax assessor for purposes of computing the amount of property tax. Historically, the assessed value was intentionally set at some ratio of market value, say, twenty-five percent. California follows the modern practice of using full cash value, not some lesser percentage, as the assessed value. Full cash value essentially is market value. The assessed values of all properties within a county are listed on an assessment roll. Periodically, assessors reappraise taxable real estate and usually increase its assessed value. Home improvements may increase a home’s assessed value. In some states, such as California, laws place a cap on how large an overall increase may be made in assessed values each year. Increases in total assessed values in a county can result in increased property tax revenues resulting in a larger budget for that local government.

assessment : A charge of money for a specified purpose. For example, a condominium owner may receive an assessment for a proportionate share of come project expense. In municipal finance, an assessment district (such as a sewer assessment district, for example) may be formed to allocate the cost of an improvement that benefits an area to each parcel in proportion to the share of benefit received. The total cost of such improvements may be financed by issuance of tax exempt bonds which are serviced by monthly collections from the owners of the properties benefitted.

assessor/tax assessor :  A county official who is responsible for determining the assessed value of all taxable property in a county. The assessor maintains parcel maps that are available to the public and assigns a number to each parcel. Once a year the assessor estimates the general increase in all property values as a result of inflation and, together with appraisal data of specific properties, determines the total valuation of all taxable property in that county. The tax assessor does not ordinarily collect property taxes.

assessor’s parcel number, (APN) : A code number assigned to every parcel of land by each county assessor. It is used in the assessment and collection of ad valorem property taxes, and as a short form of property description.

asset-backed securities :  Bonds, usually mid-term, such as 15 years, that are guaranteed by first priority mortgages on large commercial projects, and which pay interest plus a share of rental income and capital appreciation. Bond investors thus share in the equity of the project. Recent years have produced a variety of securities secured by real estate. This process has been dubbed the “securitization” of real estate. The purpose of securitizing real estate is to raise liquid capital from the investment world.

assignment : The transfer of a contractual right or benefit from one person (the assignor) to another (the assignee). Contractual benefits are normally assignable without the consent of the other party to the contract. For example, the holder of an option (which is a benefit) can assign (transfer) it to another without the consent (or knowledge) of the owner of the land. Notes receivable (secured by a deed of trust) are always assignable. Thus, a debtor does not have control over who ultimately will receive his monthly payments.
Personal contractual benefits (such as loan commitments, leaseholds, and listings) are not assignable without the consent of the other party. In some instances, however, consent may not be arbitrarily withheld since the law favors the free transferability of contractual benefits. A landlord, for example, cannot unreasonably withhold his consent to an assignment of lease.

assignment loan/escrow assignment loan : A loan secured by the assignment of a note and deed of trust or mortgage. For example, a seller of real estate may arrange for a loan to be secured by assignment of his carryback mortgage to the lender as collateral. The loan will usually close in the same escrow as is arranged for the sale of the property, at which time the carryback is “assigned” to the lender. The purpose is to provide cash to the seller.

assignment of lease : The transfer by a tenant of the entire unexpired term of the lease to another tenant who becomes primarily liable for the payment of rent to the owner. A sublease is the transfer of less than the unexpired term of the lease.

assignment-of-rents clause : A provision in a deed of trust or mortgage on commercial property authorizing the lender, following default, to collect rent pending completion of foreclosure. The clause becomes operative on recordation of a formal notice of default; it may be specifically enforced in court. Without such a clause, a defaulting owner could continue to collect rent during the foreclosure period of the income producing property–and purposefully neglect to make any further payments to the lender.

association : A group of professional persons who join together for professional reasons, such as education or maintenance of professional ethics, or management of property. A bar association is an example. An association may be a nonprofit corporation (although sometimes an association may be unincorporated) organized to manage common areas and facilities that are part of a planned development or condominium project. See also homeowners’ association, (HOA).

assumption/assumption of mortgage : An agreement to take over another party’s mortgage loan. A buyer may wish to assume the seller’s existing, low interest rate mortgage loan. Or, the buyer may not be able to qualify for a new loan. The assumption is accomplished by signing a formal assumption agreement with the lender. Often the seller, whose loan is being assumed by the buyer, will seek a release from his loan effective at the close of escrow. Following a release, the lender cannot seek recourse from the seller, if the buyer, who has assumed the loan should default. A non-assuming purchaser takes “subject to” an existing mortgage or deed of trust. See also novation.

assumption fee : A lender’s charge for processing new records for a buyer of real property who is assuming the seller’s existing mortgage loan. The fee is paid in cash, like other so-called garbage fees, at the close of escrow.

attached single-family home/ paired condo : A duplex, triplex or four-plex with special design features to assure privacy. There is separate ownership of each building and the land beneath.

attestation : The act of witnessing the signing of a document and thereafter signing, as evidence that you have witnessed it.

attorney at law : A person licensed in a state to practice law who also is called a lawyer, attorney, counsel, or counselor. In England such a person is called a solicitor; or a barrister if engaged in conducting trials.

attorney-client privilege : The right of a client to keep communications with his or her attorney confidential and free from disclosure. The attorney has no reciprocal privilege.

attorney-in-fact : A person authorized by a power of attorney to perform certain acts for another person. Some acts, such as the making of a last Will, cannot be delegated in this manner. However, most real estate transactions can be consummated by a person acting under the authority of a power of attorney.

attornment : The transfer of rights and obligations of existing tenants to the new owner of real property. Attornment clauses exist in long-term land leases in which tenants construct improvements (buildings).

attractive nuisance : A legal doctrine that the owner or possessor of real property owes a duty to protect children from dangerous conditions, especially those that traditionally attract them, such as a pool, a dirt pile, or a tractor. Construction sites are considered attractive nuisances. The duty to protect requires that reasonable steps be taken to reduce or eliminate the risk. Contractors, for example, frequently place portable chain-link fences around the perimeter of a construction site in response to this duty to protect.

at will : A term used to indicate that a relationship may expire at any time by choice of either party. For example, an employment contract at will may be terminated at any time by either the employee or the employer without any liability (beyond payment for services rendered up to the time of departure or discharge).

auction listing : An agreement to sell real estate by auction. The seller usually pays all the expenses of the auction in advance, at the time the auction listing is signed. The listing may provide for an absolute auction (the seller must accept the high bid), or an auction with reserve (the seller reserves the right to reject all bids), or an absolute auction with buy-out (the seller can reject the high bid but must pay a buy-out fee to the disappointed high bidder). Auctions have become popular devices to dispose of distressed properties or real estate owned (called REOs) by lenders who have previously foreclosed.

authorization to sell : A phrase found in preprinted listing forms. The term is actually a misnomer because a listing is an employment contract in which the owner of real property employs a real estate agent to hunt for a buyer. The listing does not confer the right to sell anything, because it is not and does not purport to be a power of attorney. However, the term lingers on.

award : The final decision of an arbitrator or other nonjudicial officer in the resolution of a dispute.

axial growth theory : A theory of development that urban growth occurs first in close proximity to transportation systems, such as freeways, light rail, etc.

B

backup loan commitment : A loan commitment that is effective only if an earlier, and usually very favorable, loan commitment fails to materialize.

backup offer : An offer to purchase that is contingent upon failure of a pending sale to close escrow.

back-to-back escrows : Two separate escrows of different parcels of real property where the seller of one is the purchaser of the other. The close of the two escrows is concurrent so that the proceeds from the “sale” escrow can be used instantly as payment in the “buy” escrow. Neither the licensee nor the escrow agent has a duty to disclose that one escrow is intertwined with another. Thus, an unqualified or under-financed buyer can use this technique to buy and sell real estate simultaneously. Sometimes back-to-back escrows are used when one property is being purchased, using one escrow, and simultaneously being resold using a second escrow. The “buyer” simultaneously resells to raise the money necessary to make the initial purchase–credits from the “sale” escrow are simply applied by the escrow company to the “purchase.”

bad faith : The deliberate failure to fulfill some duty or contractual obligation owed to another (e.g., a purposeful failure by an insurance company to pay a lawful claim). Bad faith is more than mere breach of contract which may occur because of uncontrollable reasons, such as market conditions. Bad faith is a tort based upon wrongfulness.

bail out -  To leave, as when many tenants decline to renew at the end of their leases, or when limited partners abandon a failed syndication.

bailout - To rescue a failing business by, for example, investing new capital.

balloon payment – The final payment on an installment note which is greater than each of the preceding periodic payments, and which ordinarily pays the note in full. If an unpaid balance remains following a balloon payment, the payment is more likely called a “pay down” or “principal payment.” Balloon payments are commonly found in creative financing arrangements where the seller has accepted a second deed of trust or a wraparound mortgage as security for an unpaid portion of the purchase price. A borrower who agrees to a balloon payment, in, say, five years, is gambling that interest rates will decline and that the balloon can be paid through more desirable refinancing. See also bullet loan.
ballot box planning Land use restrictions, or growth controls, created by voters rather than by local government officials. Voters create controls through the initiative process, by which land use laws can be created without approval by local government. Generally, ballot box planning means increased growth controls in affluent communities and relaxed growth controls in modest or low income communities. Many contend that land use planning should be the exclusive business of planners and local government officials. But courts generally have authorized the placement of planning issues on ballots and enforced the results.

bankruptcy – Proceedings under federal law whereby all assets of a debtor (excluding certain exempt property) are distributed to his or her creditors. The debtor is then “discharged,” or excused from the legal obligation to pay most of the debts.

bar association – A professional organization of attorneys who are licensed to practice law.

bare title/naked legal title – The title that is held by a trustee under a deed of trust. Bare title is a type of non-possessory ownership.

bar examination -  Test given to otherwise qualified lawyer candidates (generally law school graduates), the purpose of which is to assure possession of minimum standards of knowledge of the law before engaging in its practice.

baselines – The imaginary east-west lines that intersect meridians to form a starting point for the measurement of land. California has three baselines that intersect meridians: one in San Bernardino County, another at Mount Diablo, and a final baseline in Humbolt County. They are part of the U.S. rectangular survey system of property description. See also legal description.

base rent – The minimum monthly rent in a percentage lease. Regardless of the volume of the tenant’s business, the landlord is assured of the base rent.

basing index – The measure of interest rates on which changes in adjustable rate mortgages are based. U.S. Treasury note yields are one example of a basing index. There are many basing index as indexes in use.

basis point – One percent equals one hundred basis points. Basis points are used to describe changes in interest rates, as “The rate should be reduced by forty basis points.”

bedroom community - A community of commuters that generally lacks industry of its own.

below-market interest rate mortgage, (BMIR) – A new mortgage with a contract rate of interest less than the market rate of interest. A subdivider may buy-down the interest rate with a cash payment to the lender. Such a buy-down is a sales incentive and results in a BMIR for the home buyer. See also buy-down.

beneficiary – Someone entitled to the benefits of a trust. In a trust deed, the lender is the beneficiary and the borrower is the trustor. A trustee is a “disinterested third party” whose duty is to hold legal title to the real estate, which is the security for the loan, until the loan is paid. There is no beneficiary in a mortgage as the creditor is called “mortgagee.”

beneficiary’s statement – The statement of a lender about the remaining unpaid principal due on a note and other information concerning the loan. It is usually obtained in connection with the sale or refinancing of real property. Naturally, lenders charge a fee for the preparation of these statements.

bias – A preconceived belief about some person or fact that makes it difficult to be neutral, dispassionate, or fair in evaluating that person’s rights and duties, guilt or innocence.

bill of sale – A written document used to transfer title to personal property. It is to personal property what a deed it to real property. Many transactions involve the conveyance of both real and personal property. The sale of an apartment building involving furniture and equipment is an example and involves the execution of both a deed and a bill of sale.

binder – A temporary agreement by an insurance company to cover a specified risk pending final approval of an application for insurance. A binder may also be issued to extend existing coverage to an added risk. Some real estate people also use “binder” as a synonym for “earnest money.”

bird-dog - A person, usually not licensed, who hunts for available real estate suitable for development, who then attempts to tie it up with a disguised option, and who then tries either to sell it to a developer at a higher price in a double escrow transaction or to submit it to a developer in exchange for a finder’s fee. A middleman.

biting the bullet -  A phrase used to describe the purchase of real estate, usually commercial, which results in an immediate negative cash flow. The purchaser usually anticipates that income tax advantages and appreciation will more than compensate for the cash drain. Few investors have needed to “bite the bullet” during the 90s when very favorable purchase terms have been widespread.

biweekly mortgage – A mortgage with an amortization schedule calling for payments every other week rather than every month. The advantage to a more frequent payment schedule is that total interest charges are substantially less than with an ordinary monthly mortgage. The amount paid every two weeks is exactly one half of what would be paid every month. But since money is borrowed for a shorter period, less interest is accrued. Biweekly mortgages may be at a fixed or adjustable interest rate.

blanket deed of trust or mortgage/overriding deed of trust – A single mortgage or deed of trust that covers, or “blankets,” more than one parcel of real estate as security for the repayment of a debt. A blanket mortgage often covers an entire subdivision. As individual lots are sold, partial releases from the blanket mortgage are made. This allows the subdivider to pay for the ground under each house with the proceeds from the sale of each house.

blanket policy/master policy - An insurance policy where all the units in a condominium, co-op, or planned unit development are insured for fire under one blanket or master fire insurance policy. This approach generally is less expensive than if all the owners insured their individual units separately. Personal property, however, must be insured separately.

bleeding a project -  The withdrawing of funds from a project that ought to be expended upon maintenance and repair, or similarly important requirements that would improve or at least maintain its value.

blended mortgage - A mortgage with an interest rate that is the average, or a “blend,” of two different interest rates, such as the current market rate and the rate of the old, refinanced mortgage. A blended mortgage makes refinancing with the existing lender more attractive than refinancing with a new lender who might insist on market rates of interest for the new loan.

blended space – An interior design featuring the minimization of hallway spaces with rooms opening directly onto, or blending into, the living room.

blended vacancy rate - A general rate of vacancy that applies to all buildings in all locations. Blended vacancy rates are not location specific.

blighted area – A neighborhood or area in which real property values are affected seriously by adverse economic forces, such as encroaching inharmonious property uses, over-crowding, infiltration of lower social and economic classes of people and/or rapidly deteriorating buildings. Physical examples of blight are broken windows, unkept yards, grass growing in rain gutters or on roofs, motorcycles and junk vehicles, and foil in windows.

blind ad – A real estate for sale ad by a licensee that fails to reveal his or her status as an agent.
It is an improper advertising technique.

blockbusting – An unethical marketing technique designed to capitalize on homeowners’ racial or ethnic prejudices. Blockbusting may cause panic selling and affect sales prices.

blue sky Hype – Any statement of sweeping import without much factual underpinning, such as “One day you will see a lake and eighteen hole golf course here in the Mojave,” is said to be mostly blue sky.

board of directors - A group of usually three or more persons elected by the stockholders to set basic company policies and to appoint the top executives who actively manage a business corporation.

Board of Realtors – A local association of members of the state and National Association of Realtors.

boilerplate – The standardized preprinted language in a contract. Much of it appears to be useless to the uninformed, but boilerplate actually can and often does affect important legal rights. Unfortunately, boilerplate often is lengthy, complicated, and replete with difficult terminology.

boiler room sales – High pressure telephone sales tactics usually involving securities or interest in land.

bona fide – A legal status of being without conflict of interest or knowledge of wrongdoing. A bona fide purchaser gives honest value and is not in collusion with the seller. A bona fide sale is a genuine sale. See also arm’s-length transaction.

bonus value - The value of or profit in a contract. For example, a tenant who receives rent concessions (below market rent) in a long-term lease enjoys a substantial bonus value. Or, a buyer who has a contract to purchase real estate at less than its market value enjoys a substantial bonus value.

boondoggle – An impractical or useless project wasteful of time and money. See also scam.

boot – The money that compensates for differences in value in an exchange. Boot is taxable even though the exchange may be tax free.

bottom fishing – Searching, or angling for real estate priced below its economic potential. Syndications, so-called vulture funds, often “bottom-fish” for solid projects that are underpriced due to overbuilding or tax changes. The Tax Reform Act of 1986 depressed the prices of many properties that previously had been purchased largely for tax shelter, and thereby created opportunities for bottom fishing vulture funds.

bottom line – The ultimate result. An income tax return may contain exemptions, exclusions, deductions, credits and tricky formulas for tax computation, but the amount of tax ultimately paid is the taxpayer’s “bottom line.” For example, “Forget the details, what’s the bottom line?”

bottom out – End of a decline in prices of real estate. For example, “Many potential buyers are waiting for the market to bottom out.”

bottomed out – Without additional financial capability. An investor is “bottomed out” when he no longer can respond to an assessment for additional capital.

bow-tie loan – A commercial loan that accrues interest at a “contract” rate but whose payments are predicted on a lower “pay” rate. The effect is to create negative amortization of the loan.

box home -  A variety of kit home. A prefabricated home delivered in a large steel container, or “box,” that becomes an integral part of the structure. The box folds out and, together with numbered panels, becomes a two-level home. Box homes were unveiled in Vancouver, B.C., near the Exposition `86 World Fair.

bracketing -  Selecting a sales price somewhere between the prices of comparable sales.

breach of contract - The failure to perform the terms of a contract is a breach. When one party to a contract breaches, the other party has a cause of action in contract, and may either recover damages or obtain a judgment of specific performance to compel performance. See also judicial remedies.

breakeven point -  That point beyond which rent will produce net spendable income. In investment analysis, it measures the percentage of gross possible income that must be obtained to generate enough cash to pay all operating expenses and debt service. It is calculated as follows:
operating expenses plus debt service divided by gross possible income = breakeven point

briefs – Written arguments prepared by attorneys that are addressed to appellate courts about cases on appeal from a trial court judgment.

broker – A person or corporation that acts as an agent for another in the sale of some product. For example, real estate brokers (through their sales agents) hunt for buyers; loan brokers hunt for borrowers, and so forth.

brokered loan - Loans secured by real estate that are arranged by a real estate broker, and are therefore exempt from the usury law.

broker incentives – Gifts paid to commercial real estate agents in return for bringing prospective buyers or renters to the owner’s vacant office or commercial buildings. Some real estate firms will not allow its agents to accept broker incentives. Examples of broker incentives are new cars, paid trips to Hawaii, paid ski weekends and so forth.

broom clean – The condition of cleanliness in which rented premises are to be left following termination of a leasehold, that is, swept clean of dirt and accumulations.

building codes – State, city, and county laws that delineate minimum construction standards. Compliance with the codes is verified through inspections by county and/or city inspectors.

Building Owners and Managers Association – A professional group comprised of office building owners and managers.

building permit – A necessary permit issued by local government that authorizes the beginning of construction of an improvement to real property.

building residual technique – An appraisal technique in which income is allocated to the land first, the residual income must be allocable to the building, and when capitalized, produces the building value, which is added to the land value to arrive at estimated market value.

build-out – The completion of the interior of a structure that makes the space acceptable to a tenant prior to the commencement of the lease. It includes the interior partitioning, carpeting, ceiling, lights, and air conditioning system.

build to suit – A transaction in which a landowner agrees to build a structure to suit the specifications of a tenant, who agrees to lease the premises. The landowner will often use the projected income from the prospective tenant to justify a commitment for the necessary financing. Thus, the landowner requires that the tenant be financially strong.

bull-for-a-bear deal – A deal where a buyer offers a seller common stocks instead of cash for the down payment in a discounted sales transaction. Ideally, from the buyer’s standpoint, the common stocks are losers. They probably will be sold immediately following the real estate transaction to satisfy the need of the cash-hungry seller. Often used to acquire properties from “don’t wanters.”

bullet loan – An intermediate term, fixed rate loan with a balloon payment due at the end of three to ten years. A bullet loan may follow a mini-perm loan, which in turn follows the original construction loan. Bullet loans are often made by insurance companies that borrow from pension funds, issuing them guaranteed income contracts, called GICs. The insurance companies expect to make profits on their bullet loans through loan fees and spreads in the rates. Bullet loans are typically locked-in to assure an adequate return to the lender. That is, a large prepayment penalty will assure the lender of the bullet loan that enough proceeds will be realized to justify the deal.

bundle of rights theory – The theory that ownership of real estate includes a group, or bundle of rights, such as the right to possession, the right to exclude others, and the right to sell.

burden of proof – The duty to produce evidence as a trial progresses. In a civil case, alleged facts must be proved by a preponderance of the evidence. In a criminal case, the required measure of proof is that alleged guilt must be proved beyond a reasonable doubt.

Bureau of Land Management, (BLM) – A federal agency responsible for all federal lands that are not within the national park and forest system.

business invitee – A person who is expressly or impliedly invited onto the premises by the occupier of land for business purposes designed to produce a profit.

buy-down – A procedure by which a subdivider pays cash to a lender in return for a loan commitment to a home purchaser at below-market interest rates. Often the interest rates will be bought down for only the first three years of the mortgage, after which the homeowner must pay the market interest rate. A subdivider who buys down interest rates as a sales inducement may be expected to increase the price of the home accordingly. Any seller can buy-down the buyer’s interest rate as a sales inducement. See also three-two-one buy-down.

buyer-cash-out/buyer walkaway and overfinance – A purchase transactions where a buyer takes cash out of close of escrow, leaving the total financing in excess of the value of the property. For example: A house’s market value is $100,000. The new loan is $70,000. The commission and closing costs are $7,000. The purchase money note is secured by a second mortgage for $50,000. Cash is distributed: $50,000 to the seller, $7,000 to the real estate broker and closing costs, and $13,000 to the buyer. Thus, the seller receives $50,000 in cash and a note secured by a second deed of trust for $50,000 as the purchase price. However, the buyer “walks away” with $13,000 and may not even bother to take possession of the house. Before he abandons the property, an especially unscrupulous buyer might rent the home to an innocent tenant and collect deposits and advance rents as well. Sellers rarely benefit from a sale transaction where the buyer takes net cash from the purchase escrow.

buyer’s listing – An agreement where a prospective buyer agrees to pay a commission, or flat fee, to his agent if any property is purchased within the listing period. It encourages sales agents to search for an appropriate parcel for the buyer. The commission is reduced or offset by any amount the buyer’s agent receives as a shared commission from a listing agent.

buyer’s market – The market condition that exists when the supply of a particular class of real estate greatly exceeds demand. During this period of time sellers are in a weak negotiating position, and often must give concessions to buyers. California has languished in a buyer’s market during the early l990s to the extent that depreciation of property values has occurred.

buyer’s remorse – A creeping feeling that perhaps the purchase should not have been made. Usually buyer’s remorse occurs after a contract to buy has been finalized, but before escrow has closed. A buyer with a strong sense of remorse may attempt to rescind the transaction based on some supposed misrepresentation by the seller.

buying a lawsuit – The purchase of real estate under circumstances that create a substantial likelihood of future litigation. A classic example is the purchase of real estate subject to a lis pendens. Another example is the purchase of real estate that appears to be subject to an easement, but against which no recorded easement exists. Old rutted tire tracks are an example of a clue that some person in the future may claim a prescriptive easement, and seek to establish it formally through litigation.

buying farm – An area, or “farm,” within a city that is earmarked by an investor for advertising, often by circular or mailer, to locate sellers who are interested in a for-sale-by-owner (FSBO) sale thereby saving on real estate sales commissions. Agents “farm” for listings, investors “farm” for investments.

buy-out option -  An option between partners that gives each the option to purchase the interest of the other. Partners are co-owners of a business with equal rights, unless otherwise provided in their agreement. A buy-out option is one way for partners to solve a problem that might otherwise require court action. See also right of first refusal.

buy time - To stall for more time, often through a course of action that other parties in the transaction are led to believe have some other and more important (to them) objective.

by-laws – A written set of rules and regulations governing the operation of an organization, such as a condominium association. By-laws are secondary only to the article of incorporation that create a corporation. By-laws govern existing condo owners as well as future purchasers who take subject to all existing rules and regulations of their homeowner’s associations.

BYWOB – A buyer without a broker.

C

California Land Title Association (CLTA) policy of title insurance – A plain vanilla policy of title insurance that guarantees the insured that a proper search has been made of public records. Excluded from coverage are losses from such recurring problems as encroachments and boundary disputes. See American Land Title Association policy of title insurance.

callable loan – Any real estate loan that can be accelerated at the option of the creditor at some time prior to the end of the original term. For example, a thirty-year loan may contain a call provision permitting the lender to accelerate the due date to fifteen years, at which time a balloon payment would be due. This provision is in contrast with other varieties of acceleration that are the result of some act, such as default, by the debtor.

can of worms – A real estate deal that, once begun, evolves into a nightmare of problems. Litigation is often referred to as a “can of worms.”

cap – A maximum, or lid, on how much either an interest rate or monthly payment may increase per interval in an adjustable rate or variable-rate mortgage. A cap on a monthly payment without a cap on the interest rate can result in negative amortization. See also adjustable rate mortgage.

cap-per-payment adjustment – The maximum amount that a monthly payment on an adjustable-rate mortgage can change at any one adjustment time. Several maximum increases in succession can cause “payment shock,” an unanticipated impact on monthly payments. If a payment cap results in a monthly payment that is less than that necessary to pay the full amount of the increased interest, it will cause negative amortization.

capital gain – The profit realized from the sale or exchange of a capital asset (i.e., generally a thing of value owned). In other words, the gain is the difference between (a) what was originally paid for the property (to buy or build) minus accumulated depreciation (in the case of investment property), plus accumulated costs of major improvements, and (b) its net sales price.

capital gains tax – The income tax on capital gain. Capital gain is the difference between (1) what was originally paid for the property (to buy or to build) minus accumulated depreciation (in the case of investment property), plus accumulated costs of major improvements, and (2) its net sales price.

capitalization – The process of converting an income stream into a capital value figure. It is accomplished by dividing net income by a selected capitalization rate (the rate of interest considered a reasonable return on the investment). The higher the cap rate, the lower the value of the investment. For example, if the annual net operating income of an apartment complex is $300,000, and if the cap rate is ten percent, the market value is $3 million. If the cap rate is fifteen percent, the market value is $2 million. Appraisers use capitalization rates in estimating the value of income properties, as do investors when evaluating potential purchases.

capitalization rate/cap rate – A measure of a property’s overall return to an investor calculated by dividing the net operating income (the income after deducting for potential vacancies and collection losses as well as operating expenses) by the purchase price. The resulting figure is expressed as a percentage and provides a figure to compare similar properties situated in different locations.

carryback mortgage – A mortgage that is accepted, or “carried back,” by a seller of real estate as part of the purchase price. It is a soft dollar loan by the seller because he has not loaned cash to the buyer. Usually a seller will accept a carryback second deed of trust to reduce the amount of cash that would otherwise be required as a down payment. Sometimes the entire price, except for the down payment, is carried back as a first priority deed of trust. A carryback mortgage is an example of so-called creative financing. Like any other mortgage, the loan actually is composed of a promissory note signed by the buyer secured by a deed of trust on the subject real property.

case citation – A reference that identifies a legal case and indicates where it may be found in a reporter system that publishes opinions of appellate cases.

case-in-chief – The case presented by each party in a trial. It includes calling witnesses and introducing into evidence documents, photographs, or whatever else is relevant to the issues in a trial.

case in equity – A case in which the plaintiff seeks specific performance, an injunction, an accounting, dissolution of marriage, or other non-monetary relief because the remedy at law is inadequate or unavailable. The judge, alone, decides questions of facts as well as those of law.

case law – All reported judicial decisions; the law that comes from judges’ opinions in lawsuits.

cashed out – When investors in a syndication receive return of their original investment from refinance proceeds. A happy event! Their investment continues with one hundred percent leverage However, their tax basis has been reduced and a future tax liability is assured.
cash-flow mortgage A mortgage on income property in which the monthly constant is adjusted to equal the net cash flow, whether or not the net cash flow is sufficient to cover interest and principal payments. Often a lender will agree to a cash flow mortgage as part of the workout of a problem loan. Negative amortization may be preferable to foreclosure.

cashes out – When a seller receives his or her entire equity in cash.

cash sale – When terms of sale are all cash to seller. The cash credited to seller is ordinarily used in large part to pay off all existing indebtedness. In a cash sale, the buyer ordinarily obtains purchase money financing.

cash throwoff – The cash produced by an income producing property. It is net operating income (NOI) less debt service on the mortgage. No consideration is given to tax consequences in this calculation.

casualty insurance/hazard insurance – Insurance against loss from casualty, such as fire, lightening, or explosion. Real estate lenders require borrowers to carry casualty insurance to protect the collateral for the loans. Examples of perils, or sources of damage, that are covered by casualty insurance are fire, theft, smoke, storm and vandalism. Coverage is not identical in all policies. All-risk policies cover more than others, but none cover flood, earthquake, or nuclear accident damage without a special endorsement to the policy.

cause of action - An existing right to seek and to receive judicial relief, assuming the factual allegations of the plaintiff are true.

caveat emptor – Let the buyer beware. An outdated concept in today’s real estate dealings, where sellers have specific responsibilities in their dealings with buyers, such as the statutory duty to disclose a wide variety of pertinent information.

central business district, (CBD) - The prime downtown area of a city. The CBD will command the highest commercial rent of the city unless the core area has deteriorated into a redevelopment area. Many planning decisions are based upon a policy to protect the CBD from deterioration, such as construction of a light rail system from the suburbs.

certificate of limited partnership – A document that perfects a limited partnership when properly prepared and filed in a governmental department.

certificate of occupancy -  A certificate granted by a local government when a structure is completed in compliance with all building codes and applicable ordinances. A building cannot be occupied prior to issuance of a certificate of occupancy.

certified property manager, (CPM) - A designation awarded by the Institute of Real Estate Management to a person who successfully completes its series of coursed in real estate management.

chain of title – The chronological history of title to a parcel of real estate as revealed by examination of the official records of the county. The relevant portions of the chain of title will be referred to in an abstract of title prepared by an attorney or title company.

challenge (of juror) – Any prospective trial juror may be challenged for cause if his or her bias or prejudice is indicated. Statutes also provide that prospective trial jurors may be challenged peremptorily for any reason other than their race or gender. The decision to exclude a juror for cause is made by the judge; the decision to exclude a juror peremptorily is made by a party acting through his or her attorney. Peremptory challenges are limited in number.

Chapter 7 bankruptcy – Voluntary or involuntary proceeding (also called straight bankruptcy) whereby a debtor surrenders all property, excluding certain exempt property, to the court for liquidation. Proceeds are distributed to creditors and most debts are discharged.

Chapter 11 reorganization – A bankruptcy proceeding designed to fend off creditors to give a debtor time to reorganize and work out of an insolvent position. A real estate debtor who files for Chapter 11 bankruptcy protection from creditors is entitles to suspend foreclosure proceedings until the trustee in bankruptcy otherwise orders.

Chapter 13 adjustment of debts – Bankruptcy court-approved plan whereby an individual or a small business is shielded against involuntary bankruptcy while unsecured creditors receive at least as much as they would in Chapter 7 liquidation bankruptcy. Payments are normally made over a period of up to three years, but no longer than five years.

cherrypick – To select the best. For example, a multi-project syndicator might cherrypick his best projects to be retained and walk away from the less desirable deals. Under blanket mortgages, trustors cherrypick by obtaining releases of the prime parcels leaving the remainder parcels subject to foreclosure. To avoid this result, lenders often charge premiums for early releases from blanket mortgages thereby recapturing most of their capital before the last (and least desirable) parcels are released.

citation – An abbreviation that refers to the written decision of a published appellate court case, usually including its name, volume and page numbers, and year of publication.

clear title – A title to real property that is without defects or claims, except those which the buyer has agreed to accept, such as covenants, conditions, and restrictions of record. Sometimes clear title is used as a synonym to free and clear title, which is ownership without any mortgage debt.

close corporation – A corporation whose stock is owned by one person or very few persons. Also known as a closely held corporation or a family corporation.

close of escrow, (COE) – The final settlement between a buyer and seller of real estate. The title passes to the buyer on recordation of the deed, which is a part of closing. Closing is the execution of the sales agreement. Close of escrow also occurs in a loan escrow when funds are disbursed and the financing documents are recorded.

closed-end mortgage – A mortgage or deed of trust that secures only the original amount advanced, and specifically does not secure any further advances on the loan.

closing costs – The fees and costs that must be paid by the parties to an escrow prior to close. In typical real estate sale, closing costs include recording fees, loan origination fees, credit report changes, title insurance, taxes, and so forth. The Real Estate Settlement Procedures Act (RESPA) requires that information regarding closing costs by provided to the parties to the escrow before they become legally obligated consumer transactions.

closing statement – A financial statement given to the buyer and the seller at close of escrow. It accounts for economic values but does not reveal the actual receipt or disbursement of funds. Prorations appear in the closing statement but not who paid the allocated costs.

cloud on title - Any document of record that shows another person’s potential claim to some interest in the owner’s property. Unless otherwise agreed (which rarely occurs), the seller of real property is obligated to deliver a marketable title to the buyer. The preliminary title report may turn up documents that constitute a cloud on the owner’s title. The owner then has the obligations to clear the cloud on the title, which is typically done by obtaining a quitclaim deed from the person whose claim of interest appears on the record. For example, an owner of property might have been sued at some earlier occasion. A lis pendens may have been recorded. Although that litigation may have long since ended, the record may never have been cleared. The owner, facing certain time locating the earlier plaintiff in order to obtain a quitclaim deed. For this reason prospective sellers are well advised to investigate their title before committing to a sale.Various types of clouds may appear, such as: an old installment sale contract on which the buyer has long since defaulted, a prior option that was never exercised, an earlier deed of trust for which no deed of reconveyance has been recorded, an so on.

cluster housing – A residential land use featuring clusters of homes surrounded by open or green spaces.

CMA/comparable market analysis – The acronym for a comparable market analysis of residence. A CMA is not as comprehensive as an appraisal, but it does show a preliminary range of market values.

CMB/Certified Mortgage Banker – The designation CMB is awarded by the Mortgage Banker’s Association.

cold listing – A listing obtained by an agent who telephones strangers, or knocks on strangers’ doors, asking if they would like to sell their home. Also used as a verb, “I was cold listing when the dog bit my thigh.”

collateral – Property pledged as security for a debt. In real estate loans, the real estate is collateral, that is, the real estate is pledged as security for repayment of the debt. The document that establishes such a pledge is the deed of trust, or mortgage.

collateral assignment agreement – A contract that often appears in a deed of trust or mortgage that requires the owner’s acceptance of notes, (secured by first priority deeds of trust), instead of cash, in exchange for partial releases of the property which is to be secured by the carryback mortgage. Without a collateral assignment agreement a subdivider would be required to sell lots for cash, or mostly cash, to be used to pay for
partial releases. Example: Landowner takes back a purchase-money note secured by a first priority deed of trust for ninety percent of the purchase price of the acreage. The purchaser/subdivider obtains the release of one lot in exchange for the assignment to the original landowner of the lot purchaser’s note, which is secured by a first deed of trust on the acquired lot. Without the release, the subdivider would be unable to convey the lot free of the original landowner’s mortgage. The individual purchaser of the lot may have paid some cash down, but that cash typically is diverted by the subdivider or sales organization. The balance of the price of the lot, in the form of a note, is used by the subdivider to release the lot.
The seller’s incentive is increased price as compensation for carrying most of his price in paper. The risk is that the ultimate purchaser of each lot may default and the “marked-up” lot may well be worth less than the note and deed of trust which had been assigned to the original landowner. Because of the usually inflated original sales price and the increased risk level, the seller and subdivider are virtually joint venturers.

collateralized mortgage obligation, (CMO) – A security issued by the Federal Home Loan Corporation, Freddie Mac, which is backed by mortgage loans. Proceeds from issuance of CMOs are used to purchase additional loans from mortgage lenders, giving them the cash to make new loans. See also secondary mortgage market.

color of title – A claim to title that superficially appears to be good and valid, but is ultimately determined to be invalid, illegal, or improper. An example is a deed signed by an incompetent person. An adverse possessor cannot acquire ownership in the absence of color of title in some states.

commercial easement – An easement in gross, such as a utility easement.

commercial zone – A type of zoning that generally authorizes the development of commercial uses, such as retail shopping and professional services. See zoning.

commission – A form of compensation for performing services. In real estate practice it customarily represents a percentage of the selling price (not the owner’s equity) of real estate, or a percentage of the rental income in the case of a lease. The rate of commission is negotiable and is customarily paid on close of escrow.

commission rebate – A rebate by an agent to either a buyer or seller following a transaction. Commission rebates must be disclosed to all interested parties, or they are unethical, if not illegal.

common areas – Those areas of a condominium or co-op whose ownership and use is shared by all occupants, such as recreation buildings, pools, driveways, and flower beds.
common interest development (CID) A subdivision with a governing board to manage such matters of common interest as design review, fire, flood, earthquake and liability insurance relative to common areas, landscaping, value preservation, etc. There is a body of statutory law defining the powers and obligations of government boards, and the rights of owners to participate in elections, to appeal from rulings, etc. The governing board of a CID has the power to impose monthly fees upon all owners with which to conduct its business. Unpaid monthly fees become a lien upon the lot of the delinquent homeowner.

common stock – Shares representing ownership in a business corporation. They have no contractual rate or amount of dividend payment but are usually coupled with the right to vote for directors.

community (shopping) center – A shopping center, often enclosed, characterized by a discount or department store as anchor tenant, with a number of satellite stores. Site may be from 10 to 35 acres.

community plan – A governmental plan specifying the development that may take place within a particular community or area. A land use plan, or development plan for a community.

community property – All property received by a husband or wife during (but not before) their marriage other than by gift. Community property generally includes the earnings of each spouse during marriage. Community property is subject to the debts of both spouses, is under the equal control of each spouse, and it cannot be conveyed without the signature of both spouses. Eight states have detailed statutes regulating community property.

competitive market analysis – Pricing information about recent sales of homes in a certain neighborhood. Prospective sellers use competitive market analyses as aids in setting asking prices.

comparative negligence – Negligence of the plaintiff that does not bar recovery of damages but may reduce the amount of recovery proportionally.

complaint – A document prepared by an attorney for the client which contains the allegations made by the plaintiff against the defendant for which some judicial relief is sought. Allegations are contentions and may, or may not, turn out to be accurate. A compliant may be verified, under which circumstances the plaintiff is taking an oath under penalty of perjury that the allegations are true…some times with the qualification that they are true to the plaintiff’s “information and belief.” Complaints often are not verified, and the plaintiff is essentially “throwing a plate of spaghetti at the wall to see if something sticks.” Either way, when the complaint is filed in the courthouse records, a lawsuit has commenced. When the complaint is joined with a summons, and the two documents are properly served upon the defendant, the court then has jurisdiction (power) over the defendant who must then take some defensive action or risk losing the case and the right to defend against it. Understanding a complaint is important for any manager who is considering the commencement of litigation. In one sense it signals a point of no (easy) return at which attorneys begin to take over the lives of the disputants.

complaint, civil A document filed by the plaintiff with the court and served on the defendant to inform her or him of the facts constituting an alleged cause of action.

compliance agreement – An agreement by a borrower of a home mortgage (either purchase money or to refinance) to sign whatever is necessary in the future to correct clerical errors in the loan documentation that otherwise might impede the sale of the mortgage in the secondary mortgage market.

concurrent escrow instructions – Instructions by all principals to an escrow authorizing the release or return of funds on deposit. When a real estate sale “falls through the cracks” a question may arise as to which principal (buyer, seller, or even agent) is entitled to deposits held by the escrow. Most escrow officers will not release the funds without concurrent instructions to do so. If such instructions are not forthcoming, the escrow has the option to interplead the parties and deposit the monies into court.

condemnation – The exercise of the power of eminent domain; that is, the taking of personal or real property for a public purpose. Payment of “Just Compensation” is required by the U.S. Constitution. Condemnation is a judicial process; and the owner whose real estate is taken has the right to have market value set by a jury. Condemnation is not the process of condemning unsafe properties. See also special benefits; severance damage; partial taking; and inverse condemnation.

conditional use permit – A permit to conduct activities on a parcel of land not zoned for those types of activities. Zoning laws typically set forth uses that may be conditionally granted if they are not detrimental to public health and welfare and are compatible with the uses in surrounding areas. An example is a permit for a recreational use (a tennis court) in an agricultural zone.

condominium/condo – A form of ownership characterized by separate individual ownership of the interiors of structures and joint ownership of areas and facilities used in common. Homeowners’ or management associations collect monthly assessments and maintain the common areas. There are residential, industrial, office, and other forms of condos, such as parking space condos. For example, a condo-hotel, usually in a resort area, sells rooms to individual investors who share in the benefits of ownership of the room as well as its use for a short period each year. A condo-marina includes ownership of a boat slip with ownership of a condominium. Many terms have been coined to describe various sorts of condos, for example, court home (condo with a courtyard); patio home (condo with a patio); garden home (condo with a garden); zero lot-line home (condos attached side-by-side); junior executive studio (condo of 500 square feet or less); townhouse (two level condo); villa (suburban condo); ranchownership (fractional ownership in a large ranch); condomaximum (large condo); seasoniums (timeshare for an entire season in a condo); vertical subdivision (multi-story condo); condohotel (ownership of a hotel room with use allowed for a few days each year); vacation license (a timeshare condo); and resort ownership (a timeshare condo).

conduit -  A fund of cash made available by a Wall Street Investment banking firm earmarked for mortgages to applicants whose credit rating has been blemished because of plant downsizing and layoffs. The loans are packaged into securities that are purchased by institutions such as pension funds.

conforming mortgage - A mortgage loan that conforms with standards published by agencies in the secondary mortgage market. A conforming loan is readily marketable. See secondary mortgage market.

connection fees – The money collected from a subdivider or builder for connection to a water or sewer system as a charge for such services. Connection fees partially fund capital improvements. Such fees as connection fees, park fees, drainage fees, and so forth, are part of the exactions paid by developers to fund various services.

Connie Mac - A security collateralized with convention mortgages that are not guaranteed by any governmental agency. The term is a play on similar terms, Ginnie Mae and Freddie Mac.

consanguinity – The degree of relationship of persons who are descended from a common ancestor.

construction loan - A loan to finance the construction of a building or other improvements on a site. Loan disbursements are customarily made in stages as the construction progresses. A construction loan will ultimately be replaced with a take-out, or permanent loan, once the construction is complete and the project is sold. A construction loan is not a purchase money mortgage, and it is not protected by anti-deficiency legislation, (the lender may be entitled to a deficiency judgment). Some lenders will not make a construction loan until the borrower has secured a commitment for a permanent loan. Such a commitment then insulates the construction lender from risk.

constructive eviction - Any serious disruption to a tenant’s quiet possession caused by or permitted by the landlord that amounts to a serious and continuous breach of the lease. The eviction occurs even though it was not intended by the landlord. Excessive noise, for example, can be a constructive eviction of either a residential or commercial tenant. A constructive eviction may terminate the lease and give the tenant legal remedies.

constructive knowledge/notice – Information one is charged by law with knowing, whether or not one actually knows it. For example, recordation of a document affecting a specific parcel of real property gives constructive notice to the world of its contents. No one can legally assert ignorance of the contents of that document. Actual knowledge, on the other hand, is information actually known by a person.

contingency/contingency clause, escape clause, subject-to clause, and weasel clause – Expressions that describe conditions obligation to purchase real property. They typically are part of the buyer’s offer. A typical contingency reads: “Subject to buyer’s obtaining financing of ninety percent of the purchase price at an interest rate not to exceed twelve percent with a thirty-year amortization.” If the buyer, after using reasonable effort, cannot obtain such financing, the condition is not fulfilled, and the buyer escapes without further responsibility under the contract. Subject to clauses that are too broad and afford too many escape routes to the buyer amount to a disguised option, and permit an unscrupulous buyer to tie up a seller’s property for extended periods without cost or penalty to the buyer. Thus, it is important that the deposit receipt state clearly the complete details underlying each contingency, the time limitations on their fulfillment, and the consequences of nonfulfillment.

contingency fee - A fixed percentage of the monetary recovery obtained by a lawyer for a client. It is agreed on in advance and accepted in full payment for services rendered. If the representation produces no recovery, no fee is due under the contingent-fee agreement.

contingency period – The period of time in a purchase agreement during which the buyer obtains financing, inspects and approves the premises, or fulfills other agreed upon contingencies.

contingent liability – An obligation that occurs after a contingency. For example, a buyer may assume a mortgage, but the seller may not be able to obtain a release from liability from the lender. If the new buyer defaults, the lender will seek repayment from the seller, who was the original borrower. The seller in such a transaction retains a contingent liability following the sale.

contract – An oral or written agreement between two or more parties that is enforceable in court. For example, an oral finder’s fee agreement is enforceable, but an agreement to sell real property must be in writing to be enforceable.

contract for deed/land contract, and installment land contract – A sales contract under which the seller retains ownership of the property for a number of years during which time the buyer makes monthly payments. The seller agrees to convey ownership by deed at some predetermined future date. Sellers sometimes erroneously believe such a method will result in a simplified foreclosure should the buyer default in the monthly payments. Buyers often prefer this method to avoid having to qualify for credit from a lending institution, and perhaps even to avoid making a down payment.

contract for sale/purchase contract, marketing contract, and deposit receipt – A contract between a buyer and seller of real estate that provides for close of escrow and conveyance of title within a short period of time, usually less than six months. The contract contains all the essential terms of the deal, including the obligation to pay a real estate commission, if applicable.

contract zoning – Zoning that is granted to a landowner in return for a contractual obligation to put the property to specified uses.

conventional loan - A mortgage loan obtained from a private lender, such as a savings and loan, which has market-rate interest and is not insured by the Federal Housing Administration.

convertible mortgage - A mortgage that, at the lender’s option, may be converted into an equity interest in the property. They are popular during times of high interest rates when mortgage money is otherwise unobtainable or too expensive. In exchange for a lower initial interest rate on the loan, the lender demands the opportunity to share in ownership at a later date should the project in question prove profitable. Thus, while the project is being leased and is at most risk, the lender has a very conservative debt position, but also has the option to convert the debt into equity and share in the cash flow and appreciation generated by the property. The amount of equity demanded by the lender is called the equity-kicker.

convey/grant - A real estate word for transfer of ownership. For example, “a conveyed, (or granted) Greenacre to B in settlement of the lawsuit.” A deed reflects a conveyance of an interest in real property.

cookie cutter housing - Mass produced subdivision housing, that gives appearance of being stamped out of a “cookie cutter.” See row houses.

cooperating broker - Any real estate broker who acts as a subagent for the listing agent in locating a buyer. The cooperating buyer is paid a portion of the listing broker’s commission, usually one-half.

cooperation – A term in listing agreement that legally confers authority on the listing agent to add the seller’s property to a multiple-listing service. The listing agent is said to “cooperate” with another agent, usually the selling agent, by agreeing to share the commission paid by the seller.

co-ownership/cotenancy – The ownership of property by two or more persons whose respective interests are undivided. Joint tenancy, tenancy-in-common, and community property are forms of co-ownership. Except for co-ownership between husband and wife (which is governed by family law), cotenancies can be terminated and the real estate divided (or sold) only by consent of the co-owners or by order of court rendered in an action for partition. Generally, co-owners are equally responsible for the obligations of ownership, and are equally entitled to its benefits.

corner influence – The increases in value of a commercial lot due to its location at a corner.

corner influence table - A statistical table used in estimating the additional value of a lot because of its location at the corner of a block.

corporate by-laws – The administrative guidelines for running a corporation. They specify corporate officers and their duties, voting requirements, the place of business, and other fundamental business matters. Homeowners’ associations are governed by by-laws, as well as their articles of incorporation.

corporation – A legal entity with rights of a human person, created by a compliance with applicable law for some designated purpose. A corporation may or may not seek profits. It is generally characterized by unlimited life, transferable shares, limited liability for owners, and centralized management.

cost approach – In appraisal, one way to determine an estimate of the market value of improved property. The market data approach is used to determine the market value of the land. The cost of reproducing the improvements is then determined by referring to prices existing at the valuation date. This cost is then reduced by accrued depreciation to take into consideration the age of the property. The adjusted cost of reproduction is then added to the market value of the land to arrive at the estimated market value.

court-annexed arbitration - A type of nonbinding arbitration required by some courts before the parties may proceed to trial.

court deed – A deed executed by a court official conveying title to a purchaser following judicial foreclosure. Often called a Sheriff’s Deed.

court of equity - A term with historical significance and widespread applicability to real estate law. A trial court is a “court of equity” in land use issues when the appropriate remedy is an injunction, specific performance, rescission, reformation, appointment of a receiver, partition, foreclosure, expungement, appointment of a receiver, declaratory judgment, or divorce. In each of these instances, a jury is not permitted, which is the essential difference between a court of law and a court of equity. Judges are considered better able to “do equity.” This outlook is thought to be true because cases “in equity” are typically more complicated than other cases. Jury matters, such as damages for mental suffering and lost profits are generally not allowable in equity proceedings. See also judicial actions and remedies.

court trial -  Trial in which the disputed questions of fact are decided by a judge instead of by a jury. Court trials are less formal, less structured, and require less preparation by attorneys.

covenant not to compete – A promise not to compete with another in the performance of some business activity withing a specified area for a specified time. Sometimes buyers demand such clauses primarily to create tax deductions when a part of the purchase price is allocated to the value of the promise.

covenant of quiet enjoyment – An implied promise incident to a residential lease ensures the normal possession, use, and enjoyment of the premises by the resident. If the covenant is broken, a constructive eviction has occurred, giving the tenant various legal remedies. The covenant does not necessarily appear in the lease; it is implied by courts.

covenants, conditions, and restrictions, (CC&Rs) – The limitations on the future use of real estate ordinarily established by a subdivider in order to guarantee uniformity of size of homes, placement, densities, and other important factors that tend to affect the value of the homes. CC&Rs are delineated in a document that is recorded and becomes part of the official records of the county where the real estate is located. CC&Rs are said to “run with the land” because they bind future purchasers of the lots.

covering your assets, (CYA) – Any defensive strategy based upon the theory in which real estate players behave as if all sellers are liars and all buyers are thieves, that is, believe nothing at face value. In recent years expansion of liability in business transactions has prompted the widespread use of CYA (aka covering your ass) letters that attempt to exculpate a person through a self-serving letter or memorandum.

CRE/ Counselor of Real Estate -  A member of the American Society of Real Estate Counselors (ASREC).

cream-puff borrower – A borrower with the highest of credit ratings.

credit – One’s ability to borrow money. Credit lenders take such factors into consideration as experience, credit history, current earnings, education, profession, and so forth.

credit application/credit ap – A printed questionnaire used by lenders to obtain pertinent information from prospective borrowers about their credit worthiness. In commercial loan applications, creditors are likely to seek verification from copies of tax returns for previous years. In residential loan applications, creditors are likely to seek verification of income from employers and banking institutions. If residential borrowers are independent contractors, they also will be required to produce copies of prior years tax returns to substantiate their declared qualifying income.

credit lender – A real estate lender that evaluates a loan application on the basis of the credit worthiness of the borrower. Most institutional lenders of home mortgages are credit lenders. Equity lenders focus upon the value of the collateral.

credit scoring – Use of statistical model of borrower behavior to predict which applicants for mortgages will be most likely to fully perform their obligations. Factors include income, marital status, length of employment and so forth. Positive scores may prompt a lender to waive their debt to income ratio requirement.

cross-complaint/counterclaim – A document used by a defendant to initiate litigation against the plaintiff or some third party. It is identical in all respects to a complaint, except that it is initiated by a defendant instead of by a plaintiff.

cubage - The total interior space of a structure expressed in cubic feet.

cul-de-sac -  A dead end street with a turnaround circle. Cul-de-sacs reduce traffic on through streets, and create more interesting subdivision patterns, but create odd shaped lots.

curable depreciation – Decline in value that can be corrected at a cost that is less than the value that will be added to the structure.

curb appeal - The visual appeal of a home when viewed from the street.

cure a default - To bring current any past due payments of rent or of monthly payments on a home-purchase mortgage, or to correct any other default, such as by removing a dog from rented premises where they are prohibited.

custom-built house - A unique dwelling unlike a tract house. Custom homes may be located in subdivisions of custom homes, or on acreage.

cut-rate financing/discount financing – The below-market financing offered by sellers of new homes as a sales inducement. Market-rate interest is “bought down” by the seller, who pays a lump sum to the lender in exchange for the favorable rate. The amount of the buy-down is then added to the price of the house. This practice is falling into disfavor because it results in overpriced or over-valued houses that, in the event of foreclosure, will not return the unpaid balance to the lender. Or, in the case of a resale, the seller may have to sell at a loss. See also three-two-one buydown.

CYA covering your assets – - An acronym used widely as a euphemism for “cover your ass.”

cybertecture - A word coined as the result of development of the “smart” house which is wired to integrate power and telecommunications into one computer directed system. The word cybertecture refers to the technology, a combination of cybernetic computer control and architectural design.

D

Daddy Mac mortgage - A shared-equity mortgage arrangement to facilitate family members in obtaining tax benefits from home ownership. Parents become co-owners of their child’s house and assist with mortgage payments. In return, the parents share in future appreciation and obtain current income tax benefits, such as depreciation and interest deductions. Tax reform has reduced the desirability of Daddy Mac arrangements. “Daddy Mac” is a play on the term Freddie Mac which describes the Federal Home Loan Mortgage Corporation.

damages - Losses recoverable in court expressed in monetary terms, for loss of money or other thing of value. Damages may be recovered in court for loss of use of money, loss of use of real estate, loss of future profits, and sometimes, loss of peace of mind, quiet enjoyment and even losses from mental suffering, as in mental anguish and pain. See also judicial actions and remedies; compensatory damages; punitive damages, out-of-pocket damages.

DBA - Abbreviation for “doing business as.” For example, John Doe dba International Land Scams, Ltd. Fictitious names are very common and are registered in county files that are open to the public.

DCF - discounted cash flow analysis See discounted cash flow analysis.

dead end street – A street closed at one end.

deal – A real estate transaction, usually of commercial nature. Many professionals avoid the use of the term on the basis that it carries negative connotations. They prefer using the term “transaction.”

deal-killers - Attorneys. Many real estate business persons are reluctant to engage an attorney in the negotiating process out of fear that he or she will raise so many “what ifs” that the parties will back out of the deal in fear of future litigation and problems.

deal point - A proposed contract term that is critical to one party. If the term is denied, the deal will not occur. Ant. red herring.

debt service - The annual payment agreed to be made on a mortgage loan, including principal and interest, and sometimes taxes and insurance often referred to as PITI.

debt to income ratio - A concept used to judge the qualification of a borrower for a home mortgage. Under present Federal Housing Administration (FHA) guidelines, a home buyer should not spend more than twenty-eight percent of his monthly gross income on mortgage payments, including principal, interest, property taxes, and insurance. A maximum of thirty-six percent of monthly gross income should be spent on all combined debts. These percentages change from time to time by FHA regulation.

declaration of homestead – A document recorded by a homeowner to protect a prescribed amount of equity in his home from creditor’s claims.

declaratory judgment – A binding court decree determining future contractual rights and obligations of parties to a contract, the future performance of which is in dispute. The parties desire to ascertain the complete extent of their future obligations under a contract. An action for declaratory relief receives preference on the court calendar. This remedy is rare. Courts prefer to respond after damage has been done, and an action for breach of contract has been instigated.

dedication – The process by which an owner gives an interest in real property to a public body, such as a city or county. The motivation is often not charitable but rather an agreed-on condition for development. For example, a condition of annexation or zoning may be that a park site be donated (by dedication) to the city for the benefit of the public. A fee simple, or merely an easement, may be dedicated. See also exactions.

deed – A document used to convey an interest, such as an easement, or a fee simple, in real property from one person (called the grantor) to anther person (called the grantee). Although all deeds serve this function, there are a variety of specialized deeds used for particular situations or circumstances. See also bargain and sale of deed, corporation grant deed, court deed, deed of trust, deed of reconveyance, gift deed, sheriff’s deed, trustee’s deed, quitclaim deed, and warranty deed. Regardless of the particular transaction for which these various deeds are designed, all share certain basic requirements:
1. The grantor and grantee must be named
2. The grantor must sign on the “dotted line”
3. The real property and interest being transferred must be adequately described (a street address,
standing alone, invites legal problems as does an ambiguous phrase like “an interest in…”)
4. One of several possible words, such as grant, convey, transfer, or assign must appear to
ensure there is an intent to transfer ownership
5. The deed must be delivered to and accepted by the grantee
Additionally, it is wise to date, and especially record a deed in order to give constructive notice to the world of its existence. A deed, like any other document affecting real property, is recorded by handing it and a prescribed fee to a county clerk or official, who time stamps, microfilms, and files it for preservation. After recording, the deed is delivered to the new owner.

deed in lieu of foreclosure – A deed given by a defaulting owner to his creditor so that the lender does not have to proceed with foreclosure. Following a deed in lieu, the creditor may not be able to sue for a deficiency judgment. On the other hand, the debtor may preserve his credit reputation. Because foreclosure is averted in a deed-in-lieu situation, the lender may be well-advised to proceed carefully. Foreclosure eliminates all subordinate claims to the property; they are not eliminated if a deed-in-lieu is accepted.

deed of reconveyance/ recon and reconveyance – A deed. Under a trust deed, the debtor is called the trustor and the lender is called the beneficiary. The effect of the trust deed is to transfer legal title to real estate to a third party (called the trustee) who holds title until the debt is paid. Once the debt is paid, the trustee returns title to the debtor by recording a deed of reconveyance. The record title is then clear of that former debt. It is a criminal offense if a trustee wrongfully refuses to reconvey. Recordation of a recon is comparable to the historical “burning of the mortgage.” See also deed of trust.

deed of sale – A deed used by a court appointed receiver to convey foreclosed property to the successful bidder at a sale following a judicial foreclosure.

deed of trust – A deed used to guarantee repayment of a debt. For practical intents and purposes, a deed of trust is synonymous with a mortgage. Most deeds are used to transfer both ownership and possession. However, in many instances ownership (title) is separated from possession of real property. A lease is an example where possession is transferred to another, the tenant. A deed of trust is the opposite. The owner retains possession but transfers the title to another as security for repayment of his debt. Or, as lawyers say, the grantor (called the trustor now) retains the equitable ownership (possession) and transfers legal ownership (title).

Example: A is the owner of and living in his home which is free and clear of mortgage debt. He borrows $5,000 from Hometown Savings and Loan to take a vacation, signs a promissory note evidencing the debt, and, by deed of trust, conveys legal title to his home to a trustee (First National Title Company) to guarantee timely repayment.
But for the deed of trust, Hometown would be an unsecured general creditor of A. Because of the deed of trust, Hometown is a secured creditor. Therefore, on any default by A, Hometown could foreclose. Trustees can be anyone eighteen or over, but usually are title companies because of their familiarity with forms and procedures. The creditor, whose loan repayment is being secured, is called the beneficiary. The property owner and debtor is called the trustor. The deed of trust contains numerous provisions designed to protect the value of the security. For example, it specifies the duty to pay taxes and to maintain the property. See also foreclosure.

deed restrictions – Limitations that are included within a grant deed that restrict various future uses of the land. These private restrictions may pertain to uses (such as residential only) as well as to size of structures, presence of TV antennae, or other limitations the reasonable effect of which are to maintain values within a project. See also covenants, conditions, and restrictions.

deep pockets - A wealthy person or organization. Deep pockets often are targeted as defendants in litigation.

default - The failure to meet a contractual obligation in a note, or mortgage, such as failure to make the monthly payments on a note, or failure to keep property taxes current. See also breach.

default judgment – Court-awarded judgment based on the defendant’s failure to answer the summons and complaint or to appear at the trial to contest the claim of the plaintiff.

default ratio - Ratio of debt service to net operating income. The higher the ratio, the greater the probability of default. Calculate by dividing annual debt service by net operating income.

defendant – (a) In a civil trial, the person from whom money damages or other relief is sought by the plaintiff. (b) In a criminal trial, the accused.

deferred maintenance – The maintenance and repairs that, although needed, are not done. Deferred maintenance is one of the early signs of blight in a neighborhood. Sometimes maintenance is deferred when a replacement or improvement would be more affordable the following year. Or, it may be the result of poor management.

deficiency judgment – A legal judgment in favor of a creditor who has not received the full amount of his claim against a debtor. For example, following foreclosure, the net proceeds of the sale may not fully reimburse the creditor (beneficiary or mortgagee) for the balance owing on the loan plus accrued costs, penalties, and expenses. Any such shortage is considered a deficiency. When such a deficiency exists, the creditor is naturally inclined to sue the debtor for the difference. Such a judgment in the creditor’s favor is called a deficiency judgment. In many instances, however, anti-deficiency legislation prohibits such judgments. The idea is that it is bad enough to take someone’s property through foreclosure; but to straddle the debtor with an additional money judgment is too much. However, such a judgment is not prohibited in all situations. As a general proposition, a deficiency judgment is not allowed if the foreclosed mortgage was the security for the purchase price of the property. That is, a seller financing a buyer by taking back a note secured by deed of trust is not generally able to secure a deficiency judgment.

deficiency loan – A loan in which the lender may obtain a deficiency judgment against the debtor following judicial foreclosure. Also called recourse loans and hard money loans. Cases in which deficiency judgments are obtained are rare, however.

delayed exchange/Starker exchange – A tax-deferred exchange where the owner of investment real estate sells his property, but ties up the proceeds of the sale for a maximum of six months in a trust account, during which period of time he acquires another property by “exchange” with the proceeds of the first sale. In such an exchange, taxable gain is deferred until sometime in the future when the property acquired in the exchange is sold. The benefit is to use equity in a property to acquire a larger property without suffering the shrinkage of equity that would otherwise occur because of the income tax on gain. Owner occupied residences are automatically tax-deferred if replacement homes of equal or greater price are obtained within one year of the sale date-but purchase of a replacement home is not referred to as a Starker exchange. AS of 1998, all gain on sale of a principal residence is tax exempt to $250,000, thus most homeowners are not concerned weith the one-year rollover rule to defer gain.

delegation - The transfer of a contractual duty from one person to another. For example, in a loan assumption, the buyer assumes the seller’s obligation to pay an existing debt. The seller is not released from his obligation unless the person or institution to whom the debt is owed consents. If a release is given, a novation has occurred (the substitution of one obligor with another). Generally, a seller should always obtain a formal release on a loan assumption especially if a deficiency judgment is a possibility.

delinquency date – Any date following which a penalty is automatically accrued for nonpayment of an obligation. Promissory notes contain both a due date and a delinquency date. The period of time between these dates is the grace period. Some lenders put “due” dates on their monthly loan statements that are far in advance of the actual “delinquency” date when the payment is actually due. This antic may prmote early payment by borrowers providing lenders with a cash windfall. For example, in early 1998, Home Savings has marked its August 15 payments as “due” on May 15. This practice is not illegal.

delivery and acceptance – The conveyance of an interest in real property requires both the delivery of the title and its acceptance. Delivery and acceptance are usually implied from the circumstances surrounding the sales transaction, such as instructions by the buyer to record the deed. Formal acceptance of a conveyance is usually required when a property interest is dedicated to a public entity. Acceptance under such circumstances occurs by official resolution and written memorandums.

demurrer - A motion filed by a defendant in response to a summons and complaint when allegations of the complaint, even if true, are insufficient to state a cause of action. In federal courts, and in many states, the same result is achieved by a motion to dismiss.

density – The number of lots or building units per acre of land. The present trend is to increase the traditional densities of four per acre to twenty or more living units per acre.

Department of Housing and Urban Development (HUD) – The national department with responsibility for national subsidized housing and supervision of mortgage markets.

deposition - Questioning of a witness or adverse party to an action, under oath, by the opposing attorney before the trial depositions are conducted in the presence of a court reporter and the person’s own counsel. They are the principal type of discovery procedure.

deposit receipt purchase contract, contract for sale, and marketing contract – A slang term for a legally binding contract to purchase and sell a specific parcel of real property.

depreciation - Both a decrease in value of real estate and an income tax benefit, depending upon its usage. In taxation a ”depreciation” deduction from ordinary income is allowed the owner of certain improved real property whether or not it has declined in value during the year. Tax depreciation is also called “cost recovery” and “write-off.” (See also cost recovery.) In appraisal, depreciation means a loss in market value. It may arise from physical deterioration (wearing out) or functional obsolescence (blight in area).

designated real estate broker – A real estate broker who is an officer of a corporation licensed to sell real estate. The designated broker is responsible for the corporation’s activities.

detached single-family home  - A single structure designed to house one family.

developer - A person or company that organizes and carries out the construction of a real estate project. A project may be lots suitable for construction or may be completed structures. The word developer is very broad and applies to all land uses, commercial, industrial, residential, recreational and so forth.

development loan – A loan for the purpose of improving raw land so that the construction of buildings may start (for example, by building roads and installing utilities). A development loan is one variety of interim financing.

director (of corporation) - One of a group of persons (called a board) legally charged with the determination of major policies for management of a business corporation, appointment of top executives, and the declaration of dividends.

discount -  The difference between the unpaid balance of a note and its market value. Promissory notes are almost always sold a a discount from their unpaid balance. For example, if the unpaid balance of a mortgage loan is $90,000, its owner could sell it only if he accepted a discount of, say twenty percent.

discounted cash flow analysis, (DCF) – In investment analysis, after tax cash flows projected in the future are discounted to the present (by using the concept of present value) to evaluate the desirability of an investment. DCF depends on assumptions about future net returns and on the present value of future dollars. It is a present value concept, for example, that if a ten percent discount factor is selected, an investor would pay $74,174 to receive $100,000 three years in the future. Stated differently, $74,174 will grow into $100,000 in three years assuming ten percent interest compounded annually. Sophisticated investors rely heavily on such analysis.

discounted mortgage loan – An adjustable rate mortgage loan offering a low “teaser” rate of interest (a discount) for the first year only. After the first year, the fully indexed interest rate must be paid by the borrower, which can result in payment shock.

discount points - One discount point is one percent of a loan. The borrower is charged discount points to equalize the interest rate specified in the loan (called the contract rate) with the market interest rate, or simply to produce a profit for the lender. Five points on a $150,000 loan equals a one time charge of $7,500.

discount real estate broker - A real estate broker who charges a commission at less than the going rate, say, three percent to four percent instead of six percent, on condition that the seller performs some of the services normally performed by the agent, such as conducting the open house. This also means that the lower commission is available to divide with the selling agent, and for that reason discount listings are not suitable for Multiple Listing Services (MLS). However, the savings to the seller can be substantial.

discovery procedures  - A complex legal process by which attorneys in pending litigation can obtain files, records and testimony in preparation for trial. In real estate transactions, virtually all records, notes telephone records, escrow documentation, cancelled checks and so forth are available through discovery processes. Witnesses can be subpoenaed to testify in an attorney’s office long before trial and can later be discredited if they change their testimony. Discovery is time consuming and expensive, being one of the major costs of litigation. The principal discovery mechanisms are depositions (sworn oral testimony in an attorney’s office); written interrogatories (written questions that must be answered in writing, under oath); and subpoenas for documents and records (court orders to produce the documents specified).

disguised sale -  A sale disguised as an option. A sophisticated buyer offers to pay some cash to a seller for an option to purchase his residence. The option is renewable for several years during which the optionor/seller receives monthly “option” payments. Possession is transferred to the optionee for the option period. After this transaction, the “optionee” sells the home using a contract-for-deed arrangement. As payments are received from the purchaser by the “optionee”, payments are made to the optionor/seller. When the purchaser under the contract for deed pays the balloon called for, the “optionee” exercises the option and makes the purchase with the balloon payment received. In these arrangements the “optionee” will include a power of sale in the contract-for-deed to provide for foreclosure if the purchaser should default. There are risks for all parties in a disguised sale, especially when the original owner/seller is unaware of the details of the transaction.

disintermediation - The withdrawal of money from a savings institution (an intermediary) and investment of it in direct market instruments, such as money market funds. Disintermediation together with the practice of making long-term low-interest-rate loans placed the savings and loan industry in an unsound financial condition during the early 1980s.

distressed property – Any real property that suffers from a decreasing value in the marketplace. Lower inflation rates, lower relative interest rates, or overbuilding can create distressed properties. Any commercial property that does not produce a positive cash flow is, in a sense, distressed. Any real estate, especially residential property, also may be distressed and suffer a lower price from waste or excessive deferred maintenance. Surrounding blight also can contribute to the troubles of a distressed property. Specialized investors, such as vulture funds, seek out distressed properties hoping to purchase it at bargain basement prices and then reap large capital gains following a turn-around in market conditions.

documentary transfer tax – A tax on the transfer of property, imposed by the city and collected by the county recorder. State law limits the maximum to $.55 per $500 of value of the property less mortgage balances.

dog – A house that is very difficult to sell, probably because it looks unusually bad for its neighborhood or has a very bad design.

doll house - A very small house.

double-ender – A sales transaction where the listing agent procures a ready, willing and able buyer and thereby earns both ends of the commission.

double escrow - A procedure in which the closing of one escrow is dependent on the closing of another. The procedure is commonly used in exchanges of property as well as in instances where a buyer acquires purchase funds from the sale of the same or another property. The seller of real estate may be unaware that his property is being resold immediately to another buyer through a double escrow deal.

down payment – The unfinanced part of the price of a parcel of real estate. Cash to the loan. By custom, earnest money previously paid is applied to the cash down. Salespersons often use initial investment as a euphemism for down payment.

down zoning – A change in zoning from uses that customarily attract higher sales prices to uses that result in lower values. A zoning change from multiple family housing to single-family residential use is an example of down zoning. Owners of down-zoned property often contend that an inverse condemnation has occurred because of the now decreased value of their land. However, zoning changes are generally constitutional and do not result in inverse condemnation except under certain limited circumstances, as when no reasonable use is permitted at all.

dragnet clause/anaconda mortgage, and mother hubbard clause - A clause contained in a deed of trust that automatically subjects all debts, past, present, and future, of the debtor to the security of the deed of trust. An aptly named clause!

draw – A disbursement of loan proceeds from a construction loan.

dried up market – An extremely soft market. The real estate market may sour, or dry up, on a regional basis when some regional economic consequence occurs, such as closure of a military base. Or, a national market can dry up because of generally poor economic conditions.

drive-by - A prospective purchaser of residential real estate who drives through desirable areas in which he would like to purchase and reside. “For sale” signs are used to stop drive-bys as well as to promote the listing brokerage firm or salesperson.

dry closing – An incomplete delayed close of escrow in which funds and signed documents are held in suspense pending final disbursement upon the happening of some future event, such as the close of a second escrow.

dry mortgage - Nonrecourse debt. The mortgagor in a dry mortgage is not personally responsible for payment of the debt. The creditor is limited to foreclosure of the real estate securing the loan.

dry up – A term frequently used to describe an absence of new mortgage capital. For example, mortgage money may become unavailable, that is, dry up just prior to or during a recession. The commercial loan market dried up in the 90s as values deflated on existing properties leaving lenders in the unenviable position of foreclosing on properties worth less then their unpaid principal balances, or discounting loans to new reduced value amounts.

dual agency - A situation where one agent simultaneously represents two principals. For example, both the listing agent and the selling agent are agents of the seller, their principal. But the selling agent must necessarily deal in a close relationship with the prospective buyer, who may erroneously believe that the agent is his agent. Some contend that the selling agent is a dual agent to the seller and buyer and cannot serve their conflicting interests without specific disclosure to and consent from both principals. In commercial transactions, a buyer may engage an agent to locate a property, and agree to pay that agent a commission if a property is purchased, The commission is actually paid by the agent’s share traditionally received from the listing agent. Thus, to whom does the “buyer’s agent” owe his loyalty? Generally, such a “buyer’s agent” remains a subagent of the seller’s agent and therefore owes his loyalty to the seller. The National Association of Realtors has recommended state laws for mandatory agency disclosure statements to buyers as a part of the closing process. The disclosure would make it clear that the sales agent was working for the seller even though he was providing market information and assistance to the buyer. (See also agent.)

duds and doers – Opposites in real estate activities. A dud is a failure; a doer is an achiever.

due date – An arbitrarily selected date on which a payment is due to be paid. Following the due date there is a grace period during which the payment may be made without penalty. Finally, there is a delinquency date, and ordinarily the payment must be received by the creditor before the delinquency date or a penalty for late payment is accrued. For example, the due date for payment of semi-annual property taxes may be a month or more before the delinquency date. Most creditors prefer early due dates in the hope that payments will be received earlier so that they may earn additional interest before the delinquency date.

due-on clause/alienation clause - An acceleration clause found in a note or deed of trust. Such a clause calls for immediate payment of the entire unpaid balance of the mortgage loan upon the occurrence of some specified event, such as a sale or encumbrance of the security. When the clause is overly broad, it is often referred to as a due-on-anything clause. Under some circumstances, such a clause is not enforceable. See also acceleration.

due-on further encumbrance clause - This clause triggers the unpaid balance of a mortgage loan if the borrower records an additional encumbrance, such as a second deed of trust. The lender prefers there be substantial borrower equity during the term of the loan.

dummy/straw -  Not a reference to someone’s intellectual capacity. Rather, it refers to a person who is appointed, for convenience, to hold title to real property or to perform some act temporarily. It is sometimes used to conceal a principal’s identity. A dummy also is called a straw. For example, A and B are joint tenants. A surreptitiously deeds to X, a “straw,” who responds by re-deeding (a newly coined word) to A. Neither deed is recorded. A and B are new tenants in common, without the right of survivorship, and B is none the wiser! Joint tenants, even if married, cannot be sure at any given moment that they continue in the joint tenancy relationship.

E

earnest money syn deposit, binder, and good faith money - The risk money accompanying a prospective buyer’s offer to purchase real estate (called a deposit receipt). The earnest money is usually applied to the purchase price on the close of escrow. It serves as an indication of the prospective buyer’s ability to obtain a mortgage loan, the sincerity of the offeror, and the amount of risk the prospective buyer is willing to balance against the risk the seller assumes in tying up the property by accepting the offer. Because it should represent something of value exposed to risk of loss, a personal check (especially if it is to be held uncashed), or promissory note customarily is accepted only in extraordinary situations. Cash, a cashier’s check or a money order is usually used as earnest money. The earnest money is usually made forfeitable should the prospective buyer wrongfully fail to complete the purchase. The earnest money usually is held pending the close of escrow by either an intermediary broker or a title company. However, many sellers insist on holding the earnest money in order to avoid the problems of retrieving it if the escrow fails to close. Buyers may use contingencies, or weasel clauses, to avoid loss of their earnest money. See also liquidated damages clause.

easement – A property right to use the real property of another. There are two categories of easement: l) easements appurtenant and 2) easements in gross. The former “belong” to dominant tenements (contiguous parcels of real property that are “benefitted by the easement) and “run with the land” (regardless of new owners who may acquire the benefitted property). For example, assume that an easement of access over Greenacre benefits Blackacre. Blackacre, the dominant tenement, may be conveyed for any reason, and its new owner would be able too enforce the right of access over Greenacre .. even if nothing was mentioned in the deed or other documents underlying the conveyance. On the other hand, easements in gross “belong” to a person when created, and do not run with the land because no land is “benefitted.” For example, utility companies obtain easements to maintain their pipelines and wires. The benefit of the easement in gross resides upon a person (the entity)and therefore does not run with the land of any benefitted parcel. The parcel burdened by either an easement appurtenant or in gross remains burdened until the easement is extinguished. See also license.

easement by implication - An easement established by court judgment based upon circumstances in which necessity and public policy commands such a result, as when a parcel otherwise would be landlocked.

easement by prescription – An easement formally established by court judgment based upon a long-continued non-permissive use of a landowner’s property by a third person. Most easements by prescriptions are rights-of-way.

economic cloud on title – Any law that regulated the transfer of title to property. For example, home equity laws protect sellers of owner-occupied homes that are in default. There is a right of rescission for pre-foreclosure sales. The right of rescission by the seller creates an economic “cloud” that makes title insurance or marketable title difficult to obtain for such purchasers. The right of redemption following judicial foreclosure also is an example of an economic cloud on title.

economic life – In appraisal, the period over which an improved property will yield a return on the investment over and above the economic rent attributable to the bare land.

economic rent – In appraisal, the rent that theoretically could be produced by the subject property in the subject market. It does not mean the actual rent produced. Actual rent is called contract rent; it may be less than economic rent where, for example, management is ineffective. Appraisers are more concerned with what the rent ought to be rather than what it actually is under existing management.

effective gross rent – In appraisal, gross possible rent less an allowance for vacancy and bad debts.

efficient and procuring cause - The framework used to determine if an agent is entitled to a commission under a non-exclusive listing. The agent is required to be the procuring cause of the completed transaction and the services he performed must have been the effective cause for bringing the transaction about. Conflicts arise when, for example, one agent “finds” a prospect yet another agent claims to have persuaded the prospect to make the deal.

elastic mortgage - A type of mortgage that guarantees the borrower a constant monthly payment even though the contract interest rate may go up or down over the life of the loan. The typical fifteen-year term of the loan is automatically extended if interest rates increase, or it is shortened if interest rates decrease. This feature is called an elastic term. The lender computes an “internal” interest rate indexed to a U.S. Treasury Bond index and ultimately collects that market rate of interest through the extensions of the original term of the loan. The advantage to the borrower is that he avoids payment shock from unexpected increases in the monthly payments. On the down side, the loan could amortize so slowly as to seem perpetual. Furthermore, the monthly payments are very high because the initial term is short, usually only fifteen years, although it may vary from lender to lender. See also adjustable-rate mortgage.

eleventh hour - A brief period of time immediately prior to an important event, such as a day or so before close of escrow or a few days before trial date. Many lawsuits are settled “on the courthouse steps” at the eleventh hour. Or, at the last minute. Sometimes a sales agent may choose to forfeit part of his commission in order to permit a transaction to close, or an attorney’s client may accept a smaller settlement to avoid trial. There are many psychological forces at play during the eleventh hour.

eligibility – A person’s status, as qualified or not, for various governmental loan programs. See also debt-to-income ratio.

emblement – A growing crop as distinguished from wild vegetation. A crop is produced through labor. Emblements are personal property, even prior to harvest, unless otherwise agreed. Therefore, they are subject to the rules of the Uniform Commercial Code as adopted by the respective states.

eminent domain – The power of government to take private property for public use, welfare, and necessity. The acquisition is accomplished through condemnation, a judicial proceeding. The U.S. Constitution provides that no private property can be taken for a public purpose without the payment of “Just Compensation,” that is, market value. However, government can regulate the use of private property without the payment of market value through the exercise of its police power. Zoning laws are an example of such police power. Furthermore, government can require developers to dedicate private property as a condition of the development. These “exactions” are not a “taking” within the Constitutional protection that requires payment of Just Compensation. In a nutshell, zoning that permits some use of real property is not a “taking.” Zoning that prohibits all reasonable uses of property is a taking.

empty nester - Parents who continue to live in a family home although their children have grown and gone.

encroachment – The nonconsensual extension of an improvement, such as a building or fence, onto the land of another owner. It is a variety of trespass characterized by a permanent and physical act.

encumber – To commit an ownership interest in real property as security for the performance of some act, usually the payment of a mortgage loan.

encumbrance – A broad term describing virtually any recorded claim to the ownership or possession of a specific parcel of real property. Examples include a deed of trust, mechanic’s lien, judgment lien, and lis pendens. Covenants, conditions, and restrictions, as well as easements and encroachments are also often referred to as encumbrances.

end loan - A residential loan to the ultimate purchaser in a subdivision. An end loan may have been preceded by a land loan, a development loan, and a construction loan. An end loan is a permanent, or loan term loan.

entertainment-based retail center – A retail center that includes mixed-uses of entertainment (e.g., ice skating, movies, cultural and sporting events, arcades, and casinos), and restaurants. Typically located in a central business district (CBD) to revitalize and recapture the style of a city’s downtown.

entitlement process – The entire process through which local government regulates future development.

entrepreneur – Anyone who assumes a risk of loss in exchange for the possibility of profit. Examples in real estate are promoters, developers, builders, real estate brokers, and bird dogs.

entry-level market – First-time buyers. Condominiums are often a large part of the entry-level market. Entry-level homes are price sensitive because first-time buyers tend to be budget conscious.

environmental impact report, (EIR) - A written assessment of all the impacts a proposed project might have on its environment, together with an evaluative commentary and curative suggestions. It is required by state laws as well as by the National Environmental Policy Act (NEPA).

EOV Estimate of value - An estimate of value is less formal and precise than an appraisal. It usually is made by sales agents who preview a home that has been listed for sale by a brokerage firm. The EOVs of the visiting agents are shown to the homeowner who often then is persuaded to reduce his or her asking price.

equitable mortgage - A deed that is used as a mortgage. Some lenders have been known to require a deed as security for a loan. They erroneously believe that upon any default, the deed can simply be recorded and strict foreclosure thereby accomplished. However, because the deed was used essentially as a mortgage, courts will treat it as an “equitable” mortgage and grant the debtor his usual rights of reinstatement and redemption.

equitable owner - An owner who has possession and use of the property although someone else may retain the legal title.

equity -  The difference between the market value of a property and the unpaid balance of all debts secured by liens on it. See also court of equity.

equity buildup - The difference between the original amount of a real estate loan and its current unpaid balance. That is, it is the sum of all the principal payments made on a real estate loan. Each principal payment increases the owner’s equity in the property. Equity buildup is not taxed.

equity kicker – A percentage of the gross receipts or proceeds of a future sale, demanded by a lender as a term in a mortgage. Instead of a higher interest rate, the lender accepts a percentage interest in the ownership of the project, that is, an equity kicker. See also convertible mortgage.

equity lender – Any real estate lender that evaluates a loan application principally on the basis of the value of the real estate proffered as security for the loan. Many sellers of real estate accept non-recourse carryback mortgages based upon the value of the real estate rather than the credit worthiness of the buyer/debtor. Many institutional lenders also make non-recourse loans.

equity-purchase laws/home equity laws – Statutory laws designed to protect sellers of residential property who sell to unscrupulous buyers at very low prices just before foreclosure sale. Among other features is a two year rescission period during which time the seller may set aside the sale and recover his home. This right to rescind is an economic cloud on title.

equity-sharing – An arrangement in which a lender, in addition to interest, also receives a percentage of the appreciation in exchange for making the loan. That is, the lender shares in the long-term appreciation of the project. Equity-sharing is also called ownership by co-purchasers. The investor puts up all or part of a downpayment, pays all or part of monthly carrying costs on a residence occupied by the co-purchaser, who is often a related first-time home buyer. The resident pays monthly rent to the equity investor based on the relative shares of ownership. The equity investor obtains the tax benefits as well as a share of the equity buildup and appreciation.

equity skimming – A scam in which an unscrupulous operator obtains possession of residential property, such as a condominium, by purchasing with no money down. The operator then rents out the property for months while making no payments on the purchase price. Ultimately a lender, or the original seller, will foreclose and obtain possession and the operator will move on to other scams.

escalator clause – A clause typically found in a long-term lease that increases the rent over time. The rent may escalate as property taxes and insurance increase. Even residential rent increases may be tied to price indexes, and thereby escalate. In adjustable-rate mortgages, the interest rate escalates. Leases with rent tied to expenses are called expense-participating leases.

escrow - A process whereby a disinterested third party, for example, a title or escrow company, accepts written instructions from parties to a transaction and delivers held funds and documents in strict compliance with these instructions on close of escrow.
Escrow closes when the appropriate documents are recorded and delivered and the funds are disbursed. Before the close of escrow, the escrow or title company may perform such ancillary services as computation of prorations and preparation of deeds, notes, and the like. For example, in a typical real estate sales transaction, the seller expects to receive some cash, a note for the balance of the price secured by a deed of trust, as well as a deed of reconveyance and cancellation of the note to his lender (who is being paid off with the proceeds of this sale). The buyer expects to receive a grant deed to the property from seller and money from his lender with which to pay the price. The buyer’s lender demands a note in the amount of the loan secured by a deed of trust with first priority. And so on. Clearly, if all interested persons sat around a table and attempted to consummate even such a simple sale, confusion might well be rampant, especially since each participant expects simultaneous giving and receiving. The escrow process makes it possible for all the transactions to be executed simultaneously.
An escrow or title company has a duty to comply with its instructions. It has no duty to reveal to any participant that he or she is in the process of making a bad deal. The rationale is that the escrow company isn’t paid for advice. However, most escrow and title company personnel have superior knowledge and expertise and become aware of peculiar transactions while in progress.
“Escrow” is commonly used both as a noun and a verb. For example, “We finally got the escrow closed.” Or, “Let’s escrow the deal.” Title companies frequently blend escrow service with the service of selling title insurance. The fee of one and the premium of the other also may become blended and constitute a major portion of the closing costs. See also closing costs.

escrow agent – A disinterested third party person or entity who acts as a special agent to perform specified services for principals to a transaction. See escrow.

escrow company - A company in the escrow business.

escrow for deed – An escrow, the purpose of which is to hold a deed in suspense until the purchaser has made a requisite number of payments called for in a contract for deed. An escrow for deed may not close for many years.

estates in land – The word “estates” refers to ownership interests. Two traditional categories of ownership exist: so-called freehold estates and nonfreehold estates. The former are fee simple estates and life estates, the latter are leasehold estates. The terms freehold and nonfreehold are not in common use, though they are found in all real estate literature. Modern usage usually includes only fee simple estates, life estates, and leasehold estates. Most real estate is owned in fee simple, also called in fee simple absolute, or merely, in “fee.”

estoppel certificate - A document typically used when a mortgage is assumed, which indicates the interest due and the unpaid principal. It may be executed only by the creditor who, thereafter, is restricted from making any claims that are contrary to the certificate. An estoppel certificate by a tenant contains important data about his lease. Thus, a purchaser of a building can be assured of the income flow to be anticipated, the dates of possible future vacancies, and so forth.

ethics – Principles of human interaction governed by the general agreement of a particular group of participants. What is ethical or “accepted” practice may differ from what is morally right or wrong. Ethics are moral principles that ought to bind the other guy, or so it may seem in the wheeler-dealer world of real estate. Unfortunately, many activities in real estate require minimal educational requirements, minimal capital requirements, and the potential of large profits. These features put a strain on ethical constraints. Professional organizations connected with real estate establish and enforce codes of ethics that are binding on their memberships.

Eurostyle kitchen design - A style of appliances designed for function rather than appearance. Appliances are more shallow and are flush with cabinet depths creating a fitted look. They are modular and can be fitted and stacked in many ways. Unnecessary trim is eliminated to accommodate ease in cleaning.

evict – The act of evicting a tenant from rented premises.

eviction – The expulsion of a tenant or occupier from real estate. Eviction may occur willingly following notice from the landlord or by court order following legal proceedings. Constructive eviction may occur when a landlord fails to maintain his premises in a habitable condition or when warranties are violated. Under such circumstances, the tenant may remain in possession and obtain monetary relief or may declare the tenancy ended and rightfully abandon the premises with appropriate credits against rent.

eviction, legal -  The legal process by which landlords expel tenants who are in breach of their lease contracts. Because eviction is considered a draconian remedy, legal proceedings to evict require prior notice to the tenant, who must be given opportunity to be heard in court.

eviction, wrongful – Any unlawful conduct by the landlord designed to evict a tenant for any reason. An example is changing locks on doors.

evidence – Everything presented by disputing parties and witnesses that the “finder of fact” is entitled to consider in arriving at a determination of the facts.

exaction – A sum of money, or an improvement, a developer, as a condition of development, is required to give or do for the benefit of the public. A developer, for example, may be required to widen streets and improve them with sidewalks. As public funds become increasingly scarce, local governments increasingly tend to saddle developers with exactions. However, it may be illegal for a government to require an exaction that does not bear some relationship to the development being saddled. That is, a development on the west side of town cannot be saddled with improvements to a street on the east side of town. An aggrieved developer’s remedy, when saddled with an improper exaction, is a court order (writ of mandate) to compel the government to desist. However, due to the time value of money, especially in relation to real property development, some developers simply find it more expedient to accept the exaction.

exclusionary zoning - The practice of requiring large lots in subdivisions as well as extensive design requirements that raise house prices above the financial means of certain income groups. It is also referred to as “snob zoning” because its effect is to exclude lower income homeowners.

exclusive-agency listing/listing agreement – An employment contract between an owner of real estate and a real estate broker. The owner agrees to pay a specified commission to the agent, if he or any other agent finds a buyer. The agent agrees to use diligence in hunting for a buyer. If the owner personally locates a buyer, however, no commission need be paid. See also listing.

exclusive listing/listing agreement – An employment contract between an owner of real estate and a real estate broker. The owner agrees to pay a specified commission to the agent if a buyer is located by anybody, even the owner. The agent agrees to use diligence in hunting for a buyer. Often the listing agent will multiple-list the property, and a buyer will be located by some other agent. The agents will divide the listing agent’s commission. See also listing.

exculpatory clause/disclaimer and hold harmless clause - A contract provision intended to relieve one party from liability for certain specified acts or omissions. For example, A and B agree that A shall not be liable for any injuries caused to B or his guests from the condition of premises B is leasing. Exculpatory clauses can be enforceable although courts do not favor broad attempts to escape liability, especially by the party in a superior negotiating position. One party to a contract sometimes accepts exposure to liability by agreeing to hold the other party harmless, that is, free from any losses. Disclaimers and hold harmless clauses are an important topic at most negotiating tables.

executive suite operator – An operator who leases a large office space, and divides it into smaller offices for sublease to small businesses for use as their “executive suites.” Subtenants also receive telephone, secretarial and data processing services in exchange for premium rent. Executive suite operators, being dependent upon premium rent subleases, are considered risky tenants by project owners. However, in periods of high vacancies and rent commissions, executive suite operators are better tenants than no tenants.

exhaustion of administrative remedies - A procedural law to the effect that courts will not review decisions of administrative bodies (such as planning commissions and city councils) unless the aggrieved claimant first exhausts (applies for and is rejected) all remedies that are provided by the administrative body.

exit strategy - A plan how to exit (1) from involvement in business organizations, or (2) from business relationships, or (3) from equity ownership responsibilities, or (4) from debtors obligations, without violating tax or civil laws, while effectively preserving net worth or the proverbial “nest egg.”

expense-participating lease - A commercial lease with an escalator clause that calls for increased rent to offset increases in taxes and/or operating expenses. In multi-tenant properties, this clause provides for a proportional allocation of the increased costs to all tenants. See also escalator clause. In all but net leases, commercial tenants pay pro-rata shares of operating expenses as well as common area maintenance expenses (CAMs).

exposure - The possibility of a future liability or loss. For example, a listing agent who fails to reveal a known defect in a subject property has exposure to the buyer.

express agreement – A written or verbal contract. Some contracts are not expressed, but are implied from conduct. They are called implied contracts.

extended coverage title insurance – The coverage added to a basic fire insurance policy for additional perils. These usually include windstorm, hail, explosion, riot, riot attending strike, civic commotion, aircraft, vehicles, and smoke.

F

facelift – A minor rehabilitation of the cosmetic and not the structural aspects of a building.

face rate/contract rate, and nominal rate – The interest rate contained in a promissory note. The contract rate is lower than the annualized percentage rate (APR) which contains additional charges made by the lender, such as points. The APR therefore will exceed the face rate.

face value - The value of a debt instrument specified in the instrument itself. For example, the face value of a $90,000 mortgage is $90,000 although its market value may be only $75,000.

fair housing laws – Any law that prohibits discrimination upon specified irrational bases, such as race, color, sex, religion or national origin.

Fannie Mae/Federal National Mortgage Association, (FNMA) - Is a corporation that was created by the National Housing Act to establish a secondary mortgage market by purchasing existing home-purchase mortgages. The cash paid for existing mortgages becomes available to lenders for new mortgage loans. There are many other purchasers of home mortgages in the secondary mortgage market.

farm - An area or group targeted by a sales agent who specializes in listing properties for sale. Such a licensee may repeatedly advertise within his farm and become expert in its characteristics. An agent engaged in such activities is said to be farming. A farm also is land on which livestock or crops are raised.

feasibility analysis/feasibility study – A written study that considers physical, financial, legal and market aspects of a proposed real estate project to assess whether or not it may be expected to satisfy the objectives of its developer. Usually the feasibility of a project depends on such factors as the cost of the land and construction, red tape, the income needed to service financing, income tax consequences, and the desire and ability of prospective tenants to pay minimum essential rent within a reasonable time of completion.

Federal Home Loan Mortgage Corporation, (FHLMC)/Freddie Mac – A corporation that participates in the secondary mortgage market through purchases and sales of conventional, FHA, and VA mortgages. Although loans are purchased, they are not serviced by Freddie Mac. That is, the monthly payments are collected by the originator or by an approved servicing company.
Freddie Mac also purchases second mortgages from private lenders (originators, such as Savings and Loans) who make loans to homeowners at favorable rates and amounts. This practice makes available to homeowners loans at far more reasonable rates that have otherwise existed historically in the second mortgage marketplace. See also secondary mortgage market.

Federal Housing Administration, (FHA) - One of the constituent organizations of the Department of Housing and Urban Development (HUD) that insures mortgages and provides housing subsidies, thus making financing available to buyers and sponsors of housing developments.

Federal National Mortgage Association, (FNMA)/Fannie Mae - Also called Fannie Mae. A corporation created by the National Housing Act to establish a secondary market facility for home mortgages by buying and selling such mortgages and thus provide liquidity for mortgage investments. Although loans are purchased, they are not serviced by Fannie Mae. Loan payments are collected by the originator of the loan or by an approved servicing company.

fee – The money paid to a person in exchange for the performance of a professional service. The compensation paid to a real estate agent is called a commission, not a fee, since it is usually a percentage of the sales price. However, the compensation paid to an attorney, even though it is a percentage of the awarded damages, is nonetheless called a fee. Real estate consultants earn fees, not commissions.
The word fee has an entirely different meaning when it is used as a short form of “fee simple absolute.” For example, I own a fee in Greenacre.

fee appraiser – An appraiser who is self-employed and charges a fee for his or her services.

fee simple absolute - The maximum form of legal ownership to real property. Typically referred to as ownership of a “fee.” It is contrasted to lesser forms of ownership, such as leaseholds and life estates.

FHA loan – Any mortgage loan insured by the Federal Housing Authority (FHA). The insurance guarantee encourages lenders to make home mortgage loans that otherwise would be too risky, and provides marketability in the secondary mortgage market. Minimal down payments, in the range of five percent of the purchase price, are required of borrowers of FHA insured loans.

fictitious deed of trust - A generic “master” deed of trust that is used as a reference trust deed. Deeds of trust in specific transactions refer to and incorporate by reference all the provisions within the fictitious deed of trust. Most deeds of trust also contain the referenced language on their reverse sides in microscopic print.

fiduciary relationship A person who acts in a position of trust or confidence for the benefit of another party, particularly with respect to property and money. An attorney and client are in a fiduciary relationship. A real estate licensee and client are also in a fiduciary relationship. A fiduciary cannot overreach, that is, take advantage of his client. The law requires full disclosure of all material facts as well as fair dealing on the part of a fiduciary.

fifteen-year mortgage syn early payoff mortgage A mortgage with an unusually short term. Most home mortgages are repaid over twenty to thirty years. An early payoff mortgage has the advantage of involving considerably less interest because the mortgage money is borrowed for a considerably shorter time. The shorter term also means the earlier payoff of the mortgage. However, it also means substantially higher monthly payments.
For example, a $100,000 mortgage at eleven percent repaid over thirty years requires a monthly payment of $952.34 for principal and interest. If borrowed for only fifteen years, the monthly payment would jump to $1,136.65.
Many borrowers prefer longer term mortgages because of their lower monthly payments. However, when able, they increase their monthly payments to accelerate repayment of the debt and reduce the total interest cost of the loan. Monthly payments typically can be increased by a maximum of twenty percent without triggering prepayment penalty clauses.

fill Dirt used to level low areas in land. Fill is compacted prior to construction of buildings.

filtering down The changes in a neighborhood brought about by conversions into rental units and increases in deferred maintenance, the result of which is to displace middle income residents who are substituted by lower income residents. See also gentrification.

finance syn loan The rental of a certain amount of money, by a borrower from a lender, to be repaid with or without interest. A loan may be secured, that is, a valuable asset may be pledged by the debtor to insure repayment of the loan. Upon default by the debtor, the creditor presumably may obtain the unpaid balance by selling the security. Most loans in real estate transactions are secured by real estate. An unsecured loan is based on the general credit-worthiness of the debtor. “Let’s finance the deal.” “What financing is available?” “Can we get seller’s financing?” “What financing is presently on the project?”

Financial Institutions Reform, Recovery, & Enforcement Act of 1989 (FIRREA) Deals with the recovery and reform of financial institutions after the collapse of savings and loans. Title XI deals with appraisal reform and requires states to enact certification law under which appraisers who appraise properties that have federally insured loans must qualify.

financing package A presentation of pre-arranged loan terms that are available for qualified (in terms of credit worthiness) borrowers who desire to purchase a home.

finder’s fee A sum agreed to be paid to a person who introduces a prospective buyer to a seller. The fee ordinarily is contingent on the consummation of the sale. A finder (one in the business of introducing prospective purchasers) does not ordinarily need to be licensed by the state’s department of real estate. Oral finder’s fee agreements are generally legally binding. Real estate bird-dogs rely on finder’s fees as their principal source of income.
A finder’s fee agreement may also relate to a financing transaction where the finder introduces a borrower to a lender. However, a finder’s fee to an unlicensed person is not allowed in a transaction involving a federally regulated mortgage loan. Such fees are prohibited by the Real Estate Settlement Procedures Act (RESPA).

FIRREA syn Financial Institutions Reform, Recovery, Enforcement Act of 1989 See Financial Institutions Reform, Recovery, Enforcement Act of 1989.

first mortgage syn first deed of trust A mortgage that is the first priority lien on real property. The holder of the first mortgage always ends up with either payment in full or fee ownership of the real property free and clear of all junior liens. That is, the first mortgage (or deed of trust) is the senior priority lien, the second mortgage, third mortgage, and so on, have junior status. Whether a mortgage is first, second, or third, and so on, depends on when it was recorded. The oldest recorded mortgage is a first mortgage, and so forth.

fixed rate mortgage syn traditional mortgage A mortgage loan based on a promissory note that contains a fixed rate of interest. Because the interest rate is fixed, the monthly payments remain the same over the life of the loan.

fixer-upper syn handyman’s special A house that needs substantial work and repair, usually of a cosmetic nature, to realize its market value. Such nonstructural repairs may greatly increase the fair market value of a house. When structural repairs are necessary, the rise in the fair market value will usually not exceed the costs. Purchasing a fixer-upper as an investment strategy is most practical for investors with handyman skills.

fixture An item that is permanently affixed to land. In determining what is permanently affixed to land, courts consider the manner of the attachment, the intention of the parties involved in the attachment, and the adaptation of the item to the real estate. An item that is not a fixture is personal property; an item that is a fixture is part of the real property. Examples of fixtures in residences are built-in ranges and dishwashers. Examples of personal property in residences are clothes washers and dryers, furniture and potted plants. In the absence of an agreement to the contrary, fixtures go to the buyer. See also trade fixtures.

fizz ba (FSBA) See FSBA.

fizz bo (FSBO) See FSBO.

flake A slang term used to describe a dealer in real estate who typically is without substantial financial resources, but who nonetheless makes purchase offers on properties with the hope of subsequently obtaining purchase money through double escrow transactions or through third parties. Generally a flake is anyone in any aspect of real estate dealings whose ethical principles are open to justified criticism, and whose general reputation includes unfilled promises and gross distortions of facts and opinions. The word also may be used as an adjective, as in: “That looks like a flaky deal to me.”

flashing an offer Exhibiting an offer to purchase real estate, done by a seller to encourage other potential buyers to make better offers. To minimize the risk of flashing, buyers customarily place short time limits (called a “fuse”) in their offers, within which time the seller must accept the offer or it will expire.

floor area ratio, (FAR) The ratio of total floor space in a structure to the total area of the parcel on which it stands. The ratio is used primarily by local government officials in restricting building sizes and land uses.

forceable eviction An improper eviction technique by which a landlord confronts a tenant, forceably removes all personal items, and changes locks to the unit.

foreclosure The legal confiscation and sale of real property brought about by a secured creditor. The proceeds of the sale are taken to satisfy the unpaid portion of the debt. There are two basic forms of foreclosure, judicial and non-judicial. In the former, the sale is conducted under the auspices of the court following a trial and other legal proceedings. The debtor has a period of time, usually one year or more, during which to redeem the property from the purchaser at the judicial foreclosure sale. In a non-judicial foreclosure, the sale occurs privately by the trustee and the debtor has no period of time within which to redeem following a trustee’s sale. Sometimes a deficiency judgment is possible following a judicial foreclosure; never following a non-judicial foreclosure.

forfeiture A concept under which one’s ownership rights in real property are terminated, or cut off completely, on the occurrence of some event, such as nonpayment of an amount due. “Equity abhors forfeiture” is an old legal maxim that means, generally speaking, a contract provision calling for forfeiture of a real property interest will not be enforced by a court. For example, under a land sale contract, a buyer promises to make payments for many years, following which the seller agrees to convey ownership by deed. After many years of regular payments, the buyer misses a payment, and the seller immediately declares a forfeiture, contending that the buyer’s interest is cut off. The law will not cut off the buyer’s interest, and will require the seller to go through foreclosure in which the buyer’s equity will be recognized. Foreclosure is not a forfeiture because the owner’s equity, if any, is protected.

forwarding fee A charge made by a lender in exchange for sending a letter to a title company specifying the exact amount required to pay off a loan on a given day.

found money A windfall. Unexpected financial benefit.

fraud syn misrepresentation and deceit Improper conduct, such as misrepresentation of a fact as true by someone who does not believe it to be true; misrepresentation of a fact as true by someone carelessly unaware of its falsity; concealment of a fact; assertion of a promise with no intention to perform it; or any other conduct calculated to mislead another. Damages, i.e., a money judgment, are available to compensate the victim of fraud. Generally, the amount of damages recoverable are “out-of-pocket” losses, i.e., the difference in value between assets which the victim gave and received in the transaction. Lost future profits also may be recoverable. In aggravated instances of fraud, the victim may be entitled to recover punitive or exemplary damages from the perpetrator. Some misrepresentations are not actionable. For example, statements like, “This is the best home in the U.S.” are mere puffery. See also judicial actions and remedies. Allegations of fraud are easy to make and difficult to defend.

Freddie Mac syn Federal Home Loan Mortgage Corporation, (FHLMC) which is a corporation that participates in the secondary mortgage market by buying and selling conventional, FHA and VA (Veteran’s Administration mortgages earmarked for veterans) mortgages.

free and clear Ownership without mortgage debt. When equity equals the market value, the property is free and clear. There is no leverage in property held free and clear. Some strategists contend that real estate should not be held free and clear because mortgage money is relatively cheap and could be invested more profitably elsewhere. In times of low interest rates, that advice is suspect and often offered by a stockbroker, who recommends a real estate loan to purchase stocks.

free look A free option to buy specified real property for a period of time during which feasibility of the acquisition can be evaluated. If the buyer decides to “walk away” from the deal, no capital has been lost.

frontage The boundary of a parcel of real estate that adjoins a public right-of-way or body of water. Frontage is usually expressed in linear feet, as one hundred feet of water frontage. One foot of frontage is called a front foot, and values may be expressed in X dollars per front foot.

front money syn seed money See seed money.

FSBA (fizz-ba) For sale by agent. A house that is held for sale by its owner who has employed a licensed real estate agent to search for a ready, willing and able buyer.

FSBO (fizz-bo) Pronounced “fizzbo,” it refers to a house that is being held for sale by its owner without the services of a licensed agent, usually to avoid paying a sales commission. Some fizz-bo sellers agree to pay an agent a 3 percent commission for producing a buyer. This process is called “cooperating” with an agent although no listing is signed by the seller.

full cash value A term used in property taxation to describe the value of real property for ad valorem tax purposes. Traditionally, full cash value is somewhat less than market value. For tax purposes, when property is sold, full cash value is market value, as evidenced by the sales price.

full fee broker A real estate broker who charges the going rate for his services. Although commission rates are negotiable, certain patterns or trends evolve accidentally and lead to more or less standardized or going rates. Discount brokers charge less than the going rate.

full-price offer An offer to purchase real estate at the price and terms set forth in the listing agreement.

fully serviced lease A lease which all expenses of occupancy (such as utilities) are paid by the landlord. The rent quoted to the tenant is the sole sum paid by the tenant.

functional obsolescence In appraisal, the decline in the value of property due to changes in the style, design, technology, floor plan, and so on, of competing property.

funding escrow An escrow opened by a syndicator to hold investors’ funds pending purchase of real estate. If the acquisition does not materialize, the money is refunded from escrow.

fuse A short period of time within which to make an important decision. For example, a prospective buyer may give the seller as little as forty-eight hours to accept or reject his offer.

future interest Any possessory or ownership interest in real property that will vest (become perfected) at some future date. For example, the owners of the remainder interest following a life estate have future interests in the property that will vest, or become perfected, upon the death of the life tenant.

G

gap financing syn bridge financing The short-term financing needed to “bridge the gap” between a loan presently committed or in place and the total financing required to complete a project.

garbage fees Loan fees allocated to the seller in escrow, as closing costs, in sales where buyers are not permitted to pay them. Seller accept these fees in order to make the sale. Garbage fees are miscellaneous charges associated with any real estate transaction. Examples of garbage fees that may be hidden away in the loan documents or settlement papers are: application fees, credit fees, underwriting fees, document preparation fees, and evaluation fees. Lenders may waive some or all garbage fees as inducements to attract borrowers. All lenders charge standard fees for title insurance, appraisals, and points.

garden home See condominium.

gazebo A small structure situated in a garden.

general contractor syn builder A person or business organization licensed by the state to represent an owner in supervising the construction of improvements and structures. A general contractor may work for the developer/owner of a project, or may own the project himself. States grant various types of contractor licenses for special purposes, such as a subcontractor’s licenses limited to electrical or plumbing. A general contractor causes a structure to be built but does not promise to do anything personally other than manage the project.

general partner A partner, or joint venturer, who manages and who is held personally liable for all the debts of the partnership if it is unable to meet its obligations. Also, a general partner is fully liable for all the liabilities of his co-partner which are created while acting in the scope of the partnership’s business. For example, of partner A, while on company business, negligently injures X in an auto accident, co-partner B is liable. General partners are equal managers of their partnership unless they have agreed otherwise in the partnership contract. Most states have adopted some version of the Uniform Partnership Act, which governs the rights and obligations of partners.

general partnership Two or more persons, or entities, contractually bound to carry on a business activity for a profit. Any partner may declare a dissolution (termination) of the partnership at any time. Partnerships do not pay federal or state income taxes; tax consequences are “passed through” to the partners. Each partner is personally liable for all debts of the partnership. Profits and losses are divided in accordance with the partners’ profit and loss ratios.

general plan A long-range plan for a community’s growth. A general plan ultimately is implemented through the adoption of zoning ordinances.

gentrification The change in a neighborhood brought about by renovation and upgrading, the result of which is to displace lower income residents with middle income residents. See also filtering down.

gerrymandering The intentional drawing of a political district by a political party that is in power so as to give itself, or the racial minority, a majority of voters in as many districts as possible while concentrating the voting power of the other party into as few districts as possible. With this technique an incumbent party may control a legislature, although it generates only the same number (or even fewer) votes as the other party in each election.

get-rich-quick schemes Investment tactics in real estate popularized by seminars promoting such “fail-safe” techniques as no-down payment acquisitions. The realities of management, negative cash flow, and other problems make these get-rich-quick schemes improbable for most people.

GIM syn gross income multiplier See gross income multiplier.

gingerbread Fancy or ornamental fixtures added to a model home as a sales inducement, such as specially designed light fixtures, door handles, drawer pulls, decorative mirrors and bathroom appointments.

Ginnie Mae syn Government National Mortgage Association, which is a federal corporation that purchases mortgages in the secondary mortgage market.

going rate The market rate. For example, the going rate for residential real estate commissions is six percent to seven percent of the sales price. The going rate is considered to be negotiable. The expression is also used with reference to interest rates. For example, the going rate for a single family fixed rate mortgage has been between eight percent and six percent in the 90s. Or, the going rate for real estate attorneys is $300 per hour.

Golden Retirement Annuity Program syn Grannie Mae mortgage and reverse annuity mortgage This is a program under which senior citizens are able to turn their equity into cash payments while continuing to live in their family home. The essence of the program is a sale-leaseback. The sale proceeds are converted into an annuity, the monthly receipts of which are used for rent payments and spendable cash. The market rent usually leads to a negative cash flow to the investor who is more interested in a tax shelter and long term appreciation. Often the investor is related to the senior citizen.

good faith money syn earnest money, deposit and binder See earnest money.

good title See marketable title.

grace period A period of time during which a tardy payment on a home-purchase mortgage, or of rent, will be accepted without penalty. The grace period is the time between the due date of a payment and the delinquent date, following which later time a penalty will be assessed.

graduated lease A lease calling for increasing amounts of rent at specified time periods.

graduated-payment mortgage, (GYP-EM) A mortgage with payments tailored to meet the qualifications of first-time home buyers. The interest rate is fixed over the life of the loan, but in the early years the monthly payments are lower than is required to service the loan. The monthly payments gradually rise above the level at which a standard fixed-rate mortgage would then be written, but by that time the homeowner is expected to be able to meet the increased payment with increased salary or income. Some graduated-payment mortgages (GYP-EMS) are written with an adjustable interest rate, and become graduated payment adjustable rate mortgages (GPARMs).

grandfather clause A clause contained in many new laws that exempts current professionals and businesses from any new statutory requirements. However, these people and businesses normally remain subject to the old provisions and laws.

Grannie Mae mortgage syn golden retirement annuity program and reverse annuity mortgage A reverse annuity mortgage for seniors. “Grannie Mae” is a play on the term Ginnie Mae which describes the Government National Mortgage Association. See reverse annuity mortgage.

granny flat syn echo house A separate, small living unit located in close proximity to a main single family dwelling, made to provide housing for an aged parent or elderly person. It differs from an accessory apartment, which is contained within a single family dwelling. It is smaller than a tandem home, which is a second small home behind a larger home.

grant deed A standard variety of deed used to transfer ownership in real property sales. The word grant has historical significance in that its use implies a certain warranty as a matter of law, that the grantor previously has not conveyed the subject real property.

greater fool theory The belief that a property can be purchased today, regardless of its inherent economic potential, and sold in a relatively short time at a substantially greater price to another speculator. The greater fool theory is related to inflationary periods.
greenbelt An open space or parklike area, usually bordering a development, the effect of which achieves a desirable buffer. Private development is prohibited in a greenbelt, though local government may construct maintenance buildings, and the like. Greenbelt areas may be required by government as an exaction, that is, as a condition for permission to develop in the area.

GRI syn Graduate Realtors Institute The designation GRI is awarded by the Graduate Realtors Institute, an affiliate of the National Association of Realtors.

gross income multiplier, (GIM) A factor by which the gross income of a property is multiplied thereby arriving at its market value. For example, assuming a multiplier of twelve, the fair market value of an apartment producing an annual gross income of $100,000 would be $1,200,000. The GIM is determined by referring to the gross income and sales prices of other comparable properties in the area. The GIM is used as a quick method to estimate market value. (It sometimes is called the gross rent multiplier.)

gross lease A lease where all expenses of occupancy are paid by the landlord, e.g., real estate taxes, insurance and maintenance. It is opposite of a net lease.

gross profit ratio A ratio used to determine the portion of payments received on a carryback promissory note that are includible in taxable income each year. The ratio is computed by dividing taxable gain on the sale by the price of the property. That factor is applied to the installment payments received during the year to determine the amount includible in taxable income. Non-includible portions of installments are tax-free returns of principal. See also installment sale.

ground lease A lease of land upon which the tenant constructs some type of building. The tenant pays ground lease rent to the lessor. A ground lease avoids the substantial cash outlay that otherwise would be required if the land was purchased. The owner of the land defers payment of capital gains tax. The construction lender sometimes will require subordination of the leasehold to its deed of trust, or mortgage, which shifts some of the risk to the landowner.

guaranteed purchase syn guaranteed trade-in plan A commitment by a real estate broker to purchase his client’s home within a stated period, and to make an immediate advance of funds on its price, thereby enabling the client to immediately purchase another property. These transactions are especially problematic because the agent is a fiduciary and thus in a conflict of interest.

guaranteed trade-in plan syn guaranteed purchase See guaranteed purchase.

GYP EM syn graduated-payment mortgage See graduated-payment mortgage.

H

habitability A minimum maintenance standard of residential rental property. Habitability requires toilet facilities, hot and cold water, heat, and a cooking facility.

handyman’s special syn fixer upper See fixer upper.
hard dollars syn hard money See hard money.

hard money syn hard dollars Nonrefundable money. Earnest money becomes “hard” when all contingencies are satisfied or waived in a purchase contract, which then becomes enforceable. The proceeds of a loan are hard monies. Mere credit, as extended in a carryback mortgage, is soft money. Cash, as distinguished from paper (promissory note), also is called hard money.

hard money loan syn recourse loan See recourse loan.

hard sell Persistent and aggressive sales techniques.

hardball Serious business. When a transaction results in a decision that produces an adverse consequence to some player in the deal, the game has become “hardball,” presumably as opposed to “softball” where everyone is friendly.

hassle factor A negative factor related to the ownership of or investments in real property. When the hassle factor is added to the capitalization rate, it reduces the market value of the real property to reflect the “hassle” inherent in its ownership. For example, a prospective purchaser may bid on the basis of a cap rate which reflects an artificial one percent on top of the market rate. That increase necessarily lowers the offered price. The hassle factor of litigation is considerable, which is one important reason why real estate business-persons try to avoid it like the plague.and why some unscrupulous persons try to use it as a weapon to hammer out grossly unfair settlements.

hazard insurance syn casualty insurance See casualty insurance.

head lease syn main lease, master lease, principal lease, original lease, and underwriting lease See master lease.

hearsay evidence Evidence not based on personal observation or knowledge of the witness, but consisting of repetition of what someone else has said. Hearsay is generally not admissible to prove a fact, but exceptions exist.

heavy hitter A very financially substantial real estate player. During the 90s many heavy hitters of the 80s lost their status, if not their wealth, through lack of liquidity and holding power.

HFA syn Housing Finance Agency See Housing Finance Agency.

HHFA syn Housing and Home Finance Agency A federal agency that administers home financing and governmental housing programs enacted by Congress.

highest and best use An appraisal phrase referring to that use of a property (at the time of an appraisal) that is most likely to produce the greatest net return from the land and/or buildings over an optimal period of time. Highest and best use is not always dictated by zoning, because there may be a reasonable probability of re-zoning.

HOA syn homeowner’s association See homeowner’s association.

hodge-podge development A vegetable soup development. Development in a patchwork pattern of uses.

hold harmless clause syn disclaimer and exculpatory clause See exculpatory clause.

holder of mortgage The present owner of a mortgage loan, to whom monthly payments are made by the homeowner. Mortgage loans are often transferred from one holder to another investor.

holding agreement An agreement whereby title to real property is vested in a nominee, such as a title company, for a specified period of time. The real owner’s name never appears in the public records. The nominee is charged with duties of holding the title, paying property taxes, and performing whatever other administrative tasks may be called for in the agreement. One reason for such an arrangement is to maintain business privacy. A buyer of real estate may use a dummy to buy and then vest the title immediately in a third person under a holding agreement, thereby concealing the identity of the owner.

holdover tenant syn tenant at sufferance A tenant who continues to occupy premises following termination of the lease.

home equity law syn equity-purchase laws See equity-purchase laws.

home equity loan A loan secured by a second mortgage or deed of trust on a person’s home. The loan may be used to finance a home improvement or for purposes unrelated to the home. Pursuant to the Tax Reform Act of 1986, value of interest payments on loans in excess of the cost of the home are deductible only if loan proceeds are used for home improvements, education or medical expenses. Interest on other forms of consumer loans, such as automobile, boat and credit card loans, is not tax deductible. Thus, home equity loans are advantageous compared to other consumer product loans. See also expandable second mortgage.

home improvement loan A mortgage loan with second or third priority that provides funds for the improvement of a residence.

home inspection report A written report made by a home inspector that conforms to the standards of the American Society of Home Inspectors or the California Real Estate Inspection

home inspection service A service for prospective buyers that involves the presale inspection of a home. Frequently, offers to purchase will include a contingency clause that allows a buyer the opportunity to approve a home inspection report before the purchase becomes obligatory. Defects that turn up often result in a price reduction or in corrective repairs by the seller. A home inspection service is not a termite inspection service.

home inspector A person in the business of inspecting homes during the sales event to assure the buyer that all of its systems are in operating order, or are in need of fixing. Anyone can go into the home inspection business because no license is required. However, the better inspectors are members of both the state Real Estate Inspection Association (REIA) and American Society of Home Inspections (ASHI). The standard of care that home inspectors are expected to meet is established by members of a nationally recognized trade association (e.g., American Society of Home Inspectors) or licensing agency. Employment contracts that attempt to limit the liability of such inspectors to the cost of their reports is invalid (against public policy). Thus a negligent inspector who does not report the improper absence of ground fault protection devices on certain electrical outlets may be held liable for the cost of repair.

homeowners’ association, (HOA) syn property owners’ association, (POA) Owners’ associations of large residential projects that feature common areas and amenities, such as roadways and recreational facilities. The owners within such projects elect officers and vote on important matters relating to the operation and maintenance of the project. The associations are governed by by-laws that are usually created by the developer.

homeowners’ policy of insurance A package insurance contract covering most of the property and casualty risks common to dwellings, including losses from theft and personal liability from negligent conduct not involving an automobile. Renters may obtain similar coverage in a tenant’s policy.

homeowners’ tax exemption An amount of money, say, $7,000, subtracted from the value of a resident homeowner’s home when ad valorem property taxes are computed. Property tax exemptions are a matter of state law.

homeowners’ warranty, (HOW) A type of insurance program for new-home buyers that guarantees specific items or components of the home, such as appliances, plumbing, and heating. Major exclusions include roof and air conditioning. This insurance covers the home for a specific time period and is not voided by a change in ownership. Modified HOWs covering resale homes are often available through a sponsoring broker as an enticement to complete a sale.

homestead An exemption from creditors’ remedies granted to debtors who own a home and who properly claim homestead rights. A homestead is applicable only to the debtor’s residence. The effect of a homestead is to protect a specified portion of the debtor’s equity, if any. Homesteads are subject to the earlier priorities of deeds of trust, mortgages, or other encumbrances and their payment cannot be avoided.

hometel An executive-class hotel facility with suites that include a sitting room, a bedroom, a kitchenette, wet bar, bath and vanity area. Hometels are designed for the business traveler.

horse property See ranchette.

hot listing A listing of a property that is very desirable, perhaps because there is a buyer’s market, with the result that multiple offers to purchase are received within a short period. Hot listings often lead to verbal non-binding counteroffers from sellers who play one prospect against another.

hot market A very active market with lots of buying, selling and building.

house-poor homeowner A homeowner who can afford to pay for little more than his mortgage.

housing affordability index An index published by the National Association of Realtors that reveals the ability of families earning median incomes to qualify for loans equal to eighty percent of the price of median-priced homes. At an index of 100, all families earning the median income would be able to qualify for eighty percent mortgages to finance the purchase of a median priced home.

Housing and Home Finance Agency, (HHFA) See HHFA.

Housing Finance Agency, (HFA) A public agency established by state statute, and empowered to raise money and make direct loans to sponsors of low- and moderate-income housing under more favorable conditions than those available in the open market. HFAs raise money to finance their programs through the public issuance of tax exempt bonds.

housing starts The number of housing units on which construction has begun. Estimates of housing starts are made on national, regional and local bases to evaluate economic activity.

HOW syn homeowner’s warranty See homeowner’s warranty.

HUD See Department of Housing and Urban Development.

hundred percent location The best possible site or location in a business district. It is also the best suited location to conduct a particular type of enterprise.

hybrid ARM Adjustable rate mortgage that offers a constant interest rate (and monthly payment) for a few years before converting and adjusting rates. The constant rate periods typically are 3 years, 5 years, 7 years or even 10 years, and are known respectively as a 3/1, 5/1, 7/1 and 10/1. These loans are preferred by purchasers who intend to sell their homes (i.e., pay off their mortgages) about the time the constant rate period ends. The hybrid ARM is a generic term inclusive of, for example, all varieties of two-step loans.

hype An exaggerated or extravagant statement made in connection with a sales pitch. Whether or not hype can form the basis for actionable misrepresentation is a fuzzy area in the law.

I

impeach To discredit a witness, for example, by showing that the witness is a liar.

implied agreement A contract that is created by the conduct of the contracting parties. For example, if an attorney performs a few legal services for a consenting person, the law implies the existence of an employment contract even if none was ever written or verbalized.

implied covenant of quiet enjoyment An implied obligation of the landlord to maintain reasonably comfortable living conditions for the tenant in the rented premises.

implied warranty of habitability 1. An implied guarantee in a lease that there are no concealed defects in the rented premises existing at the beginning of the lease term. 2. An implied obligation upon a landlord to maintain leased premises in a habitable condition throughout the term of the lease.

impound account An account held by a mortgage lender with which to accumulate sufficient funds to pay all annual property taxes and casualty insurance premiums. The funds are taken from the borrower’s monthly mortgage payment, and accumulated until the property taxes and insurance premiums are due.

income approach In appraisal, an approach to estimate the market value of income property. The net income of a property is estimated and capitalized into an estimate of market value by applying an estimated capitalization rate. Estimates are used to avoid any influence from existing management policies. See capitalization rate and net operating income.

income limits A requirement for eligibility for admission to or continued occupancy in subsidized housing developments. The term is used both in public housing where the local housing authority sets the limits and in housing involving federal subsidies or below-market-interest-rate financing, in which cases the income limits are either set by HUD or the FHA, or are dictated by public housing income limits.

income property A property that produces rent or a tax advantage for its owner. Although farmland may produce rent, the term is usually identified with depreciable property only.

incubator space A small office or industrial space in a project designed for small, new businesses.

incurable depreciation Physical, economic or functional depreciation that would cost more to cure than the correction would add to the market value of the property.

index lease A lease agreement that contains a rent escalation clause tied to some index, such as the Consumer Price Index. The purpose is to keep the rent at or near market rates during the term of the lease.

indict The act by a grand jury of declaring, following an evidentiary hearing, that there is probable cause that a specific person has committed a specific crime and ought to stand trial to determine his or her guilt or innocence. The official declaration of a grand jury is an indictment.

industrial park A planned development for industrial buildings.

industrial property The land and the structures on it that are used in assembling, processing, and manufacturing products, or property used for the extraction of natural resources.

infill development Development of vacant land within urban areas that already are improved with infrastructure and development.

inflated appraisal An appraisal, usually of a residence, that is higher than market value. Unethical appraisers may succumb to client-advocacy appraising, and return inflated opinions of value for their clients to use in obtaining inflated loans. The majority of appraisers in the U.S. are not members of well-regarded professional associations, such as the Society of Real Estate Appraisers or the American Institute of Real Estate Appraisers.

infrastructure Improvements and organizations supporting an area, including transportation, communication, and utility systems. In a broad sense it includes the human skills available in the area to support its technology. Developers are more likely to think of infrastructure as “off-site” improvement costs for sewer trunk lines; storm drain lines; roadways; signal lights and so on.

initial investment The down payment. Sales agents prefer to avoid the term “down payment” in discussions with prospective buyers since they feel it has a negative connotation through use of the word “down.”

injunction A court judgment. The judgment takes the form of a negative order, for example, not to sell, transfer, or convey any interest in certain real property. For example, a subcontractor may be prevented from entering upon land, a lender may be prevented from disbursing construction funds, or a trustee may be prevented from issuing a trustee’s deed. An injunction may be temporary (to allow time for a hearing), preliminary (to allow time for a full trial), or permanent (to avoid a permanent wrong).
A person seeking an injunction may be required to post a surety bond as a condition of its issuance. Such a bond guarantees the other person compensation for damages if the injunction turns out to be improper following a trial. There is no right to trial by jury in a proceeding for an injunction, which is an action in equity. See judicial actions and remedies.

in-law units Small apartments added on to existing structures.

inner city The downtown city center area of both commercial and residential uses.

inside lot A lot that fronts on one street, unlike a corner lot that fronts on two streets.

installment contract syn contract for deed and land contract A sale of real estate where the purchase price is paid in installments over a period of years. Income taxes are payable by the seller in the years when principal payments are received, not in the year the sale in one lump sum. The gross profit ratio determines the taxable portion of principal payments received. See gross profit ratio.
Institute of Real Estate Management, (IREM) See IREM.

intelligent building syn smart office building, telecommunications enhanced real estate, (TERE) and shared tenant services, (STS) See smart office building.

intentional tort Where the tortfeasor deliberately performs a wrongful act that injures an innocent victim. No intent to inflict harm is necessary to establish liability.

interest The “rent” charged for the use of money. Interest is expressed as a percentage of the amount borrowed. Contract rate is the interest rate agreed on in a note or contract. Effective interest is the contract rate with the cost of other charges such as appraisal fees, factored in. Effective interest is also called the annualized percentage rate, or APR.

interference with an economically advantageous relationship When a tortfeasor knowingly and wrongfully interferes with the promised performance of another person’s contract. The term may also refer to violations of antitrust laws and to other unfair competitive practices.

interim financing The financing during a relatively short period before a permanent loan is obtained. For example, a construction loan is an example of interim financing that will be replaced by a permanent, or takeout loan.

inter-institutional paralysis Deadlock that follows whenever an abundance of governmental agencies have jurisdiction over a development such as an urban waterfront.

interior decorator A broker for merchandise, such as furnishings, which are purchased to fit the needs of the occupant of the building.

interior designer A professional involved with the design of interior spaces, lighting, color, orientation of furnishings and so forth.

interpleader A legal proceeding to resolve conflicting claims (e.g., to funds in an escrow account).

interrogatories A form of discovery used by attorneys, consisting of written questions directed to a party or witness who is expected to reply with written answers under oath.

interstate land sales Sales in one state of raw land that is located in another state. Such interstate sales activity is regulated by federal law regarding full disclosure and a cooling off period during which sales may be rescinded.

in the pipeline Pending. A proposed development that is in the process of approval by a local government. Also, an agency may have several deals “in the pipeline,” that is, pending close.

inverse condemnation A legal proceeding in which a landowner contends that some governmental body has, through its action or inaction, caused his real estate to suffer serious damage and loss of value. If the landowner is successful in the inverse condemnation lawsuit, the court will order the governmental entity to pay Just Compensation as in a regular condemnation lawsuit. In inverse condemnation, the landowner is the plaintiff, the government the defendant. Inverse condemnation lawsuits are common when a governmental entity adopts major changes in future land uses through general plan and zoning changes. Not all such changes are compensable. However, a zoning change that denies any reasonable economic use of real property is a “taking” of property that must be compensated. For example, zoning a parcel as open space. If the local government refuses to pay, the landowner must resort to a lawsuit in inverse condemnation.

investment tax credit A direct reduction of tax payable allowed to taxpayers who purchase or rehabilitate specified types of property. For example, at present, a twenty percent tax credit is available for rehabilitation of a certified historic building. Such tax credits are used to implement a desired social policy, such as development of solar energy or new oil sources.

investment value The price a particular investor should pay for a property, given that investor’s unique tax situation and financing opportunities.

invitee One who enters another’s land with the permission (implied or express) of the owner or occupier, for a matter of business benefiting the owner or occupier.

IREM Institute of Real Estate Management An affiliate with the National Association of Realtors.

J

joint and several liability Liability shared by two or more persons, each being fully liable. Partners are jointly and severally liable for the partnership debts.

joint tenancy with right of survivorship A form of co-ownership with undivided and equal interests. It is similarly to tenancy in common, except that in joint tenancy, the interest of a deceased cotenant passes automatically to the surviving joint tenants in equal shares, regardless of the last will of the deceased. Joint tenancy is created by deed, and the fact of the intention to create a joint tenancy with right of survivorship should be stated. Joint tenancy property does not escape death taxes, but it does escape probate and, in that sense, saves money. However, there are disadvantages associated with the tax treatment of joint tenancy property. See cotenancy.

joint venture A general partnership formed to carry on a specific business project as distinguished from continuing forward from one completed project to another.

judgment The final determination or decision of the court as to the rights and duties of the parties in a lawsuit.

judgment affirmed, modified, or reversed and remanded for new trial The options available for appellate courts relative to cases before them that are on appeal. Affirmance means the winner below (in the trial court) wins again. Reversed and remanded means there must be a new trial on all or specified segments of the case. Modified means that the lower court’s judgment is altered in some way.

judgment creditor A person who has won a judgment but has not been fully paid.

judgment debtor A person against whom a judgment for payment of money has been entered but who has not yet made or completed that payment.

judgment lien A court judgment, that, when recorded, creates a lien against all real estate in that county owned by the judgment debtor. Like all liens, it can involve the forced sale of the real estate. A judgment lien is a cloud on title that is not cleared until a satisfaction of judgment is recorded.

judgment non obstante veredicto, (judgment NOV) [Latin for “notwithstanding the verdict”] A decision by a judge that overrules the verdict of the jury.

judgment-proof Financial condition of a person who lacks the assets to pay any judgment rendered against him or her.

judicial actions and remedies There are numerous court actions (lawsuits) and corresponding remedies available to aggrieved persons. Those that are most relevant to real estate transactions are subtitled and defined below:

ancillary remedies Ancillary remedies make a court’s judgment effective. For example, the court may appoint a receiver to collect rent or to possess real estate pending a court trial; or the court may issue an injunction to preserve the status quo pending a court hearing; or the court may impose a constructive trust upon real estate which is then owned by third persons who may be required to return the property to one of the parties to the litigation. When a notice of default is recorded by a lender on a commercial project, the ancillary remedy of appointment of a receiver usually will be made to protect the lender from diversion of the rental income pending foreclosure sale.

breach of contract to buy real estate If a buyer of real estate breaches the contract of sale, the seller may retain liquidated damages (usually called earnest money) if so agreed in the contract. Otherwise, the seller may obtain damages in court equal to the difference between the contract price and the property’s value. If there is no difference, there may be no recovery. The weakness of this remedy explains why most sellers prefer forfeitable earnest money as a remedy. For example, if a buyer agreed to pay $100,000 for Greenacre but breached, the seller’s damages would be limited to the amount by which $100,000 exceeds the actual market value of the real estate, plus out-of-pocket costs, even if the property had been “tied up” for months prior to the breach.

breach of contract to sell real estate If a seller of real estate breaches the contract of sale, the buyer may elect to sue for damages. Generally, damages recoverable would be any portion of the price already paid plus out-of-pocket costs, or, in some cases, the difference between the agreed price and the actual value of the real estate, (the benefit of the bargain). Usually a disappointed buyer will elect the remedy of specific performance instead of damages.

cancellation of document Cancellation results in termination of a document. Unlike rescission, the parties are not necessarily returned to their original positions. For example, cancellation of an ancient deed of trust, which no longer secures repayment of any underlying debt, will serve only to remove a cloud on title.

damages for negligence Persons involved in real estate transactions may be held liable for damages to victims caused by their negligence. For example, a county building inspector can be held liable for negligently inspecting a structure; an architect can be held liable for negligently designing; a civil engineer can be held liable for negligence in measuring parcels; a real estate broker can be held liable for negligence in calculating fair market value for his principal; and an attorney can be held liable for negligence in drafting a sales agreement.

ejectment This remedy restores the owner of property to its possession by ejecting its occupant. A judgment of ejectment does not determine ownership, it simply ejects any person who is improperly in possession of the real estate. For example, ejectment could be obtained by a lessee against a trespasser who refused to give up possession.

election of remedies A procedural rule of law to the effect that a litigant must sooner or later select unequivocally, one of two or more alternate causes of action. Attorneys are loath to elect one remedy to the exclusion of another because the election may be less than best. In property law, for example, a buyer suing a seller is faced with the alternative remedies of damages for loss of the purchase or for specific performance to compel the purchase. Or, a mortgage creditor who commences a non-judicial foreclosure may be barred from thereafter obtaining judicial foreclosure.

fraud Fraud is improper conduct, such as misrepresentation of a fact as true by someone who does not believe it to be true; misrepresentation of a fact as true by someone carelessly unaware of its falsity; concealment of a fact; making a promise with no intention of fulfilling it; or any other conduct intended to mislead another. Money damages are available to compensate the victim of fraud. Generally, the amount of damages are out-of-pocket losses, such as the difference in value between assets which the victim gave and received in the deal. Lost future profits and punitive damages also may be recoverable.

interpleader A legal proceeding under which an escrow can place all escrowed documents and monies into court and thereby force the parties to the escrow to settle their grievances there. The escrow is said to interplead the parties. For example, if the buyer’s and seller’s instructions disagree as to the purchase price, and if each demands the escrow to close in their respective favor, the escrow will interplead the parties and remove itself from the dispute.

landlord remedies A landlord has a number of judicial remedies available to deal with improper conduct by a tenant. These remedies are found in state statutes and vary significantly among the states. Generally, a landlord may recover money damages from a tenant who commits waste upon the property, or who fails to repair damages caused by lack of ordinary care, or who fails to pay rent. Unlawful detainer or ejectment may be brought to evict a tenant who wrongfully fails to leave. A lease is a variety of contract, a landlord may sue for damages for its breach.

lis pendens A party to a lawsuit concerning the right to possession of real estate may record, at the time of commencing the litigation, a Notice of Pendency of Action, called a lis pendens. Because the document is recorded in the official records of the county, it confers construction notice to the world that the litigation is pending and that it concerns the title to or possession of that specific property. It thus becomes a cloud on the property, and any subsequent purchaser acquires his interest subject to the superior rights of the parties in the lawsuit. For that reason, buyers ordinarily shun real estate that is tied up in litigation with a recorded lis pendens. State laws provide methods for a landowner to remove a lis pendens by posting a bond adequate to guarantee the plaintiff from any loss if the real estate is sold during the litigation. And a lis pendens filed wrongfully, for the ulterior purpose of creating a cloud on an owner’s property, may be expunged from the records by court order. In reality there has been a history of abuse by attorneys knowingly filing lis pendens to tie up real estate to force settlement of an action. Attorneys are privileged by statute to do such things and cannot be sued even if they admit their wrongdoing. Such conduct is, of course, unethical.

partition A judgment of partition physically divides land owned by co-owners of undivided interests. For example, tenants in common are co-owners of undivided interests in their parcel. Each has the right to possession of the entire parcel and neither can exclude the other from its benefits. If they come to a total disagreement, either co-owner can ask the court to partition the parcel and create separate parcels for each. If the court is unable, rationally, to physically divide the parcel, it will cause the property to be sold at public sale and divide the proceeds of the sale in proportion to the ownership interests. This remedy is available to joint tenants and tenants in common, but is not available to divide marital property.

quiet title A judgment of quiet title identifies each person who owns an interest in a parcel of real property, and sets forth the nature of that interest, such as ownership of a life estate. Any claims of conflicting ownership are resolved.

reformation of contract A judgment of reformation corrects a contract, or document such as a deed, to say what the parties involved intended for it to say. The parties then continue in their relationship. If the parties thought their promissory note did not contain a due-on-sale clause, but discovered that one was included in its boilerplate, it could be reformed to reflect their true understanding.

rescission of contract Rescission is a remedy that results in erasure of a contract. Each party to the contract is restored to his original position. Consideration either party to the contract had received must be returned to the other. The entire contract, and whatever documents are involved, are terminated. For example, a contract to build a duplex, which was obtained through fraud, may be rescinded by the innocent party who will receive a refund of any deposit advanced.

slander of title Money damages may be awarded to an owner of real property whose ownership has been disparaged by words or by conduct of another. The disparagement must create a cloud upon ownership. For example, a person who intended to bid on the purchase of a parcel of real estate at a forthcoming auction and who wrote letters to other prospective bidders contending that he already had an option to buy the property, could be held liable for slander of title. Slander of title is an intentional tort and may result in punitive damages against the wrongdoer.

specific performance A judgment of specific performance compels each party to a real estate contract to fulfill each promise contained in the underlying agreement. For example, a buyer may obtain specific performance of a contract to purchase land from a seller who has wrongfully reneged. On the other hand, not every contract is specifically enforceable. For example, a court of equity will not enforce a promise by a builder to build a custom home because the court recognizes the impossibility of enforcing its judgment. There are too many variables in such a promise for the court to monitor.

tenant remedies A tenant has a number of remedies available to deal with improper conduct by a landlord. These remedies are found in state statutes and vary significantly among the states. Generally, a tenant may bring an action to be placed in possession if physically removed, or for money damages from a landlord who disconnects utilities, or who breaches any term of the lease, such as a covenant to repair, or who negligently fails to protect the tenant from criminal activities. In a few states, including California, a tenant may make neglected repairs and deduct their cost from their rent.

trespass An owner of real property may recover money damages from a trespasser who has damaged his property, either permanently (as by cutting down a tree) or temporarily (as by diverting surface water). A court may award punitive damages against a trespasser.

judicial foreclosure See foreclosure.

judicial sale The sale of real estate under court order following a judicial foreclosure. Following the sale, the debtor retains the right of equity of redemption for a period of time, often a year, during which time he may effectively repurchase the property. This lingering equity of redemption is a cloud on the title, and it may be bought and sold as any other interest in real property.

jumbo loan A loan larger in amount than is typical for the type of transaction in question, such as the purchase of a home. It is also any home loan that is too large to be sold in the secondary mortgage market.

junior lien Any lien with low priority. For example, a recent judgment lien would have a low or junior priority as against earlier deeds of trust.

jurisdiction The power of a court to decide controversy and to award appropriate relief. Jurisdiction may also refer to the geographic area in which the court has authority and the types of cases it has power to hear.
jury instructions Rules of law and charges provided by the judge to the jury for guidance in reaching a verdict. The instructions include essential facts that the law applicable to the cause of action.

jury trial Trial in which lay persons, instead of the judge, make the determinations of fact and thereby determine the winner and loser in litigation. There is a right to trial by jury in certain cases, but not in other cases.

K

key lot The least desirable lot in a subdivision. One side of a key lot may be abutted by the rear of other lots.

kick-out clause A clause in a real estate purchase agreement that gives the seller the option to terminate an existing contract to accept a backup offer. A seller may demand such a clause if the present buyers must wait to sell their present home before completing purchase of the seller’s home. Although conceivable, such a clause in a contract for the purchase of commercial property would be unlikely.

kicker A percentage of the net income from a property demanded by a commercial lender in addition to interest on the loan. An additional benefit, or “kicker,” paid to a lender for the use of the money. See equity kicker.

kiosk A small, drive-through restaurant with a limited menu, such as hot dogs and beverages. Kiosks are built on only 400 to 500 square foot lots, usually at the edge of a shopping center. No inside customer seating is available.

kiss Keep It Simple Stupid. Lenders prefer “kiss” deals, that is, loans that can be processed easily without unusual terms or snags. Refis of existing loans on well leased and managed buildings are an example.

kit homes Any partially pre-built home delivered to a site. Some professionals refer to kit home as modular, packaged, panelled pre-cut, or prefabricated. Do-it-yourselfers often act as their own contractor and complete kit homes to save money. Essentially they go together like Tinkertoys, although some arrive at the site substantially completed. All that remains is to bolt sections together, hook up plumbing and electricity and move in. See also modular home, panelized home, and prefabricated home.

L

land acquisition loan A loan for the purpose of acquiring raw land for development. Frequently, the seller of raw land will accept a carryback mortgage for most of the purchase price. Such a loan may offer favorable terms to the buyer, such as “interest only,” and subordination to future development and construction loans. Some development loans include funds earmarked for acquisition of the project’s land, i.e., payoff of the seller’s carryback mortgage. See subordination agreement. Large and well capitalized buyers of development land (e.g., subdividers) may use their working capital to buy land for cash and, accordingly, drive especially hard bargains (i.e., negotiate very favorable prices).

land contract syn contract for deed, installment land contract See contract for deed.

landlocked Without access. A parcel is landlocked when it has no legal right of access to a public way. The law disfavors transactions that landlock parcels. For example, if a landowner sells off the front of his parcel that borders the only public way in the area, and retains the landlocked rear, the law will imply an easement of access over the portion sold. Although that easement is not written anywhere, on request the court will declare its existence and location, and it then will be shown on record. Cities and counties, where applicable, will not permit lot splits or transactions that result in landlocked parcels.

landlord The owner, or owner’s agent, of a rental property. It is a historic word that carries some negative connotations, as does the term tenant. In residential properties, many owners now refer to tenants as residents to avoid any unpleasant connotations.

landlord’s lien A statutory lien in favor of an unpaid landlord that provides a mechanism for storage of the absent tenant’s belongings, and their ultimate sale to pay for the storage costs and unpaid rent.

land office business A real estate organization doing as much business as it can handle. Good business.

land packager One who ties up predevelopment land (perhaps with options), prepares it for development by obtaining a tentative subdivision map, and then offers it for sale to a developer.

land poor The status of owning large equities in raw land, but being short of cash due to the negative cash flow brought about by taxes, insurance, and perhaps interest. This aspect is why raw land is called an alligator investment, it eats up your cash.

landscape architect A professional person who is licensed to design landscape features surrounding a real estate project.

landscape contractor A contractor licensed to construct the designs of landscape architects.

landscape designer A nonlicensed specialist usually involved in landscape design where plans and specifications for building permits need not be certified by an architect or civil engineer.
large lot zoning syn low-density zoning See exclusionary zoning.

lawsuit syn litigation A formal legal proceeding initiated by a summons and complaint in a trial court. A lawsuit that is not settled will ordinarily result in a judgment in favor of either the plaintiff or defendant. The purpose of a lawsuit is to finally determine facts (i.e., what really happened) and to compensate the victims.

lawyer’s law syn procedural law The huge body of statutes and court rules that govern the procedural steps involved in all aspects of litigation. For example, the laws governing the taking of depositions, of whom, by whom, when, where and concerning what are examples of the procedural, or lawyer’s law. Many trial lawyers view the procedural law (also called a “paper blizzard”) as a very valuable weapon in the arsenal of tactics that are involved in the adversary system.

lead lender A primary lender in a large loan package who often makes the major portion of the initial or interim loan and also arranges for long-term financing with other lenders.

leapfrog development A development that jumps over, or bypasses, undeveloped parcels. A checkerboard pattern may result from extensive leapfrogging. It is considered an undesirable development pattern.

lease A contract between an owner of real estate, called the landlord, and a tenant the effect of which is to create a leasehold. See leasehold.

leaseback rent guarantee A special technique to overcome vacancy problems in the sale of an office building. The seller leases back vacant space for a period of time to provide the buyer with the income stream bargained for in the original transaction. The leaseback typically has an outside time limit at which point it ceases. The seller hopes to generate his lease payments from sub-leases to tenants. In a sale-leaseback, the owner leases back the entire premises.

leased-fee mortgage A mortgage loan secured by a landlord’s interest in real estate (the reversion) that is subject to a leasehold.

leasehold An interest in real estate created by a contract called a lease. The leasehold owner is entitled to possession and the landowner is entitled to rent. The parties may choose to allocate the costs of ownership and occupancy (such as property taxes and utilities) between themselves. There are four types of leaseholds. A tenancy for years is a leasehold that automatically terminates at the end of a specified period, such as five years. A periodic tenancy is a leasehold that endures from period to period, with an indefinite termination date. Each period the leasehold is automatically renewed for another period, unless it is terminated by the landlord or tenant. Many apartment owners use a month-to-month tenancy, that is, a periodic tenancy. The tenancy at will has no specific termination date and simply endures until ended by the landlord or tenant. Finally, a tenancy at sufferance exits when a tenant wrongfully refuses to vacate at the end of the leasehold. This tenancy is not really a leasehold, rather it is a status.

leasehold mortgage A mortgage loan secured by a tenant’s leasehold interest. Note that a long-term lease below market rate enjoys a large “bonus” value that would be attractive collateral. On the other hand, a long-term lease above market rate can be a noose around one’s neck.

lease-option syn lease with option to buy See lease with option to buy.

lease with option to buy syn lease-option A lease that gives the tenant the right to purchase the premises at a stated price upon stated terms. A portion of the rent may count as part of the down payment, or price, in the event the option is exercised. The lease-option is a favorite method to purchase real estate because it does not require an initial down payment. The advantages to sellers include a top-dollar sales price, that the option money isn’t taxed until the option is exercised, that the rent is usually above market, and that the tenant/buyer usually takes good care of the house because he intends to own it someday. The advantages to the buyer/tenant include low up-front cash requirement, a potential profit should the property increase in value during the option term, that all or part of the rent applies to the purchase price, and that there is no need to qualify for an institutional loan. See also option.

lease with option to renew A lease with a clause that gives the tenant the unilateral right to extend the lease for another term at a specified rent. Typical in commercial leases.

leasing co-op A variety of co-op in which the co-op association does not buy the residential property but rather leases the entire structure and manages it for the benefit of its residents.

legal assistant See also paralegal. Person qualified through education, training, and/or work experience to be employed or retained by a lawyer, law office, government agency, or other entity in a capacity or function that involves the performance, under the ultimate direction and supervision of an attorney, of specifically delegated substantive legal work. This work, for the most part, requires sufficient knowledge of legal concepts that, absent such assistants, the attorney would perform the task.

lemonading Adding cash to an offer to exchange a bad investment property for a better investment property. The bad investment is the “lemon” to which the cash, or “sugar” is added, to make the successful exchange, which is the “lemonade”.

lessee A party to a lease who pays rent to the landlord in exchange for the possession and use of real property, such as a person who rents an apartment.

lessor The landlord. A party to a lease who accepts rent from a tenant in exchange for the possession and use of real property by the tenant. The lessor is more commonly called the landlord.

letter of credit A guarantee by a bank of a sum of money payable to a beneficary on behalf of the bank’s customer (called the “applicant” or “account party”). In real estate transactions, standby letters of credit may be used to secure future performance, such as completion of off-site improvements. In such situations, a city or county may accept a standby letter of credit (as beneficiary) in the amount necessary to construct improvements. In the event the specified improvements are not constructed by the developer (“applicant”), the city or government can look to the issuing bank for the money. The law governing letters of credit is found in Article 5 of the Uniform Commercial Code.

letter of intent A written expression of the intent to make a real estate acquisition or to take some future action. A letter of intent is a preliminary step to allow a prospective buyer additional time to evaluate a possible acquisition without drafting a detailed offer to purchase. Standing alone, it typically is not a legally enforceable contract, although it can blossom into enforceability depending upon the circumstances that follow its issuance. The signature of the seller is typically required and some degree of commitment is thereby made, at least to the extent that the property must be held available.

lettuce Money used to bribe a public official in a zoning, development or construction matter. “Joe, did you bring the lettuce?”

level-payment mortgage A mortgage featuring a constant, or level, monthly payment for the life of the loan, although changes in its interest rate may require the extension of its term, or lead to negative amortization.

leverage The ratio between the amount of financing and the amount of equity in real estate. A ninety percent leverage means the owner has a ten percent equity position. If the property increases in value by ten percent, the equity owner has doubled his position which is a one hundred percent return. Or, if the real estate decreases in value by ten percent, the equity has been wiped out through reverse leverage. Leverage, under such circumstances, has become one hundred percent.

lien A form of encumbrance that usually makes property the security for the payment of a debt or the discharge of an obligation. Examples of involuntary liens are a judgment lien, and a tax lien. A mortgage is a voluntary lien. Like other encumbrances, liens must be recorded to preserve their priorities.

lien release A document executed by a lien holder (the creditor) that lifts a lien from the real property. A contractor may ask for a lien release from a subcontractor before payment to make certain that no mechanic’s lien problem can arise thereafter. A judgment debtor who pays off a judgment creditor will obtain a lien release that, when recorded, releases the lien from his land.

life estate An ownership estate in real property characterized by the full use and possession of the property for one’s life; upon death the life estate is automatically terminated and the remainderman is instantly vested with a fee. The most important characteristics are: (1) that life tenants cannot cut off the future interests of their remainderman, as through conveyance or by Will, and (2) there are no state or federal death taxes on the value of a life estate upon the life tenant’s death. The owner of a life estate is called a life tenant.

life tenant The owner of a life estate. Life tenants are entitled to the possession of the property until they die.

light industrial zone A type of zoning that generally authorizes specified industrial uses, such as painting, but that excludes most manufacturing uses.

light rail system A railway system designed to transport people from suburbs to downtown commercial and employment centers.

light manufacturing zone A zoning designation permitting specified manufacturing/industrial land use, not including heavy machinery or heavy truck traffic. Many other restrictions may be placed on the activities of the users.

like kind exchange syn tax-free exchange See tax-free exchange.

limited liability company (LCC) An unincorporated entity that combines the partnership benefits of flow-through taxation and management flexibility with the corporate benefit of limited liability. LCCs enjoy a single level of tax instead of the two-level corporate system. They are not required to follow any corporate formalities (e.g., directors’ meetings) in operations. It is not available to professionals who are licensed under the Business and Professions Code (e.g., lawyers, accountants and physicians) who may elect to operate in the similar limited liability partnership (LLP).

limited liability of stockholders Refers to the fact that regardless of the number of shares owned, a stockholder is normally not liable for the debts of the corporation beyond the extent of his or her investment. This limited liability is considered a primary advantage of corporate ownership.

limited liability partnership, (LLP) A variation of the general partnership in which if the firm (of lawyers, for example) is sued by a client for malpractice, only the lawyer(s) actually guilty of the tortious conduct is (are) liable without limit. Of course, firm assets and firm professional liability insurance would first be exhausted.

limited partner An investor in a limited partnership who is granted protection from the debts and liabilities of the partnership. Ordinarily a limited partner risks only his initial investment in the partnership because the statutory partnership law insulates him from further liability.

limited partnership A partnership composed of at least one general partner and limited partners. The chief distinctions between limited partnerships and general partnerships is that, by statute, limited partners are not personally liable for the debts of the organization, and normally do not participate in its management. See real estate limited partnership, RELP.

line-of-credit mortgage syn expandable second mortgage A second mortgage given to secure periodic advances of cash on an as-needed basis. In effect, a homeowner can obtain an unrestricted line of credit through such a mortgage. Cash is received, that is, loan proceeds are disbursed, whenever the homeowner desires, in whatever amounts the homeowner desires, up to agreed on limits. Interest paid on these loans is tax deductible. See home equity loan.

linkage Linkage is a term used to describe the time-distance relationships between a site and certain destinations of typical users, such as shopping centers, schools, public transportation, and jobs. Sales agents merge the concept of linkages into their expression “location, location, location.”

liquidated damages An amount of money that the parties to a contract agree represents a fair and proper amount of damages that should be paid by either one of them who wrongfully breaches the agreement, to the other innocent party. Commonly used in real estate purchase agreements; rarely used in lease agreements.

liquidated damages clause A contract provision in which the parties agree that a specified amount of money is adequate compensation in the case of a breach. The parties accordingly are aware of their exposure in the transaction. In real estate, the most common example of liquidated damages occurs in deposit receipt transactions where earnest money is agreed to be forfeited should the buyer wrongfully fail to complete the purchase. Inclusion of a “listing price” in a listing agreement is an example of a disguised liquidated damages clause.

lis pendens A recorded document that gives legal notice to the world of the filing of a legal action affecting specified real property. A lis pendens may be recorded only when the underlying lawsuit claims title to or possession of the property. Once recorded, it becomes a cloud on title. Its purpose is to prevent a defendant from conveying away property that otherwise could be obtained by the plaintiff in the lawsuit. A bona fide lis pendens may be expunged by court order on the posting of an adequate bond. Or, an improper lis pendens may be expunged by the court without bond following a preliminary court proceeding. The buyer of property subject to a lis pendens would effectively be “buying a lawsuit.” See also judicial remedies.

list The act by a prospective seller of hiring a real estate broker to hunt for a buyer of his or her real property. The document which establishes the employment relationship is called a listing. For example, “I am going to list my house” and, “I signed a listing” and, “My house is listed with ABC Realty.” Clearly, the word “list” is a euphemism for “employ.” Perhaps it is an easier sale to ask “List your house with me” than “Employ me as your agent.”

listing An employment contract between an owner of real estate and a licensed real estate broker. Under such an agreement, the licensee is an agent, the landowner is the principal, and the purpose is to consummate a sale. The agent is authorized to hunt for a buyer, and the principal is obligated to pay compensation, called a commission, to the agent if a ready, willing and able buyer is found at the price and terms set forth in the listing, or any other price and terms acceptable to the seller. The term listing is somewhat of a euphemism because a listing agreement carries with it serious potential dangers for a homeowner. There are three basic varieties of listings: the open listing, the exclusive listing, and the exclusive-agency listing. All listings include such details as its duration, the compensation (commission) to be paid, authorization for multiple listing, the advertising budget, and whether it is an open exclusive, or exclusive-agency listing.
In an exclusive listing, a commission is due the agent even if the homeowner personally finds the buyer during its term. In an open or exclusive agency listing, a commission is not due if the homeowner personally finds the buyer. See open listing, exclusive listing, and exclusive-agency listing.

listing agent An agent who obtains a listing, that is, a contract to solicit a buyer on behalf of his principal, the seller. An agent must be licensed by the state to solicit listings or buyers, or to engage in any other aspects of negotiating the sale or purchase of real estate. Some agents specialize in obtaining listings, other agents specialize in the selling function. Commissions paid by the seller are traditionally shared by the listing agent and the selling agent.

listing agreement See listing.

listing package Information about a specific parcel of real estate, including its legal description, a list of encumbrances, the name and address of its owner, and the status of property taxes. Title companies may prepare a listing package for a customer in the expectation that it will receive the escrow and title insurance business when the property sells.

litigious Excessively inclined to resolve disputes and claims through lawsuits rather than by negotiation or other methods.

LLC limited liability company See limited liability company.

LLP limited liability partnership See limited liability partnership.

load The front-end costs (initial expenses) in a limited partnership syndication, including sales commissions on raising capital, organization and offering expenses (incorporating, printing and advertising, for example), acquisition fees (commissions), and working capital reserves. Often one third of the capital raised is consumed by the front-end load, leaving only two-thirds for the real estate investment. A no-load syndication charges no sales commissions on the capital it raises directly, but it does charge the other front-end loads, leaving three-fourths or more of the capital for the real estate investment. Even no-load syndications may pay a sales commission to third-party broker dealers who raise capital.

load factor Not all the space in an office building is capable of generating rent. The percentage of non-rentable space is its load factor. Areas such as hallways, stairwells, and rest rooms are typically not included in the tenant’s lease. The load factor is a percentage figure created by dividing the square footage of non-income-generating space by the total square footage of the building. The lower the percentage, the more effective the building is in generating income due to its design.

loan syn finance See finance.

loan commitment A promise by a lender to provide financing according to specified terms at some future date. A verbal loan commitment is not enforceable unless supported by consideration. Terms of a committed loan frequently will be “locked” for an agreed period of time providing the borrower with an effective option.

loan correspondent A loan representative who negotiates and/or services mortgage loans. A loan correspondent often works for an out-of-state lender. See servicing.

loan fees The fees that are incurred to obtain a mortgage loan. These fees are in addition to interest charges and may include charges for a loan application, a loan origination fee (called points), an appraisal fee, a credit report fee, an inspection fee, an attorney’s fee, and a mortgage insurance premium.

loan modification A type of refinancing in which an existing loan is simply modified, instead of replaced. Modification may involve an increase in the amount of the loan as well as a change in its interest rate. Points are normally not charged in connection with a modification, although a small “token” fee may be charged. Loan modifications are possible when the original lender has retained the loan (i.e., it is a portfolio loan). Loans sold in the secondary mortgage market usually cannot be modified.

loan origination fee A lump sum fee paid by a mortgage borrower to the lender, who in turn pays it to a mortgage broker who introduced the borrower to the lender. Often the fee is called “points” when it is charged to the borrower, and called “a loan origination fee” when paid by the lender to the mortgage broker.

loan package A group of financing documents presented to an escrow by a mortgage lender with instructions to disburse loan proceeds when certain conditions are met. Mortgage lenders may fund the escrow at the last minute before escrow closes even though the loan package is forwarded much earlier to allow time for the escrow officer to obtain signatures and data. Sometimes a loan application with supporting documentation, supplied to a lender from a developer is also referred to as a loan package.

loan ratio The ratio of a prospective loan amount to the appraised value of a home. For example, a buyer that needed to borrow $100,000 to buy a home with an appraised value of $125,000, would ask the lender to accept a loan ratio of 80% ($100,000/125,000 = 80%). Also called the loan-to-value ratio.

loan-to-value ratio, (LTV) The ratio of a mortgage loan to the market value of the real estate securing the loan. Lenders prefer a low ratio to guarantee collecting the loan amount even if the borrower defaults and they must foreclose. Borrowers prefer a high loan ratio, preferably one hundred percent, to keep as much of their working capital available as possible. Some developers and builders overstate construction costs and obtain inflated appraisals to obtain larger loans, that is, higher loan-value ratios. Many lenders are aware of this practice and take it into consideration in their loan approval process.

loan underwriting The process of evaluating the acceptability of a prospective borrower’s loan application. Underwriters adhere to rules, policies and company practices to determine whether or not a specific loan ought to be made or denied.

location, location, location A phrase that emphasizes how important location is to the desirability, and hence the value of real estate.

locked-in interest rate An interest rate guaranteed by the lender, even if interest rates should rise between the time of the quotation and the time the loan closes. Quoted interest rates may become locked-in at the time of application for the loan, later on when the loan is approved, or not until the loan escrow is closed.

locked-in loan A mortgage loan that cannot be prepaid prior to its maturity. Some notes call for a specified sum each month, “or more.” Such a provision means the loan is not locked in. In some states, a mortgage loan secured by residential property of four or less units legally may not be locked in. If a borrower desires to prepay a locked-in loan, the lender can negotiate a prepayment fee or penalty, or simply refuse if permitted to under state law. Usually creditors will, by the terms of their note, accept some prepayment each year without penalty.

locked-out home buyers Potential purchasers who cannot afford to purchase available housing.

lo-doc loan A mortgage loan for those persons who cannot easily substantiate their income, or who are in an exceptional hurry to close a deal. Most of the typical documentation required by lenders is waived. The obvious benefits to the borrower of a lo-doc loan are offset by the requirement for a large down payment of, say 25 percent, plus a higher interest rate, and plus higher origination and/or garbage fees.

log home A modern log cabin based on the usefulness of logs as an efficient building material. Its popularity is hampered by building codes which are directed towards stick-built houses.

lot A parcel of land zoned for commercial or residential development of a single structure.

lowball offer An offer to purchase real estate that is much lower than the asking price. A lowball offer may insult a seller or result in a “steal”.

low-density zoning syn large lot zoning See exclusionary zoning.

LTV loan-to-value ratio See loan-to-value ratio.

M

MAI Member Appraisal Institute. A member of the American Institute of Real Estate Appraisers, which is affiliated with the National Association of Realtors.

main lease syn master lease, head lease, principal lease, underwriting lease, and original lease See master lease.
mall A covered pedestrian walking area within a shopping area. Also, the entire shopping center that is characterized by retail establishments with entrances into the covered pedestrian mall.

management fee A fee paid for supervision and day-to-day business decision-making that occurs in the management of income producing real estate. These fees vary widely, from three to five percent of the property’s gross income, as a general rule. Fees vary widely because of money factors, such as the percentage of leases that are triple net requiring little administration or that encompass large square foot areas.

management survey A complete analysis of any income producing property. The physical condition of the subject, its economic “fit” to the neighborhood and community, its income and expense history, and so forth, comprising the study.

manufactured home A home that is mostly constructed in a factory and then transported to a permanent lot or site. A manufactured home is not a mobile home, which is entirely completed in a factory and transported to a site on its own wheels.

manufacturing zone A land use zone that allows both heavy and light industrial business activities, including manufacturing, processing, fabrication, and warehousing. These areas are likely separated from residential areas by some type of buffer zoning, such as commercial.

marginal buyer A prospective buyer who does not qualify for a new institutional mortgage loan. Marginal buyers often seek carryback financing, lease-options, land contracts and no-money-down deals.

marketable title The condition of record title that a seller legally must convey to a buyer. If the title is defective (perhaps because there is a deed within the chain of title that contains an incorrect description), there is a cloud on title, and the title is not marketable. The seller must clear the title so that a marketable title is conveyed to the buyer. Title insurance does not insure against loss from defective title; rather the defect is listed as an exception from coverage. Generally, a marketable title is a good title with nothing showing that might effect the buyer’s use, enjoyment, and possession of the property. Thus, it is often referred to as good title. Basically, a marketable title is free from doubt, and enables the owner to enjoy the land free from the hazard of litigation.

market data approach A method to estimate a property’s market value by analyzing market data, that is, the sales prices of comparable properties. (Such sales prices of comparable properties are called comparables, or comps.) Since perfect comparables are rare, adjustments must be made to account for differences in size, shape, the time and the terms of sales, and so forth.

marketing contract syn contract for sale, deposit receipt, and purchase contract See contract for sale.

marketing plan A plan to sell real estate, usually proposed by a sales agent, which includes such matters as targeting the best class of buyers, setting advertising budgets, arranging for open houses, using multiple-listing services, and arranging for agent tours.
market rate interest The current interest rate thrifts are charging for lending money in specified real estate transactions. Different market rates exist for all the many varieties of loans.

market rent The amount that a property should command as rent if exposed to the market for a reasonable time. See also negative rent.

market value In appraisal, an estimate of the worth of real estate at a particular time. There are at least two concepts in appraisal, the highest price definition (HPD), and the most probable selling price definition (PSD). Loosely, many owners think of market value as the gross price they can obtain for their properties.

master lease syn head lease, underwriting lease, principal lease, main lease, and original lease The basic lease between the owner of real estate and his tenant, which has priority over other leases and subleases that arise subsequently.

master-planned community A community designed to provide an intelligent and orderly development process with a blend of housing styles, shopping areas, recreational facilities, and so forth. CC&R’s are used extensively to maintain community standards and property values.

maturity The length of time during which a loan will be repaid. Also, a loan that has been paid down over several years is said to be “mature” because it has a history of repayment. All other factors being equal, a mature loan is more marketable than a new loan because the reliability of the debtor has been demonstrated.

maximum mortgage amount The maximum real estate loan that can be insured under a specific government program.

maximum rate The highest rate of interest that can be charged during any period in a variable-rate mortgage.

MBA Mortgage Bankers Association. Also, Master’s degree in Business Administration.

MCC mortgage credit certificate See mortgage credit certificate.

mechanic’s lien A lien to guarantee the payment of wages and prices to laborers and suppliers. Unpaid laborers or suppliers can secure their unpaid debts (wages and prices) with a lien on the land of the owner if certain procedural steps are followed. Like other liens, it is possible to foreclose a mechanic’s lien and cause the property to be sold to satisfy the debt. Mechanic’s liens, like other liens, are subject to rules of priority. See priority of liens.

mediation The use of a neutral third party to assist parties in voluntarily resolving their dispute. The neutral third party is called a mediator.

memorandum of lease syn short-form lease and skeleton lease An abbreviated document that refers to a lease. It is prepared for recording without revealing the pertinent and often private terms of a lease.

memorandum of option A memorandum that contains only minimum information, such as the names of the optionor and optionee and the term of the option. It is recorded to protect its priority without revealing sensitive data, such as the option price.

mid-price office buildings High-quality one- and two-story office buildings built in campus-like business parks.

milking syn bleeding To systematically drain a company or project of its assets or profits that ought to be expended on operations, maintenance, etc. An apartment project may be milked, for example, by deferring maintenance.

mingles Single persons who are not romantically involved but who purchase homes together.

minimall A shopping center designed for small boutiques and shops rather than a large anchor tenant, such as a department store.

misrepresentation syn deceit and fraud A false statement made intentionally, knowing it is not true. A negligent misrepresentation is a false statement made carelessly.

mistrial A trial that has failed to conclude properly because of some defect or because of the inability of the proper number of jurors to concur in a verdict. For example, inflammatory remarks by an attorney to a jury may result in a mistrial before the jury returns a verdict. A new trial is usually scheduled to follow a mistrial.

mitigation of damage The legal obligation of a victim to reduce or minimize damages caused by a wrongdoer. For example, a landlord must try to rent leased premises wrongfully abandoned by the tenant.

MLS multiple listing service See multiple listing service.

MMI mortgage insurance See mortgage insurance.

mobile home A manufactured single-family dwelling unit suitable for year-round occupancy and containing the same type of water supply, waste disposal, and electrical conveniences as standard housing does. Mobile homes no longer are as mobile as their name suggests, and usually are permanently placed in a location.

mobile home lot A parcel of land for the placement of a single mobile home and the exclusive use of its occupants.

mobile home park syn mobile home subdivision A parcel of land under single ownership that has been planned and subdivided into lots for the placement of mobile homes for residential use. Such “parks” usually have a density patter of eight or nine mobile home sites to the acre. Each site is occupied by an individual mobile home. See mobile home subdivision.

model home A completed and furnished home used by a subdivider as a sales device. Prospective customers can compare floor plans, develop ideas about decorations, and make decisions on upgrades and options. Model homes often double as sales offices.

moderate-income family A family whose income is near the national average.

modular home A home that is completely manufactured in a factory in two or more sections, or modules. Modular homes are shipped by truck to their permanent sites, where the sections are attached.

moratorium A temporary denial of permission to develop used by local government to create an opportunity to formulate permanent growth policies and plans.

mortgage syn real mortgage and deed of trust A security agreement. In some states, a “mortgage” is widely used, in others, a “deed of trust” is used. Even in deed of trust states, the term mortgage is used interchangeably with deed of trust, or trust deed. Throughout this Study Guide both mortgage and deed of trust are used interchangeably.
In a mortgage, the borrower is called the mortgagor, and the lender is called the mortgagee. (In a deed of trust, the borrower is called the trustor, the lender is called the beneficiary, and a third party who holds legal title is called the trustee.) Under both instruments, the lender has the power to cause a non-judicial foreclosure sale to take place as a basic remedy to secure repayment of the debt. Or, under both instruments, the lender may elect to pursue a judicial foreclosure, which involves court proceedings and a lingering right of redemption, in an attempt to obtain a deficiency judgment following the foreclosure sale. See deed of trust.

mortgage banker syn mortgage company An organization engaged in the business of making real estate loans with its own capital, or one that acts for institutional lenders.

Mortgage Banker Association, (MBA) See MBA.

mortgage bond program A financing program that authorizes raising mortgage money through the issuance of tax-exempt bonds. Because of the tax exemption, the mortgage rate is less than the conventional rate. Bond programs are one variety of subsidized financing.

mortgage broker A licensed agent who brings together borrowers and lenders of mortgage funds. Also, a licensee who arranges mortgage loans for lenders. Mortgage brokers usually do not service mortgages (that is, they do not collect the mortgage payments). They receive commissions on the loans they generate.

mortgage company syn mortgage banker See mortgage banker.

mortgage credit certificate, (MCC) A federally authorized tax credit program for first-time home buyers who purchase a home for less than ninety percent of the average area purchase price. For example, prices cannot exceed $257,000 in San Francisco, $223,000 in Oakland, or $193,000 in Sacramento as of fall 1993. Qualified buyers receive a direct tax credit on their federal income tax liability equal to twenty percent of the amount of interest they pay on their mortgages. However, there is an earnings cap to qualify, approximately $43,000. Critics argue the program subsidizes buyers who would have purchased regardless of the program. Some studies have show the contrary. The program is administered on a county-by-county basis and may vary slightly accordingly.

mortgagee The lender in a real estate transaction that involves use of a mortgage. See also mortgage.

mortgagee in possession A mortgage lender who is obtaining the income (rent) from a property following default pending foreclosure. Mortgages and deeds of trust contain an assignment-of-rents clause that authorizes the taking of possession (rent) upon default by the debtor. The purpose is to protect the stream of income (rent) for the lender pending foreclosure.

mortgage information service A computer based system that brings buyers together with appropriate lenders through a mortgage money search system. A prospective borrower may quickly scan most of the available mortgage money available, with complete details as to the terms, rates, caps, and so forth. Not all lenders necessarily sign up as participants in such programs, but those that do participate provide their full array of loan types, rates, indexes, payment plans and fees. The service is available through real estate brokers or private companies in larger metropolitan areas.

mortgage insurance, (MMI) syn mutual insurance Insurance provided by the Federal Housing Authority (FHGA) as part of its mortgage loan programs. The premium is one-half percent of the loan balance. Private mortgage insurance is available for non-FHA loans. All mortgage insurance premiums and other specified revenue of the FHA are paid into a fund from which losses are met. Either mutual or private mortgage insurance is required to assure the marketability of mortgages in the secondary mortgage market. See secondary mortgage market.

mortgage insurance premium The annual charge made by the Federal Housing Authority (FHA) as a premium for the insurance it provides against default on insured mortgages. It generally is at a rate half of a percent. Non-governmental, or private mortgage insurance (PMI) is also available for conventional loans.

mortgage interest deduction Pursuant to the Tax Reform Act of 1986, income tax deductions are allocated for interest paid on loans secured by taxpayers’ homes. Interest payments on mortgage loans in excess of the cost of the home plus the cost of improvements are not deductible, unless the loan proceeds are used for home improvements, education or medical expenses. See home equity loan.

mortgage loan servicing Collection of loan and impounded payments, bookkeeping, payment of ad valorem taxes and casualty insurance premiums, and other related administrative and clerical services.

mortgage loan underwriting The process of reviewing loan applications. The underwriter accepts or rejects loan applications depending upon their proposed terms, real estate securities and the characteristics of the proposed borrowers.

mortgage note syn promissory note A promissory note secured by a mortgage on specific real estate. The note contains all the terms of the loan, for example, the interest rate, term, monthly payment, and delinquency charge. See promissory note.

mortgage out To obtain financing in a project that exceeds market value of the security. All equity is “mortgaged out” of the deal, which provides favorable tax treatment because borrowed money is tax free. Debt in excess of the value of the property may create tax consequences.

mortgage participation certificate, (PC) A security issued by the Federal Home Loan Corporation, Freddie Mac, which is backed by conventional mortgage loans. Proceeds from issuance of PCs are used to purchase loans from mortgage lenders, giving them the cash to make new loans. See secondary mortgage market.

mortgage redemption insurance A form of life insurance that provides for the payoff of a home mortgage on the death of the debtor. The amount of the insurance coverage decreases just as the mortgage decreases over the term of the loan. This variety of life insurance typically is among the most costly and least desirable.

mortgage revenue bonds Tax-exempt bonds issued to finance development of residences for certain classes of purchasers within specified income limits. The California Housing Finance Agency has issued bonds in support of various financing programs.

mortgagor syn debtor Also called trustor under a deed of trust, and is maker of the underlying promissory note.

mother hubbard clause syn anaconda mortgage and dragnet clause See dragnet clause.

motion to court A request to the court for a decision on some issue. Motions before trial almost always are in written form–during trial many are in verbal form (e.g., objections to preferred evidence). Attorneys can make many written motions at all stages before trial for a variety of reasons that may or may not be important. The preparation of any motions fattens the attorney’s hourly billings (except in fully contingent arrangements, of course). Understanding the tasks performed by attorneys, such as making pretrial motions, is valuable to the manager in participating in the management of the case and of the attorney.

motion to produce Request to a judge by counsel to compel the opposing party to provide specified evidence to the court. This is a type of discovery procedure.
move-up buyer syn trade-up buyer A homeowner who desires to purchase a larger and more expensive home with greater amenities.

multi-family A structure housing a number of family units. An apartment house is a multi-family structure.

multi-plex theatre Theater complexes of perhaps twelve or more screens. These buildings typically feature showcase entryways.

multiple listing service, (MLS) A service, often computerized, which provides information to its membership about residential properties listed by the members. A prospective buyer is able to review in one agent’s office all available properties listed for sale. In larger cities, a “book” of listings no longer is printed because agents rely upon computers for instant data retrieval.

mutual insurance syn mortgage insurance, (MMI) See mortgage insurance.

N

naked legal title syn bare title Ownership by one person (e.g., a trustee) when equitable ownership (possession) is owned by another (e.g., trustor).

NAR syn National Association of Realtors See National Association of Realtors.

National Association of Realtors, (NAR) An association of real estate professionals which is subdivided into state associations and local boards throughout the United States. The organization is primarily concerned with ethics and education in the industry and lobbying efforts pertaining to legislation that could have an impact on members and their businesses.

National Institute of Real Estate Brokers, (NIREB) An organization affiliated with the National Association of Realtors. It conducts continuing education programs for realtors.

negative amortization A gradual increase in mortgage debt. Negative amortization describes any situation where interest accrues on a mortgage at a faster rate than it is paid. The unpaid interest is added to the unpaid balance of the loan, so that the debt increases accordingly. This can happen, for example, with a bow-tie loan where the contract rate, which is tied to a floating index, is higher that the pay rate. Some homeowners face negative amortization when interest rates rise and their adjustable mortgage has a payment cap but no interest cap.

negative declaration A determination that a project will not produce a significantly adverse impact on the environment. When a negative declaration is authorized, no environmental impact report is required.

neighborhood (shopping) center A retail center, open air, characterized by a supermarket or drug store as anchor tenant. Satellite service stores will occupy 50 to 60 percent of total space. Site may be from 3 to 15 acres. These centers serve a smaller geographical area than a community retail center.

neighbor law The body of laws and rules found in state statutes, county and city ordinances, covenants, conditions and restrictions (CC&Rs), and court decisions that govern the legal issues that arise between residential neighbors.

NEPA National Environmental Protection Agency

nest egg Savings. A source of down payment for home buyers.

net lease syn triple net lease A lease where all expenses of occupancy are paid by the tenant in addition to rent, which is accordingly “net income” for the landlord. Some net leases provide that specified expenses are to be paid by the landlord (for example, roof and exterior wall repair). Because the term “net lease” is somewhat ambiguous, most leases elaborate on each tenant’s pro rata share of specified expenses.

net listing See listing agreement. A listing that allows the agent to retain as commission all sums received over and above a net price to be received by the owner. The purpose is to guarantee a minimum net amount to the owner. The pitfall is that the misunderstandings, and even charges of unfair advantage, may develop between the owner and agent if the agent should realize a windfall.

net rentable That space within a building for which the tenant pays rent. Net rentable square footage typically excludes rest rooms, hallways, and lobbies. Useable square footage, on the other hand, includes rest rooms, hallways, and lobbies, but excludes vertical shafts such as stairwells and elevators. In a lease for usable square footage, each tenant pays a pro rata share of costs applicable to occupancy and maintenance of the bathrooms, hallways, and lobbies; in a lease for net rentable square footage, they pay only for occupancy.

neutral expert fact-finding A nonbinding alternative dispute resolution (ADR) process in which an appointed third-party expert investigates and/or hears facts on selected issues and makes advisory findings of fact.

NIREB National Institute of Real Estate Brokers See National Institute of Real Estate Brokers.

no-equity or negative-equity home mortgage. Under a no-equity mortgage, the owner has no stake in the home. These loans may be based on “drive by” appraisals that basically confirm little more than the existence of the home.. These loans may carry interest from 10 to 14 percent, which appeals to borrowers who refinance their credit card debt (which carries 19+ percent interest). Furthermore, payment terms often are extended sufficiently that the monthly payment amount is decreased. Interest paid on these mortgages is deductible up to the value of the home-but not on the excess part of the mortgage. Although the creditor’s loan in reality may be secured by thin air, that is little different than the unsecured position of the credit card lender. Homeowners traditionally are more reluctant to declare personal bankruptcy than others, and these no-equity loans may, therefore, enjoy better repayment histories.

NOD Notice of default. See notice of default.

nominee A party designated to act in place of the actual buyer in a real estate transaction. A nominee may be designated to achieve business privacy. A nominee is not an assignee, and if a buyer intends to assign the purchase contract to another person, the contract should specify “buyer or assignee.”

nonconforming mortgage lenders Mortgage lenders whose loans are not held for sale in the secondary mortgage market. Most mortgage lenders are conforming lenders, that is, they sell their loans to the Federal National Mortgage Association (Fannie Mae), the Government National Mortgage Association (Ginnie Mae), or the Federal Home Loan Mortgage Corporation (Freddie Mac). Nonconforming lenders need not conform to the rules and regulations of these secondary market purchasers because their mortgage loans are retained.

nonexclusive listing See open listing.

nonjudicial foreclosure See foreclosure.

nonrecourse debt Any debt that cannot be collected by resorting to the debtor’s personal assets. For example, the mortgage debt of a partnership in which limited partners have no personal liability, is nonrecourse debt as to them. In most real estate loans, the creditor can foreclose but may not resort to the personal assets of the mortgagor debtor. However, there are exceptions, and some real estate loans are full-recourse indebtedness.

no-points conventional loan A home loan that features no up-front charges for points in exchange for a slightly higher than standard interest rate. The advantage is the avoidance of paying up-front money for points. The disadvantage is the slightly higher interest rate over the life of the loan.

notarized Signed in the presence of a person licensed by the state to perform identification services as a Notary Public. Most real estate documents, such as deeds, deeds of trust, mortgages, and written easements, must be notarized before they can be recorded in the official records of the county in which the property is located.

Notary Public A person authorized by state law to acknowledge the identity of persons who sign documents. A notary verifies the identity of the person whose signature is notarized. In real estate, documents must be notarized before they are accepted for recording in the official records of the county.

note A shorthand expression for a promissory note, i.e., a written promise to pay a debt, with certain terms, signed by the debtor. A note is unsecured when there is no collateral pledged by the debtor to guarantee its repayment. Most real estate notes are secured by a deed of trust. Notes contain all the terms of the loans they evidence.

note brokerage The business of arranging the purchase and sale of existing real estate loans, (usually second mortgages) to investors. A seller who accept a carryback mortgage, for example, may have it rated as to salability based on the property’s value, the equity supporting the loan, the maker’s credit history, if it’s occupied and its seasoning (called PECOS). The note broker will rate the note and present it to interested investors who may buy at a discount to receive the desired investment return. Note brokers charge commissions for their services.

notice syn constructive knowledge See constructive knowledge.

notice of cancellation of escrow A written notice from a principal to an escrow holder that authorization to proceed to close of escrow is cancelled. Such a notice will freeze an escrow. A wrongful cancellation may create a cause of action in favor of the other principal to the transaction for breach of contract, or possibly for a business tort.

notice of default, (NOD) A document that is recorded, at the option of the beneficiary, following a default in the payment of a note secured by a deed of trust. The purpose is to begin the statutory reinstatement period during which the default may be cured by the debtor. Recordation of a notice of default is the first step in the non-judicial foreclosure of a deed of trust. Before a lender records a notice of default, the borrower ordinarily will be contacted about the pending delinquency. Fannie Mae has guidelines for lenders that call for a reminder notice between the seventh and tenth day following nonpayment, and a late-payment notice following the seventeenth of the month. Telephone contact must also be made after seventeen days, and a personal interview must occur after fifty days. Thereafter, a NOD can be recorded and foreclosure commenced.

notice of delinquency A notice distributed by a senior mortgage lender that a delinquency in monthly mortgage payments has occurred, though a notice of default has not yet been recorded. The purpose is to give junior lienholders early notice of delinquency and notice of the possibility of a forthcoming foreclosure.

notice of nonresponsibility A written notice that, with additional procedures, serves to relieve the owner of real estate from liability for work done on the property that was not specifically ordered by the owner. It will, for example, defeat a mechanic’s lien filed by a supplier hired by a tenant. The owner of a commercial property often will record and post a notice of nonresponsibility before a new tenant begins a work of improvement. This forces the contractor and subcontractors to rely on the credit of the new tenant for payment of their contracts.

notice of trustee’s sale, (NTS) A document recorded by the trustee under a deed of trust stating the time and place of a foreclosure sale. The NTS is also published in a newspaper and posted on the subject property and in a public place, such as the county courthouse bulletin board.

novation A substitution of debtors, with the former debtor being completely released from his or her former obligation. An assumption of an existing mortgage by a buyer of real estate may be followed by a release of liability of the former debtor who is the seller. Such an assumption and release constitutes a novation. Sellers ought to obtain a release from his or her lender whenever a sale is made utilizing an assumption. If a lender refuses to release a seller, it probably is because of the credit worthiness of the assuming grantee.

NTS syn notice of trustee’s sale See notice of trustee’s sale.

nuisance Anything injurious to health (for example, toxic wastes), offensive to normal senses (for example, odors), or an obstruction to the use and enjoyment of property (for example, loud sounds) is a nuisance. Property owners subjected to a nuisance may obtain a injunction to abate the nuisance as well as damages.

null and void Without legal effect. A contract is null and void under certain circumstances. For example, a contract with an incompetent person is null and void, with or without court action. Other contracts are merely voidable, meaning that some action must be taken by the innocent party to rescind the agreement or it will continue in force and effect. For example, a contract that was entered because one party lied about something important in the deal, is voidable, but the victim must go to court to have the agreement rescinded. But if the victim does not understand the voidability of the agreement, or doesn’t care, the agreement effectively will stand.

nut A recurring constant financial obligation, such as monthly fixed costs of a commercial real estate agent.

O

office park A planned development for office buildings.

off-site improvements Physical changes made for a site that are located off-site, which connect the site to the local infrastructure thereby improving its usefulness. Examples are sewer truck lines connecting to on-site laterals, or traffic lights regulating traffic that has been increased by the development, storm drainage extensions to the site, and entrance roads to subdivided lots.

on-site improvements Physical changes made to a site which improve its usefulness. A site may be leveled and graded, have storm and sanitary sewer extensions installed, have curb and gutters formed.

on-the-street Public information, or information that is available to and know by other real estate agents.

open listing syn nonexclusive listing An employment contract between an owner of real estate and a licensed real estate broker. The owner agrees to pay a specified commission to the broker, if the agent is the procuring cause in producing a buyer of the property. Open listings are not ordinarily used in home sales because an agent might spent considerable time working on properties which ultimately were sold through the efforts other agents. In commercial transactions, however, the size of the commissions involved often make open listings acceptable to specialists in that field. See also listing.

open-end mortgage A mortgage loan that authorizes periodic future advances of money. It is used when the borrower anticipates the need for additional funds from the outset. The loan includes a provision that the mortgage secures the repayment of all future advances. Future advances retain the same priority as the open-end mortgage to which they pertain. See expandable second mortgage.

open house “Opening” a house that is offered for sale for public inspection. It is a two-pronged strategy used in residential real estate sales. One “prong” occurs when a real estate salesperson seeks listings or other business leads from members of the public while using the principal’s home, that is, the open house, as bait. The other “prong” is directed toward the sale of the owner’s house, by showing it to “drive-bys” who may be prospective buyers. Contrary to what most home sellers think, their open houses conducted in their homes, by their sales agents, are not primarily for the purpose of selling their homes.

OPM other people’s money Control of OPM is the underlying concept of a highly leveraged transaction. A syndicator relies on OPM, that is, capital from investors, to make a deal work. Control of OPM creates extreme ethical responsibilities. In general there is no liability imposed by law simply because the handler of OPM “loses” money that has been placed at risk.

option An agreement between the owner of real estate, called the optionor, and a potential purchaser, called the optionee. Within the option period, the optionee has the right to purchase on the agreed on terms. A buyer will use an option when he is not yet ready to purchase, is speculating on a rise in prices, needs time to determine the feasibility of a project, or needs time for promotional work (perhaps in regard to zoning or syndication). A seller will use an option to set a price based on future appreciation, to postpone a sale to a future tax period, to obtain long term capital gains treatment, or to induce a promoter to work on development and purchase of the property. An option is not restricted to a purchase transaction. For example, a lease may include an option to renew the lease at its expiration, for another period on specified terms.

option money Money consideration paid by an optionee to an optionor in exchange for the option. Option money is non-taxable to the optionor until the option is either exercised or expires. If the option is exercised, the option money is capitalized by the optionee as part of the purchase price (tax basis); if not exercised, option money may be deductible depending on whether or not the subject property was for business or for personal use.

oral contract Any verbalized agreement, such as “marine to marine” or “eye to eye” or “there, a deal’s a deal” while handclasping. In general, oral contracts are theoretically enforceable in many real estate related deals. For example, an oral agreement between licensees to divide or “split” a real estate commission is valid. The Statute of Frauds and other statutes render oral deals unenforceable in some real estate related transactions, e.g., agreements to convey interests in real property (subject to the overriding doctrine of partial performance under certain circumstances).

ordinances Written laws enacted by local governments such as cities and counties.

ordinary wear and tear Deterioration attributable to the passage of time and reasonable use by the tenant and not to any damage or abuse.

original lease syn master lease, main lease, head lease, principal lease, and underwriting lease See master lease.

overfinance syn buyer cash out and buyer walkaway See buyer cash out.

origination fee A loan fee. It is the fee paid by the borrower of a mortgage loan to cover the expense of initiating the loan. The fee is usually paid to an agent who is in the business of making, or originating, loans. Origination fees are included in escrow closing costs.

overriding deed of trust syn blanket deed of trust or mortgage A deed of trust covering two or more parcels.

overriding interest The interest received by the beneficiary of an all-inclusive note and deed of trust that exceeds the interest he is paying on the underlying obligation. For example, a landowner may be paying nine percent interest on an existing mortgage. On the sale, of the property, the seller may accept a wraparound mortgage that carries eleven percent interest. The seller will thus receive overriding interest of two percent on the nine percent debt.

owner occupancy agreement An agreement between the borrower and lender of a purchase money mortgage that after the loan is made, the premises will be “owner-occupied.” Such loans command a lower interest rate, lower origination fees, and lower LTVs than investment (non-owner occupied) loans. Thus lenders require that borrowers agree to adhere to the terms that were included in the loan application. Lying to a federally chartered lender is a federal crime that is frequently prosecuted by the U.S. Attorney’s offices.

owner-occupant A homeowner who lives in his/her residence. A single family home occupied by a renter is an investment property.

P

package mortgage A mortgage under which the collateral is both real and personal property. A package mortgage will often secure money spent for appliances that the new home buyer otherwise could not afford.

paired condo syn attached single-family home See attached single-family home.

panel D The inspection report required by the Federal Housing Authority in home loan packages.

panelized home A home in which major components, such as the floor, walls, and roof, are constructed or assembled in a factory and then shipped to a permanent lot or site for final assembly, and installation of plumbing and electrical wiring.

paper A promissory note. Usually paper in real estate transactions is secured by a deed of trust. A rule of thumb is that you should “buy with paper and sell for cash.”

paper losses Tax losses from tax deductions that are allowable for non-cash expenditures. For example, if gross income is $100,000 and deductible cash expenditures are $80,000, and allowable depreciation is $25,000, there is a “paper” loss of $5,000 although there is a positive cash flow, or economic profit, of $20,000. A “paper” loss is a loss only in the paper in a tax return and has no relationship to an economic profit or loss.

paper profit Appreciation in value of real estate.

paralegal A person qualified to perform a wide range of legal tasks under the guidance of an attorney. See also “legal assistant.” Many, if not most legal services by large law firms are performed by paralegals or legal assistants. However, these semi-pros, by law, are not permitted to render these services in which they may excel on their own as independent contractors.

parol-evidence rule The rule that when contracting parties have put their complete agreement into writing, no prior or contemporaneous oral or written terms may be unilaterally added later to change the written contact, absent proof of fraud, mistake, or illegality.

partial deed of reconveyance A deed of reconveyance that reconveys a geographical part, but not all, of the collateral to the trustor (borrower) in exchange for a principal payment on the loan.

partially amortizing loan A real estate loan that, by its terms, will not be fully paid off at its due date at which time a balloon payment will be required. The purpose of this type of loan is to keep monthly loan payments lower than would be the case with a fully amortizing loan.

partial performance A legal rule that an oral contract that is unenforceable because of the Statute of Frauds, is nonetheless enforceable under certain circumstances. For example, an oral agreement to sell an interest in real property ordinarily is not enforceable. However, if the doctrine of partial performance is applicable, such an agreement is enforceable. In general, for such an oral agreement to be enforceable by a person claiming an interest in real property, there must be other evidence to substantiate the oral agreement, such as when possession has changed hands, and improvements have been made or part of the price paid. This rule is important to alert managers to guard against partial performance of an oral agreement by another person who might attempt to use “flexible” facts while “testilying” to obtain an undeserved property interest.

partial reconveyance The release of a portion of a property from the lien of a deed of trust in accordance with a partial release clause or agreement. The released parcel becomes free and clear of the mortgage on recordation of the “recon.” The technique is often used by large subdividers who require partial reconveyances as their subdivisions progress.

partial release clause A provision in a deed of trust permitting the release of portions of the encumbered property from the lien of the mortgage when certain conditions have been met, such as payments of specified amounts of the underlying debt. The clause most typically is found in blanket mortgages encumbering subdivision land. A pro-rata release clause provides for release of five percent of the real property upon payment of five percent of the unpaid balance of the loan.

participation mortgages Any financing that requires more than the payment of interest and thus participates in the equity or profits of the project. Lenders accept some risk with a borrower-friendly interest rate, in exchange for a share of potential benefits flowing from a project. One variety of participation mortgage calls for the lender to receive, in addition to a stated rate of interest, a percentage of any increase in gross income, or a percentage in all gross income, plus a substantial slice of any resale or refinancing proceeds. Another variety is the land-sale-leasehold loan. Here the lender purchases the land, leases it back to the owner, and makes a first priority leasehold loan. The lender also receives a percentage of the gross income, cash flow, and/or resale or refinancing proceeds. Usually a ground lease will be extinguished on future sale. The benefit to the developer may be one hundred percent financing. Another variety of participation mortgage is the convertible mortgage, which the lender may opt to convert into an equity position at a future time. (The amount of the unpaid balance becomes an equity interest upon conversion.) Another version is a straight joint venture, under which the lender puts up one hundred percent of the project costs and receives at least fifty percent of the ownership, plus a preferred return and debt payments. The developer has the advantage of a partner with “deep pockets” and complete financing, but sacrifices a major portion of the benefits of ownership.

participatory legal representation The futuristic idea that business clients participate personally in the day-to-day decisions made by their attorneys, and especially participate in establishing the terms of their underlying employment contracts (fee agreements, as referred to by most attorneys).

partition A legal action by a co-owner of an undivided interest in real property, (for example, a joint tenant) for the purpose of having a court divide the property and award a particular piece to each co-owner. If the property cannot rationally be divided, the court can order a sale. The proceeds then can be divided in accordance with the respective ownership interests. Partition is an expensive and usually unsatisfactory experience for co-owners.

passing syn close of escrow, (COE), close, and settlement See close of escrow, (COE).

patio home See condominium.

payee syn beneficiary The creditor to whom a secured note is made payable. An assignee does not become the payee following an assignment, although entitled to the payments.

payment shock A term used to describe the result of an increase in the monthly payment of a mortgage loan arising from an automatic escalation in a variable rate mortgage (VRM).

payor or maker syn trustor The debtor who has signed a note. In a secured loan, the payor/maker is also referred to as the trustor.

pay rate The rate at which the interest and principal are agreed to be paid on a loan, regardless of the rate at which the interest accrues. If the pay rate is less than the contract rate, negative amortization occurs because the low pay rate is inadequate to cover the interest accruing under the contract.

peaceable eviction An improper eviction technique by which a landlord surreptitiously enters the absent tenant’s apartment, removes the tenant’s belongings, and changes the locks to the unit. It is peaceable in the sense that no eye-to-eye confrontation takes place, as is the case in a forcible eviction.

percentage lease A lease of commercial property where the amount of rent is determined by the amount of business done by the tenant. Customarily, this is a percentage of the gross receipts with provision for a minimum rental.

performance bond A financial guarantee that a specified performance, such as construction of a park, will occur. If the bonded developer fails to perform, the bonding company must put up the funds necessary to complete the project.

performance deed of trust A deed of trust given to secure or guarantee the performance of some act other than the payment of money.

perjury Lying about material facts when testifying under oath.

permanent financing syn take-out financing See take-out financing.

permissive waste A tenants negligent failure to prevent damage to leased property. Permitting a leak to continue, furthering its damage, is an example. Permissive waste justifies legal action for damages and/or for eviction by the landlord.

PFA syn plucked from air appraisal See plucked from air appraisal.

phoney listing A listing by a homeowner at an inflated price simply to evaluate his potential equity by examining offers. Such an owner has no intention of selling. The disadvantages to agents include wasted time and effort and the appearance of a glut of housing on the market.

pie syn melon A large sum of money to be divided among a group of real estate operators. How shall we cut the pie?

piggyback loan A loan designed to help borrowers avoid the necessity of purchasing private mortgage insurance (PMI). Without a piggyback loan, borrowers must meet then-current down payment requirements (typically 20 percent) or purchase PMI. The piggyback loan provides an additional 10 to 15 percent of the purchase price to be used as down payment. The loan is a second priority loan of 10 to 15 percent which, when combined with additional cash from the buyer, equals the required 20 percent down payment. Because it is a second priority loan, the piggyback carries a higher rate of interest and a shorter term with, perhaps a balloon in a few years. Because interest on the piggyback is deductible while PMI is not, borrowers can still benefit although paying a higher interest rate.

pipeline A motivational concept that involves putting the beginning of a deal into one “end” of an imaginary “pipeline” each day and each day finding a deal ready to close at the other “end”.

PIQ syn property in question. The PIQ refers to that parcel subject of a title search.

PITI syn Principal, Interest, Taxes and Insurance, which represent the four basic expenses of owning real property. Lenders qualify prospective borrowers upon their ability make monthly payments of PITI.

plain vanilla title policy The variety of title insurance policy that offers least protection to an insured homeowner. Many agents are referring to the CLTA variety of policy when using this expression.

plaintiff In trial, the person trying to recover money damages or other relief from a defendant.

planned development, (PD) A zoning designation that suspends all otherwise applicable zoning requirements. For example, assume that a commercial zone requires a 25-foot setback from the rear property line. If the commercial zone is rezoned to commercial PD, the setback requirement would be suspended and development could occur (assuming permission of the governing body) within 25 feet. In some instances, a PD will lead to creative and innovative site plans and developments because the rigid rules standardized within zoning classifications are suspended. On the other hand, sometimes planning personnel or local governing boards will utilize the PD zone to impose onerous burdens and exactions on a given development. In a traditional standardized zoning classification, a developer need only meet the stated requirements of
the zone; however, once the zoning limitations are suspended, as by PD designation, then the developer is subjected, theoretically, to whatever demands may occur to the appropriate governing personnel. PDs are especially dangerous to a developer who is planning more than one type of land use within a single PD zone. Generally speaking, planners love PDs.

planned unit development, (PUD) A combination zoning and land use control technique is use for subdivisions containing owner-occupied homes with common ownership areas. A homeowners’ association controls common areas and enforces the usually extensive CC&R’s.

plat A map showing the dimensions of a subdivision together with the location of numbered lots, easements and streets.

pleadings The complaint of the plaintiff and answer of the defendant in a lawsuit.

pledged account mortgage, (PAM) A mortgage with monthly payments lower than necessary to fully amortize the loan, the difference being made up by monthly withdrawals from a pledged savings account. That is, the buyer must deposit a specified sum of cash in a pledged savings account. (The buyer cannot make withdrawals from the account.) In return, the buyer receives a low monthly payment rate. The lender makes up the difference between the payment and the amount necessary to amortize the fixed-interest-rate loan by making monthly withdrawals from the savings account. The buyer receives the advantages of a lower monthly payment and the interest from the savings account, but suffers the disadvantage of tying up a sum of cash.

plot plan A map of a property showing all the structures currently on the site and all the proposed structures and major improvements the owner or developer intends to develop. A plat plan is part of the documentation submitted to obtain a building permit.

plottage value The additional value created by a change in the highest and best use when two or more parcels are assembled.

plucked from air appraisal, (PFA) An agent’s high estimate of market value done to convince an owner that he should list his property for sale with that agent.

plug To push or advertise. For example, an agent may plug his listing with other against by highlighting all the details of the house.

PMI private mortgage insurance See private mortgage insurance.

POA property owners’ association. See homeowners’ association.

pocket listing A listing improperly withheld from multiple listing service by a real estate agent who intends to receive payment for both listing and selling the property, which customarily is priced so attractively that a quick sale is assured.

points A charge made by a lender in partial consideration of making a loan. The charge is made to the borrower and paid in escrow. Computationally, one point is one percent, so a charge of five points to obtain a $150,000 loan is $7,500. Essentially, points are disguised interest paid once instead of over the lifetime of the loan. Points are treated as additional interest in computing the annualized percentage rate (APR).

pool of mortgages A group of mortgages “pooled” together by a lender so they can be sold to one of the buyers in the secondary mortgage market, such as the Government National Mortgage Association, (Ginnie Mae). Most pools contain a million dollar minimum amount of mortgage loans.

portfolio All of an investor’s investments or all of a lender’s loans. Some institutional lenders will make “portfolio loans” to preferred customers that do not conform to the underwriting requirements established by buyers in the secondary mortgage market because the loans will be retained as an investment by the lender.

portfolio income Dividends, interest income, royalties and gains from sales of real estate are called portfolio income, Under the Tax Reform Act of 1986, passive activity losses cannot be used to offset portfolio income. See also passive activity rule.

portfolio lender A lender of home-purchase mortgage funds that does not expect to sell its mortgages in the secondary mortgage market. Because such lenders keep their loans within their own portfolio of loans, they can be more flexible (liberal) in the terms of the loans they offer prospective home buyers.

portfolio loan Loans retained by primary lenders as distinguished from loans sold in the secondary mortgage market. Mortgages that will be kept in portfolio need not meet the standards of secondary mortgage market purchasers of loans. All such nonconforming loans are kept in portfolio.
positive cash flow The amount of cash a real estate investment will produce each year after payment of all operating expenses and debt service.

possession The legal right to occupy or to receive the rent from real property. In residential property, the occupant who resides there has physical possession. The owner who has the right to collect rent, has legal possession. If the owner resides on the property, he has physical possession as well.

possessory lien A lien that empowers a creditor to retain possession of the collateral until the debt is paid, or sold to the highest bidder in accordance with the law. Typically a mechanic has a possessory lien on the automobile that is repaired. On the other hand, an attorney does not have a possessory lien on the client’s files.

power center A shopping center, open air, characterized by at least one “big box” retail establishment, such as a KMart, Home Depot or Price Club. Power centers are smaller than regional malls but larger than neighborhood or community centers. Site may be from 15 to 100 acres.

power of attorney A document in writing whereby one person, the principal, authorizes another, called the attorney-in-fact, to act for him. The power of the attorney-in-fact is are determined by the express terms of the document; they are not implied except insofar as may be necessary to carry out the expressly granted powers. In real estate, a power of attorney may be useful for an absentee owner or an investor who lives abroad. A special power of attorney limits the authority of the attorney-in-fact to certain enumerated tasks. A general power of attorney delegates all powers of the principal except the power to vote and the power to make a Last Will.

power of sale A clause found in a mortgage or deed of trust that, upon a default in monthly payments, authorizes the creditor (mortgagee or beneficiary) to cause the collateral for the loan (i.e., the debtor’s home) to be sold to the highest bidder a a private sale. Without a power of sale clause, foreclosing creditors would be required to file a court action for foreclosure, a time-consuming and costly process, before the collateral could be sold.

PRE syn prelim and preliminary title report See preliminary title report.

precedents, doctrine of A court decision on a question of law that gives authority or direction on a similar question of law in a later case with similar facts.

preemption agreement syn right of first refusal See right of first refusal.

prelim syn PRE and preliminary title report See preliminary title report.

prefabricated home The same as a panelized home except that plumbing and electrical wiring are installed at the factory instead of at the permanent site.

preliminary (or tentative) subdivision map A subdivision design map submitted to city or county planning staff for preliminary recommendations.

preliminary title report, (PRE) syn prelim A document prepared by a title company that contains a summary of all pertinent documents that are recorded in the official records, as well as the current tax status, of a particular parcel of real estate. A copy of the assessor’s parcel map is usually attached. The prelim is widely relied on as a summary of the title to real estate. Upon close of escrow, the prelim essentially becomes merged into the title insurance policy, with the summary of recorded documents being itemized as exceptions to coverage.

premium The cost of insurance for a specific policy period. The premium for a particular coverage customarily is determined by multiplying the coverage rate by the amount of coverage desired. For example, if the rate is $6 for every $1,000 of coverage, the annual premium is $600 for $100,000 of coverage. Premiums for title insurance are paid once for coverage as long as the property is owned. Casualty insurance premiums are payable periodically so long as coverage continues.

prepaid rent The rent is paid at the outset of a lease that covers periods of time at or near the end of the lease. Landlords prefer prepaid rent to compensate for any possible loss of rent pending eviction proceedings.

prepayment penalty The cash penalty for the payment of a mortgage debt prior to its due date. It is a lender’s charge to compensate for anticipated money losses due to the early payoff. The penalty is illegal if it is excessive or confiscatory. Prospective borrowers often negotiate for the right to prepay a mortgage loan without any penalty.

preponderance of evidence Standard of determining civil liability, that the weight of the evidence offered to prove a matter is more probable than not.

prescriptive easements Easements, usually of access, over the land of another person, created by a continuous, open (visible) use without the consent of the landowner for a long period of time, usually five years or more in most states.

present value The value today of a future receipt of money. If $1 will grow into $1.10 in one year (with interest at ten percent), then it can be said that $1 is the present value of $1.10 to be received one year in the future. The market value of a real estate investment may be thought of as the present value of the net economic benefits it will create over its life. The concept of present value is widely used in real estate investment.

pretrial proceeding In the months before a civil trial is scheduled to begin, several pretrial proceedings may occur. One type is a settlement conference attended by the attorneys, parties, and judge to determine if the case can be amicably settled without a trial. Another type is a conference attended by the attorneys and the judge to formalize the issues to be determined at trial and to decide whether to have a jury, among other matters.

price allocation An agreement by a seller and buyer in a commercial transaction as to what portion of the price is allocable to the land, to personal property, and to depreciable buildings. If the allocation is within reason, it will be accepted by the IRS.

price ladder A “stairway” of higher prices leading to higher quality homes.

price list leader An area of higher home prices.

price list loser An area of declining home prices.

pride of ownership An attitude toward real estate characterized by superior maintenance and repair. The attitude may be held by the owner, or by upscale tenants who collectively share a desire for highly maintained premises. Good guys come in last — the results of pride of ownership often do not produce commensurately higher prices.

prime interest rate A calculated interest rate published widely in financial circles and referred to by business persons as a comparison basis for interest changes and trends. Historically, the prime rate was that rate commercial lenders charged their very best, or prime, corporate borrowers. In current times the prime rate is more fictional than factual, in that many borrowers obtain loans at less than the prime, many more a point or two over the so-called prime. Therefore, the prime rate has become known more as a benchmark rate.

prime tenant syn anchor tenant A major credit-worthy tenant in a commercial complex that occupies a substantial and prime area of the structure.

principal, interest, taxes and insurance, (PITI) See PITI.

principal lease syn head lease, main lease, master lease, original lease, and underwriting lease See master lease.

principle of anticipation In appraisal, a concept that the value of a component is measured by the amount it contributes to market value, not by its cost. Thus, an additional bedroom may cost $10,000 but add only $5,000 to market value.
principle of change In appraisal, the principle that real estate values are constantly changing. Thus, an appraisal must bear a certain date to which the opinion of value pertains.

principle of increasing and decreasing returns In appraisal, the concept that the quality and quantity (size) of a project is determined by comparison of the cost and return of an added increment. For example, if an additional increment in quality (say, a water fountain) will not produce rent to offset its cost, it should not be produced. Likewise, if additional space in a common area would not produce rent to offset its cost, it will not be produced.

principle of substitution In appraisal, the principle that given two or more parcels of comparable utility, demand will be greatest for the least expensive.

priority of liens The preferential sequence of liens and encumbrances, which in property law is based on time. That is, the first lien or encumbrance to be recorded has priority over all subsequently recorded liens and encumbrances. The law of priority applies to almost all liens and encumbrances, such as mortgages, judgment liens, mechanic’s liens and homestead laws. Certain governmental liens and encumbrances, such as property tax liens, are not governed by the law of priority. Under the law of priority, all of the value of the secured real estate must first be applied to satisfy the lien with highest, or first, priority. If any value remains, it is applied then to satisfy the lien with second highest, or second, priority. Any remaining value is applied to any other junior liens in the same manner. After all recorded liens are satisfied, any additional value from the property belongs to the earliest unrecorded lienholder.

private mortgage insurance, (PMI) Mortgage insurance provided by private non-governmental companies to create marketability for conventional loans. See also secondary mortgage market.

private offering syn private placement A limited partnership offered, usually to 35 or less investors, for the purpose of obtaining exemption from Securities and Exchange and state registration laws required for public offerings.

private placement syn private offering See private offering.

probate properties Real estate that is for sale because of the death of its owner. Most real estate passes “through” probate and requires court confirmation of any sale, at which time the public may bid on the property. Some real estate on the market because of the owner’s death does not require court confirmation, such as joint tenancy property interests.

procuring cause The efforts of a real estate agent that result in an offer to purchase real estate made by a ready, willing, and able buyer who completes the transaction. The concept of a procuring cause is applicable when the seller of real estate chooses to use an open variety of listing agreement. Under such circumstances, only the agent that is the procuring cause is entitled to the commission. See also open listing.

promissory note syn mortgage note The written evidence of a debt. A promissory note may be negotiable and is always assignable. A note should contain the name and signature of its maker/debtor, the name of its creditor/payee, the amount of the debt, an express promise to pay money, words of negotiability (i.e., “or order”) when appropriate, the due date and/or amortization terms, the interest rate and payment schedule, the date drawn, whether it is prepayable or locked-in, whether or not it is secured, any penalty for tardy installments, any acceleration clause, and a provision concerning the reimbursement of legal fees and court costs (if any). A note is not a recordable document because it does not affect real property. If it is secured by a mortgage or deed of trust, the note cannot be negotiated, assigned, or transferred independent of the security, that is, the debt follows the security and vice versa, as a matter of law. Forms prepared by title companies are in general use as promissory notes.

property in question, (PIQ) See PIQ.
property management fee A fee paid by a limited partnership to its general partner for management services. It is usually set as a percentage of the gross income, perhaps four to six percent. Generally, a property management fee includes compensation paid to any property manager. However, it is not the compensation paid to an apartment manager living on the premises.

property owners’ association, (POA) syn homeowner’s association, (HOA) See homeowners’ association, (HOA).

property profile A report of basic information concerning a property, including the name of its owner, its legal description, and the names of lienholders, if any.

property tax See ad valorem property tax.

property tax rate The factor that, when multiplied by the assessed value of a parcel of taxable real property, produces the amount of annual property tax its owner must pay. The factor is computed annually by local government officials who divide the county budget by the assessed value of all taxable real property in the county. As a rule of thumb, the factor may approximate 1.25 percent (.0125), which produces an annual tax of $1,875 on a home, for example, that is assessed at a value of $150,000 (.0125 x 150,000 = 1,875).

prospecting Hunting for customers. Agents use the term prospecting to describe business soliciting.

public report A report that informs prospective purchasers of a subdivision lot about on-site conditions and proposals that affect the value of the lot. The purpose is to ensure that the public is truthfully informed about important factors before committing any resources toward a purchase. It is required by the Subdivided Lands Act. Subdivisions processed through city planning are exempt.

PUD syn planned unit development See planned unit development.

puffing A relatively harmless exaggeration about a property by a salesperson to a prospective buyer. For example, this house has the grandest view of the valley and will make all your dreams of home ownership come true. Even if the buyer’s decision to buy was based on such puffing, he does not have legal cause of action.

punitive (or exemplary) damages Amount awarded by a court, to the victim of an intentional tort, in addition to compensatory damages; designed to punish the tortfeasor and serve as an example to others.

purchase and leaseback A sale, usually of an income producing investment property, instantly following which the seller immediately leases back the entire property at a stipulated rent. The buyer obtains a certainty of income from the seller/lessee plus the tax advantages of ownership, which forms the basis for the transaction. The seller obtains cash from an immediate sale, hopefully favorable terms, and continues to occupy the project pending termination of the lease.

purchase contract syn deposit receipt, contract for sale, and marketing contract See contract for sale.

purchase lease-option A disguised lease-option. The attempt is to make a sale appear to be a lease with option to buy. The seller agrees to accept payments and to remain as record title owner, while the buyer-in-possession agrees to make periodic “lease” payments. Typically a grant deed is executed and placed in a holding escrow to hopefully eliminate problems arising from the future possibility of a remorseful seller. Payments are applied in whole or in part to the purchase price. Income tax laws apply to the reality of a transaction, however, not simply its form, and such a seller would be hard pressed to justify any depreciation deduction. In reality, the seller has a mortgage-in-fact and the buyer has an ownership interest at all times, not merely a leasehold.

purchase-money mortgage Any mortgage given by a purchaser to secure funds borrowed for the purchase of real property, or given to the seller as part of the purchase price of real property.

purchase-money second A carryback mortgage as part of seller’s financing to a buyer. Buyers prefer carrybacks to minimize or avoid down payments as well as to avoid having to qualify for new loans. The popularized “no money down” idea capitalizes on the use of purchase-money seconds.

pyramiding The technique of buying properties, increasing their value through repair, and trading them for larger properties. Delayed, or “Starker” exchanges are often relied on if a direct trade is not immediately available. Trading is a key part of pyramiding to defer payment of capital gains taxes.

Q

qualifying interest rate The initial interest rate in an adjustable rate mortgage that determines whether a prospective borrower is qualified for the loan. The lower initial interest rate results in lower monthly payments which are affordable by more buyers. The qualifying interest rate may last only a year or two before a higher permanent rate becomes effective. Hopefully, the mortgage debtors then will be able to afford the increased monthly payments.

questions of fact Circumstances or matters surrounding and involved in a case that is being tried by a court. These questions refer to events that allegedly took place in the past and are now in dispute. The jury decides if the information provided is true.

questions of law Principles and rules of human conduct determined by the judge to be applicable in a case being tried by a court. For example, the definition of murder is a question of law within the province of the judge and not the jury.

quicksand effect An effect that occurs once a homeowner misses two or three monthly mortgage payments. The large delinquency rapidly sucks the homeowner “under” (completely unable to make payments), like quicksand. If the delinquency is due to some problem such as death, divorce, or loss of a job, the Federal Housing Authority considers the homeowner a deserving borrower, and lenders are encouraged to make an adjustment for such debtors, such as a reduction in payments for a period.

quiet enjoyment The sense of ownership, such as freedom from interference by others, that a tenant is entitled to receive as an implied incident of the lease.

quiet title A judgment that determines the identity of each person who owns an interest in specified real property and describes that interest. This legal remedy is used to establish the identity of all valid claims or encumbrances that exist and to clear title of unworthy claims.

quitclaim deed A variety of deed used to convey ownership interests without any warranty whatsoever. Quitclaim deeds typically are used to clarify title or to release interests in property formally.

quoted price syn quoted rate See quoted rate.

quoted rate syn quoted price The asking rent usually defined as rent per square foot for buildings (office, retail, or warehouse) or the asking price of a property. When stated as a “quoted” rental rate or sales price, it usually indicates that the rate or price is “soft” or negotiable.

R

R-1 zone A residential zone created by ordinance that allows only single family dwellings with a specified density ratio in a designated area or zone.

R-2 zone A residential zone created by ordinance that allows duplexes and a commensurately higher density ratio than in R-1 zones.

R-3 zone A residential zone created by ordinance that allows multifamily dwellings (apartments) and a commensurately higher density than R-1 or R-2 zoning codes.

R & D Capital expended by a firm for research and development of future business possibilities.

RA syn residential appraiser A residential appraiser, member of the Society of Real Estate Appraisers.

racial steering An unethical and illegal practice by agents who “steer” house-hunters toward neighborhoods where people of their race are already living.

ranchette A residential land from one to six acres in size. Sometimes called horse property.

ranchownership See condominium.

rate of return on equity, (ROE) In investment analysis, a measure of return calculated as follows: cash flow before tax (divided by) equity investment = ROE. The ROE measures the return on actual invested dollars, taking into consideration the drain on net operating income by the debt service.

rate of return on investment, (ROI) A calculation in investment analysis that expresses income as a percentage of capital. There are several specific varieties in general use, such as the internal rate of return, called IRR, and the rate of return on equity capital, called ROE. Refer to internal rate of return and rate of return on equity.

rate of return on total capital, (ROR) In investment analysis, a measure of return, calculated as follows: net operating income (divided by) total capital invested = ROR. It is sometimes called the free and clear return because it ignores whether the capital was financed. That is, the ROR assumes that the investor has an equity equal to the market value of the property. The rate of return on equity, on the other hand, takes into consideration the reality that financing exists on most projects.

raw land Acreage that is not presently suitable for a profitable use. It is unimproved land that may be used for grazing pending future development into some higher use. Speculators often purchase raw land hoping for a large profit later. Raw land almost always must be fed money, which causes a negative cash flow. Depreciation is not allowable with respect to raw land.

ready, willing, and able buyer A prospective buyer of real estate who is financially capable of and willing to purchase a parcel of real estate on the terms set forth in the listing agreement or on terms acceptable to the seller. Once an agent has produced a ready, willing, and able buyer at the listing price, his commission is earned, even though the seller may elect not to sell.

real estate syn realty Land and everything appurtenant to land, such as buildings and improvements.

real estate agent A person licensed by the state to negotiate the selling of real property while being contractually bound to and under the supervision of a licensed real estate broker.

real estate broker A person licensed by the state to act as an agent for real estate sellers and buyers in the negotiation, solicitation, and sale of real property. Corporations may also be licensed to serve as real estate brokers. Licensed sales agents are employed by real estate brokers.

real estate deal A transaction involving real estate. Such a transaction is often described as a “good” or a “bad” deal, a characterization that may not become evident until some time following close of escrow once all of its wrinkles have shaken out.

real estate investment trust, (REIT) A business organization that pools money from many participants to invest in large real estate transactions. Profits are returned as dividends to the investors. REITs appeal to investors who do not have a lot of money to invest, but desire to invest in large commercial real estate projects. They are best considered as a long-term investment. A typical life cycle is: start-up phase, one to three years; operational phase, four to five years; and liquidation phase, three to six years. Thus, a REIT may require investment of ten to fifteen years to maximize its return to investors. Some REITs pool their capital to finance construction or to make permanent loans. Shares in REITs are liquid in that many are actively traded on security exchanges or over-the-counter markets. A single share may cost as little as $4 to $5, which attracts investors who otherwise probably could not invest in real estate. Unlike a corporation, a REIT does not pay federal income taxes on its earnings. A REIT that invests primarily in mortgages is called a real estate mortgage trust, or REMT. During the l990s there has been little capital available from banks, savings and loans, pension funds and other institutional lenders. This absence of capital has fueled a resurgence in REITs which have become major players in real estate finance once again.

real estate law Division 4 of the California Business and Professions Code, which governs the business of real estate licensing and brokerage practices.

real estate limited partnership, (RELP) A limited partnership that invests in real estate, usually commercial or multifamily. Investors can lose only the amount of their investment, in most cases, and can obtain a tax shelter as well as income and capital gains. The investors are limited partners, and usually maintain a passive role in the management of the project. The tax benefits can be allocated in various ways. For example, class A partners may own the land, and class B partners may own the building and lease the land. In this way income on the land is separated from tax shelter on the building. Appreciation and tax shelter are the most desirable features possible through investment in a RELP. The disadvantages include a possible difficulty in selling interests in RELPs, especially if bad management leads to a lack of profits or even a negative cash flows. Control of a RELP is vested in its general partner, often a corporation. Insiders who control the general partner often have been guilty of misusing the OPM that is the capital of the RELP.

real estate mortgage trust, (REMT) Financial enterprises similar to real estate investment trusts, except they invest in mortgages rather than real property.

real estate owned, (REO) Institutional lenders, such as banks and savings and loan associations, sometimes receive title to properties that secure loans that are in default, following foreclosure sales. These lenders typically offer these reclaimed properties, called REOs, for sale.

Real Estate Securities and Syndication Institute (RESSI) An organization affiliated with the National Association of Realtors. It is composed of professionals involved in syndications.

Real Estate Settlement Procedures Act, (RESPA) A federal law requiring parties to residential real estate transactions be provided with an accounting of all settlement charges and credits. The purpose is to avoid misunderstandings by home buyers about closing costs.

real mortgage syn mortgage and deed of trust See mortgage and deed of trust.

real property The legal rights involved in the ownership, use, and possession of real estate. Land and real property are not technically synonymous, though many persons use them interchangeably. Real property technically includes legal rights to subsurface, surface, airspace, and improvements, as well as the land. Real property is divided into estates: fee-simple estates, leasehold estates, and life estates.

real property securities dealer A licensee who may guarantee and service mortgage loans. A guarantee of a mortgage loan makes it readily salable. Servicing a loan means collecting its payments and doing the necessary accounting. Large companies provide servicing of mortgages owned by investors for a servicing fee.

realtist A member of the National Association of Real Estate Brokers.

realtor A member of the National Association of Realtors.

realtor associate A licensed salesperson who is a member of the National Association of Realtors.

Realtors National Marketing Institute, (RMNI) An affiliate of the National Association of Realtors.

realty syn real estate See real estate.

reasonable attorneys fees A fiction, from the standpoint of the payer; never enough from the view of the payee! Actually, it is an amount set by the court to compensate the prevailing party in a civil case for legal fees. Usually no such recovery is allowed unless the parties have agreed in writing. A client may owe his attorney more fees than the “reasonable” attorney’s fees recovered from the loser. Although not recoverable from the loser, such a fee must be paid to the attorney by the winner. Most listing agreements and purchase agreements contain a clause that the prevailing party shall also be entitled to recover reasonable attorney fees.

recon syn reconveyance and deed of reconveyance See reconveyance.

reconveyance syn recon and deed of reconveyance The transfer of the legal title to real estate from a trustee to the debtor (called trustor) once the mortgage debt is completely paid off. It is comparable to “burning the mortgage.” Technically, a recon is a variety of deed, that is, it is a deed of reconveyance. In the absence of a recon, the official records of the county would not reveal the extinguishment of the mortgage debt.

recourse loan syn hard money loan A loan that allows a deficiency judgment following a judicial foreclosure sale. The term “hard money” also is used to describe recourse loans, as well as loans for cash, as distinguished from seller’s carryback financing which are referred to as “soft money.” Depending upon state laws, recourse paper includes refinance, construction, and improvement (development) loans. Purchase-money loans are non-recourse loans.

recordation The filing of a document that pertains to real property with the recorder of the county in which the real estate is located. The filing process involves scrutiny of the document tendered for recordation to ensure that it is recordable. Then, it is time and date stamped, which will permanently fix its priority. Transfer tax stamps are affixed on recordation. The document then will be filed, through a microfiche or other system. The original document then will be returned to the proper party. There are two major types of index systems in use, the tract system and the grantor/grantee index system. The tract system utilizes maps while the grantor/grantee index utilizes alphabetical listings of grantors and grantees.

red herring A proposed contract term that is not critical but is offered for the purpose of distracting the other party.

red ribbon deal A transaction involving the sale of an income producing structure that is in perfect condition. See also pride of ownership.

red tape All the rules and regulations, forms, procedures, and paperwork involved in processing a request through government channels. Red is the traditional color of loss; black is the traditional color of profit.

redlining The practice of denying or restricting loans for properties in certain neighborhoods. This activity is illegal if it is practiced against a minority group or is discriminatory in an arbitrary manner. The term relates to the practice of outlining neighborhoods on a map with a red crayon where loans will not be made.

reference rate A bank term used as a substitute for the term prime rate. Confusion and litigation has haunted certain loans calling for interest a point or two over the “prime rate.” Since “prime” borrowers pay different rates, it can be unclear as to what precisely is the “prime rate.” The reference rate, being independent of actual interest rates, avoids that confusion.

refinance loan A loan, secured by mortgage, the proceeds of which are used primarily to pay off, or retire, an existing mortgage loan. Refinancing occurs when interest rates drop, tempting homeowners to pay off existing high-interest rate loans with new, low-interest rate loans.

refinancing Replacing an existing mortgage loan with another loan. The new mortgage is used to repay the first mortgage, and to pay for any repairs, and so on. The purpose of refinancing is to get a more favorable loan (in terms of lower interest rate, lower monthly payment, larger amount, or longer maturity) than the original mortgage loan.

regional mall A shopping center, often enclosed, characterized by 3 to 7 department stores, and 50 to 100+ mall shops. Site may be from 40 to 200+ acres.

regional shopping center A retail center designed to serve a region, as opposed to a neighborhood. Regional centers often have a number of major department store tenants, satellites and an enclosed mall.

regulation Z A part of the federal Consumer Credit Protection Act that requires full disclosure of credit terms to consumers, including calculation of the annualized percentage rate, (APR).

rehab syn rehabilitation See rehabilitation.

rehabbing The business of rehabilitating property.

rehabilitation syn rehab The substantial upgrading or improvement of property generally as part of an area wide program designed to arrest the progressive deterioration of the neighborhood. Rehabilitation does not involve a basic change of structure, rather it involves restoring the property to its original condition by respecting the original architectural elements of the building and retaining them whenever possible. Thus, it is also referred to as reconditioning. Special mortgage insurance provisions are available under the Federal Housing Authority to encourage rehabilitation. The term is applied both to residential and nonresidential property.

reinstatement The curing of a default by a borrower. A mortgage loan may be restored to current status by paying all past-due amounts. Reinstatement is a right that cannot be defeated by an acceleration clause that purports to require payment in full on default. But the right of reinstatement is cut off by the non-judicial foreclosure sale.

reinstatement period A period of time during which a defaulting debtor may cure his default and thereby reinstate the original terms of the loan. In non-judicial foreclosure, the reinstatement period is cut off shortly before the publicized foreclosure sale. In judicial foreclosure proceedings, the reinstatement period ends with the entry of judgment by the court, but is followed by a redemption period.

REIT syn real estate investment trust See real estate investment trust.

release clause A contractual provision (clause) usually contained in or incorporated by a deed of trust or mortgage that permits portions of the collateral to be released free and clear of the lien. A release clause is typically used when a purchaser of unimproved land intends to develop and resell it in increments. The release clause permits the “escape” of an increment, or parcel, of undeveloped property from the lien of a blanket deed of trust in exchange for the payment of an agreed-on portion of the unpaid principal.
Example: The seller takes back a purchase-money note secured by a blanket deed of trust securing ninety percent of the purchase price. The buyer subdivides the parcel into twenty-five lots held for sale. The buyer/subdivider now obtains release of one lot in exchange for payment of four percent of the original purchase price of the land plus proportionate accrued interest. The release money is generated from the sale of the lot. (Notice that the entire purchase price of the land will be repaid by the sale of the twenty-third lot.)
A release is obtained from the trustee who then records a deed of partial reconveyance. A release clause will not be enforced by the courts if it is ambiguous or uncertain or unfair to the creditor in its application. Release agreements should not be capable of releasing the most valuable portions of the collateral for a pro-rata portion of the unpaid principal. Release clauses are frequently drafted on a lot-release basis, or acreage basis, with reference to access, utility connections, and continuity of unreleased portions.
A release clause will often be used with a subordination agreement in order to enable the developer/purchaser to finance the lots “off the land.” Alternatively, “land-busting” subdividers who do not manufacture lots, but who create “paper-lots,” and who thereby do not require interim financing, may use a release clause with a collateral assignment agreement where the consideration for a release is the assignment to the seller of a note secured by a first deed of trust from the buyer of the lot.
An increased price is the typical incentive for the seller to permit a portion of the collateral to “escape” through a release, subordination, or collateral assignment deal.

RELP syn real estate limited partnership See real estate limited partnership.

remainderman The owner of a future interest in real property. Most typically, a life estate will be created (by Will or grant deed, for example) with remainder earmarked for a specific person, called a remainderman. The remainderman’s future interest blossoms into full fee ownership upon death of the life tenant.

REMT syn real estate mortgage trust See real estate mortgage trust.

renegotiate Negotiate for a substitute contract, or new terms within an existing contract.

renewable loan A short-term loan, sometimes of three months, which is intended to be renewed for another three months following its due date. The lender is not obligated to renew, but the parties to the loan anticipate that renewal will be made unless circumstances have changed.

renovation Renovation, although similar to rehabilitation, usually requires a greater proportion of new materials. See also rehabilitation.

rent The payment by an occupant, called a tenant, to an owner, called a landlord, as compensation for the use, possession, and enjoyment of premises. Commercial and residential tenants alike pay rent. Rent is the primary income from income-producing property. All income from investment property is not rent, however. For example, in addition to rent, an income property may produce income from vending machines, parking, laundry, machines, and so forth.

rent-a-broker A practice where a licensed real estate broker “rents” his license to a corporation or sales organization that lacks and needs a license to operate. The practice is improper because the broker who rents the license out usually does not provide the necessary supervision of salespersons and may be in violation of state licensing laws.

rental agreement A term, often used to describe a tenancy for years, or month-to-month tenancy, instead of the formally correct term “lease”.

rental apartment One unit in a multi-unit residential structure that is available to be rented. City apartments that are owned by their occupants are technically condominiums.

rental value The estimated amount of rent that could be obtained for the use and occupancy of a property.

rent concession A monetary benefit offered by a landlord to prospective tenants as an inducement to lease his property. Rent concessions in a soft market often take the form of one month’s free rent.

rent control Governmental regulation of how much rent a landlord may charge for the possession and use of rental premises. Rent control has not occurred with respect to commercial properties.

rent skimming Collecting rents, usually from tenants in a commercial building, while defaulting on the mortgage. Because landlords may be able to remain in possession, collecting rent pending foreclosure, an opportunity exists to simply collect rent and withhold payment of bills, to the detriment of the lender. This practice is illegal, can be restrained by a judge, and is a misdemeanor if done wilfully.

renters insurance Insurance for residential tenants. It covers losses from theft, storm, or fire. Renters insurance generally comes in two varieties, covering actual cash value depreciated at the time of loss or replacement cost (the actual cost to replace).

rent guarantee A seller’s guarantee to provide an agreed on income stream to a purchaser for a given period of time. Rent guarantees typically are used when space is vacant and/or tenants are scarce, and the purchaser doubts the quality of the income on which the purchase price is predicated. A rent guarantee may take the form of a leaseback of vacant space.

rent-up period The period of time following completion that it takes a structure to be fully rented.

REO syn real estate owned Lenders carry such real estate following foreclosure, until a worthwhile disposition of the property can be made.

repair and deduct A statutory remedy in some states for tenants of residential dwellings. Upon failure of a landlord to maintain the premises in a livable condition, the tenant may give notice of the problem to the landlord, wait a reasonable amount of time, and then, if the landlord has continued to allow the problem to exist, spend up to one month’s rent to remedy the problem. The amount so expended can be deducted from the payment of the next month’s rent. Hence the phrase repair and deduct. Because repair and deduct is a statutory remedy, it differs from state to state and does not exist in some states.

repo Repossessed real estate. A repossession may occur voluntarily as when a debtor gives a deed in lieu of foreclosure, or it may occur by foreclosure.

reproduction cost The cost at the date of appraisal of constructing a replica of an existing building.
request for admission of facts A request submitted to counsel by the opposing attorney before trial for the acknowledgment of facts that are not in dispute and yet are relevant and material. This is a type of discovery procedure.

request for notice of default A formal request to be notified if any lienholder records a notice of default of mortgage or deed of trust payments. The purpose of a request for notice is to be informed of the possibility of a foreclosure sale before it occurs. Junior lienholders need such notice to have time to protect the security of their liens. A request for notice is recorded in the official records of the county, and often is included in printed forms of mortgages and deeds of trust.

residence A dwelling.

resident manager An individual who is employed by an apartment owner or management agent to perform necessary on-site management functions. The resident manager lives on the premises. State laws often require a resident manager for apartment projects of a certain size.

RA syn residential appraiser See residential appraiser.

residential land lease A sale of a residence in which the seller retains the title to the land and simultaneously leases it to the buyer. The purpose is to reduce the down payment otherwise required to make the deal workable. Furthermore, lease payments on the land are usually less than the amount of the mortgage principal and interest allocable to the land.

residential member, (RM) See RM.

residential property Property that is designated for development into dwellings, either single family, or varieties of multifamily.

residential zone A type of zoning that generally authorizes the development of residential uses, such as single-family or multi-family housing. Residential zones are usually classified into single-family structures, duplex and multi-family buildings.

Resolution Trust Corporation, (RTC) A corporation created by Congress to salvage Savings and Loan and thrift institutions from insolvencies that resulted from excessive lending practices during the 1980s. The RTC takes over troubled institutions, and auctions of its real estate holdings to raise money with which to reimburse depositors.

RESPA syn Real Estate Settlement Procedures Act See Real Estate Settlement Procedures Act.

RESSI syn Real Estate Securities and Syndication Institute See Real Estate Securities and Syndication Institute.

restoration The repair or re-creation of a building to its original architectural appearance.
restructure of debt An agreed on change in the terms of repayment of existing mortgage debt. Unlike a refinancing, which substitutes a new loan for the old one, a restructuring of debt refers to a change in terms, for example, in the interest rate or in the length of time for repayment. A troubled project is a likely candidate for a restructuring indebtedness.

resyndication A syndication formed to purchase the assets of a prior syndication.

retaliatory eviction The eviction of a tenant by a landlord primarily for revenge. The revenge may be related to complaints by the tenant regarding unsafe or unsanitary conditions on the property. The action is statutory and usually authorizes the award of punitive damages.

return on investment, (ROI) See rate of return on investment.

revamp rate A specially low premium rate for title insurance policies issued when a mortgage is refinanced with the same lender within a short period of time. The justification for the lower premium is that the transaction is more of a revision, or revamp, than a new transaction.

revenue bond Any bond that is repaid with income from an improvement that was created with proceeds from the bond. Landowners may pay assessments for improvements to land, such as sewer trunk lines, which are collected and then paid to the bondholders who initially financed the construction of the improvement. Payments to holders of revenue bonds are exempt from federal tax and from state taxes of resident bondholders.

reverse annuity mortgage A mortgage designed to produce an annuity, or stream of monthly payments, to a homeowner with a large equity in his home. The lender makes monthly payments, each of which is added to the unpaid balance of an ever-increasing loan, to the homeowner who uses the money for normal living expenses. Such payments allow an elder homeowner to effectively live off his equity. The loan is not due until the homeowner dies or sells. A “shared appreciation loan for seniors” is a variation of a reverse annuity mortgage in which the lender, in addition to interest, ultimately receives a share of any appreciation in the property.

reverse paper A carryback mortgage the terms of which create negative amortization, as when interest accrues at a faster rate than it is paid.

right of first refusal syn preemption agreement The right to purchase an interest in real property if its owner decides to sell. Unlike an option, the holder of a right of first refusal does not have the unqualified choice to buy or not to buy. A right of first refusal gives the holder the right to match any offer received by the seller from some other prospective buyer. The price and terms offered by the holder of the right of first refusal must equal or better the price and terms contained in a bona fide third party offer. A right of first refusal, often found in leases or limited partnership agreements, serves to preempt a possible sale to a third party, and hence may be called a preemption agreement.

right of reinstatement The right of a defaulting debtor to redeem the loan by bringing current all past monthly payments and late charges, even though the note and mortgage declare that the entire unpaid balance is immediately due in full upon any default.

right-of-way The right of the public or a private party to travel across a landowner’s property. Roads are public rights-of-way. Easements are private rights-of-way.

ringer A friend or relative of a prospective buyer who lends the use of his real estate license for the purpose of sharing in the listing agent’s commission. This practice is in violation of the Real Estate Law.

RM syn Residential Member. The designation RM is awarded by the American Institute of Real Estate Appraisers.

RNMI syn Realtors National Marketing Institute See Realtors National Marketing Institute.

ROE syn rate of return on equity See rate of return on equity.

ROI syn rate of return on investment See rate of return on investment.

rolling options A series of options held by a single optionee that are exercised as contiguous parcels are required for successive phases of development. Rolling options are one method by which large developers can avoid inventorying large parcels when future demand for product is uncertain.

rollover mortgage A mortgage with an early due date, say 5 years, at which time the borrower has the right to “roll over” (renew) the loan at the then-current interest rate.

rollover of principal residence The purchase of a replacement principal residence within the time following sale of a home, and under the conditions prescribed by the IRS that permit the seller to defer payment of capital gains taxes. Sometimes the phrase may be used in a commercial context, as when “I rolled over the apartment project into an office building.”

ROR syn rate of return on total capital See rate of return on total capital.

row houses A grouping of similarly shaped homes with the same frontage. They may have common sidewalls or little space between separate sidewalls.

royalty Money paid to a landowner in exchange for the extraction of minerals from his land pursuant to an oil and gas or other mineral lease.

RTC syn Resolution Trust Corporation See Resolution Trust Corporation.

runs with the land Benefits to parcels such as the benefit of CC&Rs, that “runs” with the land following its sale. New owners can enforce CC&Rs that run with the land.
rural Of or pertaining to the countryside.

S

saddle An area or location that is prime in all respects or the center of business activity. Such a location may also be called a jewel of an area. “It’s a saddle property.” “It’s a jewel of a property.”

sale-leaseback A sale and simultaneous leaseback by the seller. The buyer immediately owns a fully occupied property at an agreed on total rent. Sale-leasebacks provide working capital for a seller and provide a steady, known return to a purchaser. However, a sale-leaseback may result in an inflated price to compensate the seller for the lease payments agreed to be paid.

salesmanship The technique of selling. In real estate, it often involves the use of euphemisms to promote deals. For example, a small house may be called a dollhouse, a cottage, or simply charming. A house that is too large may be called gracious. A country lane may mean a dirt road.
A water view will probably turn out to be a swamp, though the words suggest a lake. A house is always called a home to create the image of a happy place. Value is used instead of price whenever possible. Initial investment is used instead of down payment. A purchase agreement is considered less threatening than a sales contract. A mortgage is called financing. And, some euphemistically call a commission a marketing fee. The foregoing are all safe euphemisms. Whether or not they are effective is another question.

salesperson A person licensed to perform real estate sales activities that are regulated by the state. Salespersons must operate under the supervision of real estate brokers.

sales price The gross price agreed to by a buyer and seller, without deductions for the sales commission or closing costs. It is referred to in the calculation of transfer taxes and in comparison sales analyses.

sandwiched trust deed A note and deed of trust on property owned by a limited partnership that secures the payment of compensation to the syndicate managers. It is sandwiched between the financing and the investors’ equity.

sandwich lease A master lease. An owner of an income property may choose to master lease the entire project to a third person, who then becomes the landlord in respect to the existing tenants. The master tenant collects the rents from the existing tenants and remits all or a portion to the owner. The master tenant’s lease is “sandwiched” between the owner and the owner’s former tenants. A sandwich lease usually contains an option to purchase, because the master tenant usually intends to improve the property to increase the rents and thereby improve the market value of the project for a commensurate profit in the future.
Another variety of sandwich lease exists where a sublessee again subleases to a tenant. The first subtenant’s lease is sandwiched between the original (or prime) lease and the second sublease.

satellite tenant A specialty retail store tenant in a regional shopping mall. Any secondary retail tenant.

satisfaction of judgment A document evidencing the fact that a judgment has been paid in full.

satisfaction of mortgage The payment of a mortgage in full. It is comparable to “burning the mortgage.” See also deed of reconveyance.

savings and loan syn thrift A financial institution that specializes in real estate financing. Real estate finance includes making original loans, as well as buying and selling loans in the secondary mortgage market.
Another variety of sandwich lease exists where a sublessee again subleases to a tenant. The first subtenant’s lease is sandwiched between the original (or prime) lease and the second sublease.

scam Any transaction in real estate characterized by a large and quick profit obtained with a bare minimum of effort and capital. Often the term connotes an illegal or unethical means of obtaining the substantial profits. Any so-called Ponzi operation (where new investors’ capital is treated as earnings on earlier investors’ capital) is a scam. The term is often used as a verb, as for example: “He scammed his investors.”

screening fee A charge made by landlords to prospective tenants to cover the cost of obtaining credit checks. The fee cannot exceed $30, and if charged, the copy of the credit report must be provided the applicant tenant. If no background check actually is obtained the fee must be refunded. California and many other states have large bodies of statutes governing the landlord/tenant relationship.

S corporation A closely held corporation that is treated as a partnership for federal tax purposes. Income is regarded as taxable personal income to the stockholders, whether distributed or retained in the business. One effect is avoidance of the customary double taxation of corporate net income.

secondary financing A loan secured by a second priority mortgage or second deed of trust on real estate. A seller’s carryback mortgage often will be secondary, that is, the buyer will have obtained a first priority purchase money loan.

secondary mortgage market Buyers and sellers of existing mortgages. The effect of this market is to produce liquidity (cash) that is available to finance the primary mortgage market. Generally speaking, the market involves lenders, mortgage-backed securities issued by quasi-governmental agencies, and a variety of investors such as pension funds, insurance companies, and individuals. More than three-fourths of all residential mortgages are sold by thrifts in the secondary mortgage market. Historically, the original purchaser of mortgages was the Federal National Mortgage Association, or Fannie Mae. Lenders pool together mortgage loans they make in million dollar lots. These pools are sold to Fannie Mae for cash which provides the lenders with new money to lend again. Fannie Mae raises its money by issuing mortgage-backed securities to investors. Fannie Mae sets standards that must be met before it will purchase mortgages. Those standards are voluntary, but if lenders desire to sell their mortgages (and they do) they obviously must comply. Their compliance with these standards result in standardization within the lending industry, such as the standard requirement for mortgage insurance. Investors do not worry about foreclosure problems because mortgage insurance protects their investments. The Government National Mortgage Association, or Ginnie Mae, (a spin-off from Fannie Mae) issues “pass-through” securities to investors. Monthly payments of principal and interest are paid directly to the investors, whose investments also are insured against loss. They are called Ginnie Mae Certificates. The Federal Home Loan Corporation, or Freddie Mac, issues mortgage participation certificates, or PCs, which are backed by conventional loans (not insured by FHA or VA). It also issues collateralized mortgage obligations, or CMOs, to create investment packages that offer long, medium and short terms. Private investment companies also purchase mortgages in the secondary market, pool them and issue securities backed by the pool of mortgages. Investors are not required to collect monthly payments from the debtors in any of the mortgage securities. Loans are serviced (that is, payments collected) by companies in that business or by original lenders of the mortgage.

second mortgage A mortgage whose priority is junior to a first mortgage. It is also a more recently recorded mortgage than the first recorded mortgage. Usually a first priority mortgage is taken to purchase residential property or to develop commercial property. Second mortgages are more frequently taken as collateral for improvement loans, or a vacation to Mazatlan. See also priority.

second mortgage crank A deal in which a buyer obtains a first priority mortgage loan to buy property under the pretense that a cash down payment will be made to the seller, who actually agrees to accept a second mortgage or deed of trust for the down payment. The down payment otherwise required is “cranked” out in the form of a second deed of trust. The process is not proper if it involves a deceitful loan application to the lender of the purchase money mortgage.

securitization of real estate The concept that real estate finance may be treated similarly to other traditional securities through the issuance of highly transferable securities representing interests in large pools of mortgages. For example, the Federal Home Loan Mortgage Corporation (Freddie Mac) issues mortgage participation certificates, called PCs, which are securities available to investors who wish to participate in pools of mortgages. Such a passive investment in real estate is analogous to investment in other securities, for example, corporate bonds. See also REMIC.

security Something given, deposited, or pledged to make secure the fulfillment of an obligation or the payment of a debt. In mortgage financing, real estate is the security, or collateral.

security deposit The money collected by a landlord at the beginning of a tenancy: (1) as prepaid or advance rent (as when the last month’s rent is collected in advance), (2) as security to cover the cost of any damages done by a tenant (something more than reasonable wear and tear), or (3) as money to be applied to the cleaning of the premises. Regardless of how such payments are designated in the rental agreement or lease, in some states, as a matter of law, they constitute security deposits. Within a short time following termination of the lease, the landlord must deliver to the former resident an accounting of security deposit monies, including an itemized list of how they were expended, and to the extent that there is any balance remaining, which then must be refunded. Unfortunately, there has been a long history of conflicts regarding disbursement of security deposits. Usually the landlord has the burden of proving the reasonableness of any moneys expended. In most states security deposits cannot be made automatically forfeitable for nonrefundable. A deposit, by its name, is not an advance payment for services; it is security only. Security deposits are common in commercial leases as well as in residential leases.

seed money syn front money The monies needed to defray initial expenses in organizing a project to be syndicated. Front money covers the cost of an option, preliminary architectural drawings, legal expenses, and similar items. Ordinarily front money is returned with investors’ capital. Seed money is also the initial investment needed to determine the feasibility of any project.

see-through skyline A metropolitan skyline of buildings you can see through because they are partially or completely vacant. Vacant “Darth Vader” buildings do not contribute to such a skyline due to their dark windows.

self-employment tax, (FICA) A federal Social Security tax for self-employed persons, such as independent contractors.

self-help A common law rule that, under certain circumstances, a person can legally take action to resolve a problem without resort to a court or the legal system, for example, to trespass for the purpose of retrieving stolen property, or to tear down an encroaching fence. Generally, self-help is no longer a lawful remedy; aggrieved persons must resort to the processes of law to resolve problems.

seller financing syn creative financing, all-inclusive note and deed, and wraparound mortgage Any loan from a seller to a buyer of real estate as part of the purchase price. It is a soft-money transaction that is always used in “nothing-down” transactions. Seller financing is common in both residential and commercial real estate transactions. See also carryback mortgage and purchase-money second.

seller’s market A market when demand exceeds the supply of available real estate.

seller’s remorse A creeping feeling that maybe the sale should not have been made. Usually seller’s remorse occurs after a contract to sell has been finalized, but before escrow has closed. A seller with a strong case of remorse may attempt to rescind the transaction based on a tardy close of escrow or other supposed default by the buyer. Seller’s remorse is maximized when a second prospective buyer indicates he would have been willing to pay a higher price.

selling agent A licensee who locates a buyer, even though he did not obtain the listing from the seller. Many selling agents work through multiple listing services and customarily receive 50 percent of the total commission paid by the seller to the listing broker. The selling agent is the “cooperating” agent. See also cooperation.

Senior Real Estate Analyst, (SREA) See SREA.

Senior Residential Appraiser, (SRA) See SRA.

senior mortgage A mortgage that was recorded prior to recordation of a junior mortgage. See also priority.

senior real property appraiser, (SRPA) See SRPA.

senior right of way agent, (SR/WA) See SR/WA.

separate property In community property states, property that was acquired before marriage or by gift (a living gift or inheritance) during marriage. Separate property is unaffected by divorce. Community property is property acquired during marriage other than by gift and is owned equally by the spouses. Usually each spouse receives his one-half of the community property on divorce, and retains his separate property.

separation The status of spouses who are lawfully living apart, without cohabitation.

servicing The collection of interest and principal payments and such items as fire insurance, taxes, and so forth, in accordance with the terms of a real estate loan. Servicing also requires responsibility for accounting, bookkeeping, insurance, tax records, loan payments follow-up, delinquent payments follow-up, and loan analysis. Organizations that perform these services are paid a servicing fee.Some beneficiaries service their own mortgages, most do not.

servicing rights The contractual right to service mortgage loans, i.e., collect monthly mortgage payments from mortgage borrowers. The mortgages of homeowners often are transferred to loan servicing companies. The borrower, once notified of such a transfer, must comply by forwarding monthly payments to the transferee (assignee).

settlement syn close of escrow, (COE), close, and passing See close of escrow, (COE).

severance damage In condemnation, the damages caused to a remaining parcel following a partial taking of property. For example, a freeway splitting a farm is a partial taking. The remainder parcels on each side of the freeway, may have been damaged by, for example, suffering a reduced highest and best use from multifamily to single family residential. The payment of Just Compensation, as required by the U.S. Constitution, requires that the landowner be paid for such reduction in value, which is called severance damage. Sometimes there are benefits that offset the severance damage, as, for example, when an interchange on the freeway funnels an increased number of vehicles onto the landowner’s property, adding to the value of the remainder parcels. Special benefits can offset severance damages, but not the value of the “take.”

shakeout Bad financial times in some segment of the real estate market. At times when there is a shakeout of one market segment, e.g., office development, other segments may boom. During a shakeout, marginal (under-financed) operators “go under,” (Chapter ll, flurry of lawsuits, or abandonment) or shift gears to alternative market segments.

shared appreciation loan for seniors See reverse-annuity mortgage.
shared tenant services, (STS) syn smart office building, intelligent building, and telecommunications enhanced real estate, (TERE) See smart office building.

shell lease A lease arrangement under which the tenant rents the shell of a building and agrees to complete its interior construction.

sheriff’s deed A deed, signed by an official (because the debtor likely won’t cooperate) used to convey real property to the high bidder following a forced sale to satisfy a judgment lien.

sheriff’s sale A forced sale. The net proceeds of the sale are used to satisfy the debtor’s unpaid debt. A sheriff will issue a sheriff’s deed to convey ownership to the real estate. The authority for a sheriff’s sale comes from a writ of execution issued following a court judgment.

shopper A real estate player who shops for mortgage money by making multiple applications, or by playing one lender against another, all for the purpose of obtaining the very best mortgage possible. Sometimes risky loans are shopped in search of any lender willing to accept a marginal package. Application fees prevent shopping for firm commitments.

shortfall A lack of new rental units to adequately meet demand.

short-form lease syn skeleton lease, and memorandum of lease A memorandum that contains only minimum information, such as the lease term and the existence of any option to renew. It is recorded to protect its priority. Since recordation of the entire lease would reveal the rent and other confidential details, only the “bare bones” of the deal are contained in a short-form or “skeleton” lease. Similarly, a memorandum of option is recorded to protect its priority and to conceal the complete terms of the option.

short-fuse mortgage A balloon-payment loan. Any real estate loan calling for payment of the unpaid balance in just a few years is considered a short-fuse mortgage. These loans may be amortized over a long period of time, with a reasonable monthly payment, but they remain dangerous to the borrower because of their early balloon payment-”short-fuse” feature. Upon the due date, the borrower will be required to either pay the balloon, refinance it with another loan, or lose the property in foreclosure.

short sale The sale of a home for less that the unpaid balance of its mortgage loan. Because the lender will receive less than the amount it is owed upon close of the sale escrow, its consent to a short sale must be obtained. Lenders will sometimes give consent to accept less than the unpaid balance of their mortgages when the value of the collateral has declined to the extent that foreclosure is not an attractive remedy.

sick building An office building or home that contains air pollutants causing illnesses to occupants, such as headaches, sinus problems, eye irritation and dizziness.

signing a house The placement by a licensee of a “For Sale” sign on a listed residence for the dual purposes of advertising the name of the company the licensee represents and identifying the house as available. The addition of a “Sold” sign on the premises during escrow also serves to advertise the agent’s company; it certainly does not contribute to selling the house.

silent loan A conventional mortgage that does not contain a due-on-sale clause. Such a “silent” loan is fully assumable by a purchaser of the property who cannot be charged an assumption fee.

silent second A promissory note secured by a junior deed of trust and paid only when a predetermined amount of rental income is generated by the owner of the property. Pending that time, the note simply accrues interest. A silent second effectively defers payment until it is justified by the production of rental income, thereby minimizing or eliminating the owner’s negative cash flow.

single-digit mortgage rate Mortgage interest at less than ten percent stated in the note. Although the contract rate in the note may be single digit, the annualized percentage rate (APR) may be double digit due to the impact of origination and other fees that are taken into consideration in the APR.

single family condo syn detached condo A separate structure with common ownership of yards, drives and other areas. See condominium.

single family residence A dwelling designed to house a family of related members.

SIR Society of Industrial Realtors An affiliate of the National Association of Realtors.

site A parcel of land to be developed, or the land underlying a structure.

skeleton lease syn short-form lease and memorandum of lease See short-form lease.

sky lease A lease that pertains to the space above the landlord’s real estate.

smart house A house in which the owners control the lights, appliances, heat, cooling, and alarm systems with a computer system hooked up through the home wiring.

smart office building syn intelligent building, telecommunications enhanced real estate, (TERE), and shared tenant services, (STS) An office building that has been wired to accept state-of-the-art electronics equipment. Capabilities include computerized control of climate, security systems, life-safety systems (fire control, for example), information management systems (electronic mail, for example) , and telecommunications systems (with video transmissions to other locations). These features are generally available to tenants on an as-needed basis, and they are billed for the services they use.

smoking gun A crucial or vital piece of evidence that could affect the outcome of litigation. Some attorneys engage in discovery practices primarily in search of some smoking gun among the opponent’s files and records.

Society of Industrial Realtors, (SIR) See SIR.

soft dollars Down payment cash received by a seller but disguised as payment for a covenant-not-to-compete, or a consulting agreement, or as a property management fee. The effect of such a payment is that the seller receives cash, which is considered, for tax purposes, ordinary income instead of down payment money, which is considered a capital gain. In either case, the seller receives the same amount of cash, it is the tax consequence that differs. The buyer receives the benefit of a tax deduction for such soft dollars, but not for down payment hard dollars. Sellers carryback financing also is referred to as soft money (paper) as opposed to hard money (cash). Buy soft, sell hard!

soft market A buyer’s market characterized by an absence of buyers.

soft price The asking price when the seller is prepared to accept less. A price is soft when the seller is flexible, and hard when he isn’t.

soft sell A technique of letting a product sell itself, with a minimum of puffery and hard sell techniques.

spec Short for “on speculation.” The term is used when a building is constructed before a buyer or tenant is obtained. For example, “He is a builder of spec homes.”

specialist in real estate securities, (SRS) See SRS.

specific performance Remedy available in a court of equity for a buyer to get possession and title to real property and to goods that are unique, when the seller refuses to deliver under a valid sales contract. Dollar damages that are the customary remedy are deemed inadequate.

speculator Someone who gambles on a future sale or lease. A land speculator gambles that the value of his land will increase. A builder of spec homes gambles that buyers will like and pay a high price for homes he designed and built, within a reasonable time. A builder of spec office space gambles that leases will be obtained at a reasonable rental rate in a reasonable time.

spendable cash flow See also cash throwoff. Net operating income (NOI) less monthly PITI is the cash available to the owner “to spend”. Income tax implications are disregarded in this calculation, and sometimes is referred to as “before tax cash flow.”

spite fence A fence erected primarily to vex, annoy, or spite a neighbor. Spite fences usually block a neighbor’s view, or access, or are constructed so shabbily as to detract from the value of the victim’s property.

split commission A commission divided between real estate agents. Ordinarily a total commission is split between listing and selling agents.
split level home A residence that has floors at different levels.

split-lot duplex A duplex on a lot divided into two lots to accommodate separate ownership of each side.

split-rate financing A financing package with different interest rates allocated to the land and to the structures. Land and structures are usually treated separately for tax purposes. Since land is not depreciable and the income it produces is not, therefore, sheltered. See also tax shelter.

split-time financing A financing method in commercial development when a short-term construction loan and long-term permanent loan are obtained at different times. That is, no permanent loan has been committed at the time the construction loan is made. The permanent loan is obtained after completion of the project. Sometimes the construction lender (who may be concerned that no reasonable permanent loan will materialize) will require a “standby commitment” whereby the developer has the option to require another lender to make a permanent loan at a floating interest rate. The developer will have to pay the standby lender a standby fee, perhaps two percent per year. As an alternative, a “purchase standby” gives a developer the option to sell to a standby purchaser. The developer may prefer a standby commitment if he believes that interest rates are in a downward trend, so that he can borrow later at a lower rate. The opposite of split-time financing occurs when a developer obtains a permanent loan commitment at the same time a construction loan is arranged.

spot zoning Rezoning of one parcel or one small area. Historically, spot zoning involves down zoning and does not occur in response to a request of a landowner. Spot zoning usually is an improper use of the zoning power.

spread syn margin The spread (or margin or differential) is a percentage added to an index rate of interest to set the contract rate of interest in an adjustable-rate mortgage. The margin remains constant through the term of the loan and is one measure of profit to the lender. Lenders set their margins by taking into consideration competitive market conditions.
Index rate of interest + spread = contract rate of interest.

square-foot cost The result, in dollars, of dividing the total cost of the improvement by the number of square feet of floor it contains. It is a useful way to estimate and compare construction costs and market values.

SRA Senior Residential Appraiser The designation SRA is awarded by the society of Real Estate Appraisers.

SREA Senior Real Estate Analyst SREA is the highest designation awarded by the Society of Real Estate Appraisers.

SRPA Senior Real Property Appraiser The designation SRPA is awarded by the Society of Real Estate Appraiser for its members who are qualified to appraise both residential and income producing property.

SRS Specialist in Real Estate Securities The designation SRS is awarded by the Real Estate Securities and Syndication Institute (RESSI).

SR/WA Senior Right of Way Agent The designation SR/WA is awarded by the International Right of Way Association.

standard housing Housing that meets minimum standards for safety, structural soundness and sanitation.

standard title insurance “Vanilla” title insurance that does not include the special coverages included within the American Land Title Association variety of coverage.

stare decisis [Latin for “to stand by decided cases”] The common-law doctrine that binds an inferior (subordinate) court to follow and apply decisions and interpretations of higher courts when similar cases arise. Also called the doctrine of precedents.

Starker exchange syn delayed exchange See delayed exchange.

starter home The first home a person or couple purchases. Condominiums often are starter homes.

statutes of frauds A state statue requiring certain types of contracts to be evidenced by a writing and to be signed by the party to be charged, or by her or his authorized agent.

statute of limitations A statute that bars civil or criminal proceedings unless brought within a specified period of time after the act occurred. Note that there is no statute of limitations for murder.

statutory law Written laws created by some legislative body, such as a legislature (statutes), county board of supervisors (ordinances) or administrative agency (rules). State statutory law is compiled by subject matter into volumes called codes, such as the Business and Professions Code.

steering The unethical act of guiding purchasers of real estate to specific areas to promote segregation.

step-up clause A clause in a commercial lease that automatically operates to “pass-through” to the tenant annual increases in operating expenses. Usually a step-up clause will call for an increase annually to cover expected increases in operating expenses. See also net lease and graduated lease.

step-up lease A lease that requires specific rent increases at specific times during its term. Rent is automatically stepped-up, i.e., increased, at those dates.

sticker shock An unexpected and disadvantageous change in the terms of a mortgage loan commitment. Even firm commitments have time limits, and if a loan package does not close within that time limit, the final deal offered by the lender may be different than the original commitment. It is possible for a lender to sit on the loan paperwork long enough to justify a higher interest rate or other change in the loan terms. Deliberate delay may be a variety of fraud known as bait and switch, where favorable terms are dangled as bait but by the time the loan closes there is a switch to different terms. However, delay is justified during periods when loan activity is very high, jamming the lenders with paperwork. Borrowers can protect themselves partially by having a backup loan commitment.

stiffed Unpaid.

strict liability A doctrine of law providing that injuries caused by defective products should be paid by all organizations that participate in the manufacturing, marketing and distributing processes. The victim is permitted to recover from any of the possible defendants. For example, under this doctrine, a landlord has been held liable to his tenant who fell through a defective shower door suffering serious bodily injury. The landlord was thereafter free to sue the
manufacturer or wholesaler or retailer of the glass door for reimbursement. The laws of strict liability differ from state to state.

strip shopping center A commercial development of retail shops characterized by one large anchor tenant with smaller shops alongside. Unlike the centralized parking for shopping malls, each strip enter store has adjoining parking spaces. They are not enclosed overhead as are malls.

STS shared tenant services See shared tenant services.

subdivision home Any home built in a tract of land that previously has been subdivided into lots. Most subdivision homes are designed and built by one builder to conform to a variety of three or four floor plans.

subject to clause syn contingency, contingency clause, escape clause, and weasel clause See contingency.

sublease syn assignment of lease An agreement between a member of a co-op development and another person who wishes to lease the member’s unit without the transfer of ownership. Such a sublease agreement must be approved by the co-op’s board of directors, and subtenants must personally be approved and meet the same eligibility requirements as members.
Also, the transfer by a tenant of a portion of the physical premises within a leasehold for all of its remaining term, or a transfer of all of the physical premises for only a part of the unexpired leasehold term. See also assignment of lease.

subordinate n. inferior to, as a second deed of trust v. to change from a superior to an inferior priority, as from a first to a second deed of trust.

subordination agreement A contract contained in or incorporated by a deed of trust that reduces its priority to another existing or anticipated deed of trust. Without subordination, a developer would have to retire the full unpaid balance of the secured purchase-money note before construction or development because institutional lenders of interim financing are restricted to first priority liens.
Example: Seller takes back a purchase-money note secured by a deed of trust for 90 percent of the purchase price. The buyer obtains interim financing with which to manufacture twenty-five lots on the condition that the seller subordinate. Upon close of escrow, the seller’s encumbrance is of first priority; upon recordation of the construction loan, the seller’s lien is automatically reduced to second priority.
An increased sales price is typically the incentive for a seller to accept a reduced priority and the risk of inadequate security. In considering the specific enforcement of a subordination agreement, the court will require specificity and fairness. Therefore, important factors to be included in the agreement included specification of all terms of the superior loan (the interest rate, points, term, amortization rate, type lender, and use of the proceeds) and consideration of the impact on the value of the seller’s collateral at all stages until the loan is retired. Because of the artificially increased price demanded by a subordinating seller, the subdivider/purchaser and seller are in a quasi-joint venture relationship.

subpar loan Loans for “D” grade borrowers who must pay exceptionally high interest rates and many points to obtain financing to purchase homes. These borrowers typically have demonstrated an unwillingness or inability to pay debt. Many have a bankruptcy history. Because of the risks involved, lenders may charge 8 to 12 points and a down payment of 35 percent. Interest may be 15 percent and is never lower than 12 percent. The motivation of borrowers who apply for such loans to refinance lower rate mortgages is to take money out of their houses to pay off credit cards which may have 19 percent or more interest rates. Lenders make money even with the high rate of defaults of such loans.

subpeona An order directing a person to appear at a certain time and place for the purpose of giving testimony as a witness.

subsurface rights Ownership of the rights lying beneath the surface of real property, such as mineral rights.

substitution of collateral clause A provision in a note that authorizes the debtor to transfer his mortgage obligation to a different, or substitute parcel of real estate at some time in the future. Following substitution, the original collateral is released and becomes free and clear property.

summons A document issued by a clerk of the court at the request of the plaintiff when a complaint is filed. After service on the defendant, judgment will be taken if the complaint is not answered within the statutory time (e.g., 15 or 30 days). A summons is prepared by the plaintiff’s attorney.

sweat equity The equity in a home created by the owner’s personal work done pursuant to an agreement with the seller/builder. For example, a purchaser can negotiate for a price reduction in exchange for acceptance of a partially completed home. The home is completed after the purchase by the “sweat” of the new homeowner. Also, work done by members of a co-op or tenant association for the benefit of the membership.

sweetener An extra benefit offered during the course of negotiations to induce execution of a contract.

swing loan An interim loan used to finance the down payment for a second home pending the sale of the seller’s listed home. The swing loan is repaid from the sale proceeds of the listed home. A swing loan is used as a “sweetener” in attracting new listings. Generally, it is ill advised because of the uncertainties surrounding the sale of the listed home; the inherent difficulties of owning two homes, and the opportunity for conflict between the seller and the agent who made the loan. Any short-term loan made between two transactions, necessary to swing the deal.

syndication A pooling of capital to achieve an investment goal. Syndications usually contain active participants with real estate expertise and inactive investors with little or no real estate savvy. See also limited partnership.

T

T lot A lot that faces a T intersection.

table Negotiations, or the negotiating table. The buyer brought a lawyer to the table. Or, the seller placed a red herring upon the table.

take-out financing syn permanent financing The long-term financing that replaces (takes out) a construction loan once a project is completed. An open-ended construction loan may automatically become a permanent loan. If not, the proceeds of the take-out loan are used to pay off the construction loan. Often a construction loan will not be approved unless the developer first obtains commitment from a permanent lender.

target housing Pre-1978 housing. Federal law requires disclosures by owners relative to lead-based paint hazards in the sale, lease or rental of housing built before 1978. Foreclosure sales, however, are exempt from this disclosure requirement.

tandem homes Two homes on one lot. The home in front usually houses a family that cares for an aging relative living in the smaller home in the rear.

tax-assessor syn assessor See assessor.

tax basis The cost of property. See adjusted tax basis.

tax deductibility An expenditure that is entitled to be deducted from taxable income. A business trip, under IRS regulation, is deductible.

tax-free exchange syn like-kind exchange An exchange, or trade, of real estate qualified for deferral of capital gains taxation. The benefit is to use equity in a property to acquire a larger property without suffering the shrinkage of equity that would otherwise occur because of the capital gains tax. See also delayed exchange.

TDR syn transferable development rights See transferable development right.

teaser rate of interest An especially low rate of interest charged by lenders of adjustable rate mortgages during the first year or so of the loan.

tenancy by the entirety An ownership form for husband and wife under which there is right of survivorship. Under its traditional form, neither husband nor wife can convey away their respective interest, voluntarily or involuntarily, without the consent of the other. This feature is unlike a joint tenancy with right of survivorship held by a husband and wife. Tenancies by the entirety, although popular in common law states, are not permitted in California, a community property state.

tenancy for years syn estate for years A leasehold interest that expires at a specific future time, often one year, with rent collected monthly. See also periodic tenancy, tenancy at will, and tenancy at sufferance.

tenancy in common See co-ownership.

tenant A renter of commercial or residential property. The lessee in a lease is the tenant, the lessor is the landlord.

tenant at sufferance syn holdover tenant See holdover tenant.

tenant improvement, (TIs) The cost of preparing leased space for occupancy by a new tenant.

tenants’ union A group of tenants joined together to negotiate for better terms and conditions in their leaseholds. A tenants’ strike would involve the withholding of rent.

telecommunications enhanced real estate, (TERE) syn intelligent building, smart office building, shared tenant services, (STS) See smart office building.
TERE syn telecommunications enhanced real estate, intelligent building, smart office building, and shared tenant services, (STS) See smart office building.

termite inspection An inspection by a licensed contractor of commercial or residential real property to determine the presence of termites or vermin, or damage from water or dry rot, or conditions that ought to be rectified to minimize future damage.

testilying A slang composite of “testifying” and “lying”. The term highlights the reality that many witnesses can and do manipulate their testimony in court or arbitration to serve their perceived self-interest. There are few convictions for lying in court, especially in civil court. There are virtually no convictions for lying in arbitration. Clever persons, such as the white collar type of persons found in the real estate industry, can and do use “flexible facts” and qualifications on their testimony and other tactics to essentially lie or mislead in court or in arbitration proceedings.

the check is in the mail A debtor’s response to a persistent creditor. Often the response will “buy a little time” for the debtor to come up with additional financing.

thin equity When the sum of all the financing on a property is almost equal to its market value. That is, equity is “thin” when it is almost nonexistent!

thread The centerline of a nonnavigable stream or lake.

three & two, or 3 & 2 A three-bedroom, two-bath house.

three-two-one buy-down A mortgage interest rate buy down of three percent below market interest during year one, two percent below market for year two, and one percent below market for year three. Buy downs are offered by sellers of new homes as a sales inducement when market interest rates are very high. Buy downs may result in a higher sales price if the amount of the buy down is added to the price set by the seller.

thrift syn savings and loan See savings and loan.

tight contract Any carefully drawn contract that covers or takes into consideration all important factors relative to a transaction. The opposite of a tight contract is a loose or sloppy contract.

tight house A home designed and built to provide for improved air quality through a controlled indoor environment, using an integrated heating, air conditioning, and ventilation system.

tight market A rental market is said to be tight when there is a lack of available vacancies.

tight money market A lack of acceptable real estate financing.

time-is-of-the-essence A phrase often inserted as boilerplate in real estate contracts which supposedly will cause a court to enforce agreed upon time limits. However, rarely are time limits in real estate deals strictly enforced due to customs and practices in the industry. Nonetheless, the phrase can be used for advantages.

tired listing A house that has been listed for a long time without selling. Some professionals recommend “resting” a tired listing before putting it back on the market.

title company A business organization that maintains records, either print or electronic, of all documents that pertain to real estate that are recorded in the official records of the county. These records are used to prepare preliminary title reports as well as to support the issuance of policies of title insurance. Many title companies also perform the services of escrow companies.

title insurance A form of protection against surprise encumbrances on or claims to real estate. A title company prepares a report that refers to all recorded documents that affect the ownership of or possession to a specific parcel of real estate. Some unrecorded encumbrances, such as property taxes, are reported as well. Ordinarily, no attempt is made to include unrecorded claims in the report, other than taxes. Title insurance, in general, is a form of guarantee that the title company’s report is accurate. That is, the insured property owner is protected from losses that may be caused by the failure of the title company to properly report all encumbrances of record that effect the property. The protection is against surprise encumbrances. Additionally, title policies may protect against losses from forgeries, as well as from specified unrecorded claims if a special premium is
paid. All institutional lenders require that their borrowers (mortgagors) obtain title insurance. The three most important owner’s and lender’s forms of title insurance are the American Land Title Association (ALTA) forms, the California Land Title Association (CLTA) forms, and the New York Board of Title Underwriters (NYBTU) forms.

title search An analysis of the official records to identify and catalog those documents that pertain to a particular parcel of real estate. A title search ordinarily is performed by an attorney or a title company, but may be performed by anyone because official records are open to the public.

tort litigation Certain types of lawsuits in which compensation may be allowed for pain and suffering, bodily injury, loss of future profits, out-of-pocket costs, and punitive damages in some instances. In real estate, tort litigation may result from misrepresentation (called fraud), for example. Attorneys often accept tort cases upon a contingent fee basis, sharing in any recovery.

townhouse A single family residential unit, normally two or more stories, with one or more common walls. Townhouses may be condominiums or apartments.

township See legal description.

tract house A residence that is similar in style and floor plan to other houses in that tract, or neighborhood.

tract index An official filing system used by local government in recording documents pertaining to real estate. Transactions are indexed by reference to property descriptions. See also grantor-grantee index.

trade down An exchange of real estate of considerable value for property of less value plus cash. The cash, called “boot,” is taxable even though the exchange may qualify for a tax deferral.

trade fixture A fixture that is used in a tenant’s trade or business. (For example, a meat counter would be a butcher’s trade fixture.) Ordinarily, a trade fixture is intended to remain personal property regardless of its attachment to the real estate, and it is therefore subject to the claims of creditors of the tenant, or it may be removed by the tenant on termination of the lease.

trade-up buyer syn move-up buyer See move-up buyer.

trading down Buying a less expensive home than is owned.

traditional mortgage syn fixed rate mortgage See fixed rate mortgage.

trailing spouse A spouse in a dual income family that has “trailed” the other spouse who has accepted employment, perhaps a promotion or new job, in a different city. Because only one spouse then is employed, and their combined income lessened, they may not qualify for a mortgage loan consistent with their desires. Some lenders qualify borrowers under such circumstances on the basis of the potential earning power of the trailing spouse.

transaction coordinator A person who assists real estate sales agents with the processing and closing of transactions. Transaction coordinators help arrange property inspections, and interface with inspectors, bankers, attorneys, escrow, other agents and anyone else involved in a transaction. No real estate license is required so long as the transaction coordinator does not engage in the negotiating processes underlying the sales transaction.

transfer tax A federal tax imposed on transfers of interests of real property. The tax is computed by reference to the value of the interest conveyed. It is collected by the sale of documentary transfer stamps, which are affixed to the deed when it is recorded. Since the transfer tax stamp is a matter of public record, examination of the records will reveal the sales price of all transfers. To conceal sales data, some real estate players purchase more stamps than are necessary, simply to make the sales price appear greater than it actually was. The tax is computed at the rate of $.55 for each $500 of value or fraction thereof.

transferable development rights, (TDRs) The rights issued to owners within a conservation area of restricted development that authorize development in a transfer area where development is favored. TDRs are fully transferable and may be sold, which serves to compensate owners within areas restricted from development. They are often used to preserve historical buildings or to create open space areas. For example, local government may determine that, for environmental reasons, no development ought to take place on Greenacre owned by the Smiths. To accomplish this goal, the government issues a scrip (called TDRs) to the Smiths that can be sold to other developers in the area who can use the TDRs for a variety of advantages on other properties, such as increased densities. If the value of the scrip paid to the Smiths is equal to or greater than the loss in value to their property, they have received “Just Compensation” for the “taking” that has occurred of their valuable property rights. Ideally the market value of the TDRs that are paid to such owners of property that is denied its development opportunity is reasonable. But like the market value of most assets, changes occur and there is opportunity for unfairness.

trial courts Tribunals that conduct trials, as distinguished from courts that conduct appeals of cases decided by trial court.

triple A tenant See AAA Tenant.

triple net lease syn net lease See net lease.

triplex A multi-unit residential dwelling containing three separate living units.

trust account Any account held by a fiduciary for the benefit of another. A real estate broker is required by law to maintain a trust account in which earnest money deposits are maintained. Attorneys often maintain trust accounts of clients’ funds. In all cases, the fiduciary cannot deposit personal funds in a trust fund, nor can he use trust funds for personal benefit. Violation of trust account law can result in suspension or revocation of professional licenses.

trust deed A mortgage. A trust deed conveys the legal title to real estate from a debtor to a third party trustee, to hold the property “in trust” for the benefit of the lender so long as the debt is unpaid. Cf. trustee’s deed.

trustee A person who is paid to hold property for the benefit of another person, called the beneficiary. Trustees in deed of trust transactions are often attorneys or title companies.

trustee in bankruptcy A professional appointed by the U.S. District Court to supervise a particular bankrupt’s affairs in accordance with the bankruptcy law.

trustee’s deed A variety of deed used by trustees under deeds of trust to transfer ownership to the highest bidders at foreclosure sales.
Trustees holds legal title to the encumbered properties until one event or the other occurs: either the debtors (trustors) pay off their secured loans or defaults. In the former situation, the title is returned to the debtor by deed of reconveyance (signed by the trustee) and the whole transaction is over. In the default situation, however, the trustee will, on the creditor’s request, initiate foreclosure proceedings. Foreclosure proceedings, unless terminated in midstream, will result in a public sale of the property securing the unpaid debt. The high bidder will receive ownership, both legal (title) and beneficial ownership (possession), by trustee’s deed. See deed.

truth in lending A federal consumer law that requires lenders to compute and disclose to prospective borrowers, among other things, an annualized percentage rate (APR). As of this date, there is no standardized disclosure requirements relating to adjustable rate mortgages.

two-step or 7/23 loan A variety of adjustable rate mortgage that “triggers” a new interest rate only once at the end of 7 years. The remaining 23 years remain at the adjusted interest rate. (Note that most homes resell every 7 years, at which time due-on-sale clauses compel loan payoff). Another version of the 7/23 is the 5/25, i.e., an interest rate adjustment once after 5 years, thereafter the rate is constant. Borrowers may be able to refinance when the rate adjustment “triggers” but only if the market has been sufficiently favorable to maintain a sufficient equity. In a falling or even static market, homeowners may not be able to refinance when the adjustment takes a steep jump. Refinancing always requires a sufficient LTV ratio that necessarily erodes in a falling market.

U

underlying fee An owner’s interest in the real property lying beneath an easement. For example, the owner of the underlying fee beneath a right-of-way would own all mineral rights.
underwriting Casualty underwriting is the process of determining the insurability of individual risks by using a technical, but often subjective, sets of criteria, such as age, physical condition, or location of a particular property for casualty insurance purposes. Loan underwriting is the process of evaluating loan applicants.

underwriting lease syn head lease, principal lease, main lease, master lease, and original lease See master lease.

undivided interests Co-owners of property each own a share of the entire property, not any particular portion. Such interest are undivided.

unexecuted deposit receipt A disguised sale. The parties to a sale sign a legally binding sales agreement (deposit receipt) but delay opening and closing escrow for a long period during which the buyer makes payments on the purchase price and takes possession. The intent is to conceal the sale from the existing mortgage lender and/or tax assessor. Like other disguised arrangements, it is fraught with the potential for legal problems.

Uniform Residential Landlord and Tenant Act, (URLTA) See URLTA.

unimproved land See raw land.

unit A standard measurement. A single component part of a whole, such as an apartment building consisting of 100 units. A family unit consists of more than one person, but a family is only one unit in considering housing densities.

unlawful detainer A legal action by a landlord to evict a tenant. It is more expeditious than most lawsuits. Such an action must be preceded by an appropriate notice to the tenant, such as a three-day notice to pay.

unleveraged purchase An acquisition made entirely with equity cash. Such investors are often seeking income. By avoiding financing charges they obtain a greater yield from the project, that is they obtain the cash flow that otherwise would have serviced the financing.

upgrade buyers Home owners who desire to purchase larger homes with more amenities. They are also called move-up buyers.

URLTA syn Uniform Residential Landlord and Tenant Act A uniform law modernizing common-law rules that govern the landlord-tenant relationship. In general, the act adopts contract principles and imposes implied duties upon landlords.

upscale project A luxury residential development, or any other development pointed toward the luxurious portion of the market.

upscale retirees Senior citizens with wealth and a desire to spend it on luxury housing. More than 11 percent of the U.S. population are over 65 years of age. Furthermore, seniors are living longer and healthier lives. These demographics are increasing the demand for upscale senior citizen housing projects, such as lifecare developments.

urban renewal The coordinated and concentrated effort with the aid of public funds and governmental powers to eliminate or prevent slum and blighting conditions in an area or areas.

urban sprawl The poorly planned encroachment of urban uses into rural areas. Urban sprawl may be characterized by leapfrogging, congestion, contiguity of development to working farms, and so forth.

usable square footage In commercial leasing, usable square footage includes a pro-rata portion of bathrooms, hallways and lobbies, for which the tenants pay rent.

V

VA loan A Veteran’s Administration loan available to qualified veterans. Such a loan may feature little or no downpayment and a below-market interest rate. This contrasts to about a five percent down payment requirement for a Federal Housing Authority loan; and a ten percent or more down payment for a private mortgage insurance loan. These terms vary frequently as rules, regulations, and market conditions change.

variable interest rate mortgage, (VIRM) syn adjustable rate mortgage, (ARM) See adjustable rate mortgage, (ARM).

variable payment mortgage A general description of any mortgage loan which contains a provision that changes the amount of monthly payments. Monthly payment changes may result, for example, from fluctuations in an index in a variable rate mortgage, or from a planned increase in payments in a graduated payment mortgage, or from the end of an interest-only period.

variable rate mortgage See adjustable rate mortgage.

vegetable soup Hodge-podge development. “The area is a big bowl of “vegetable soup,” being without style or uniformity, or even consistency.”

verdict The expressed decision of the jury on questions of fact submitted to it for determination, based on evidence presented during trial.

vertical subdivision See condominium.

vested remainder The ownership rights of a remainderman following creation of a life estate.

vested rights Property or contract rights that presently exist. Op. contingent rights.

VHMCP syn voluntary home mortgage credit program See voluntary home mortgage credit program.

VIRM syn variable interest rate mortgage and adjustable rate mortgage, (ARM) See adjustable rate mortgage.

voluntary home mortgage credit program, (VHMCP) A national organization dedicated to finding mortgages for those people who do not qualify for VA or FHA mortgages. This organization also helps obtain mortgages for minority members.

vulture fund A real estate investment trust or syndication that seeks distressed properties to acquire and hold, usually for the long term. The word apparently relates to the weak position of the owner of a distressed property who is no longer able to hang on and whose investment has become a “carcass” to be devoured by a group of “vultures.” Vulture funds are also called “opportunity” funds in recognition of the great opportunities they capitalize upon. Vulture funds also are referred to as “bottom-feeders.”

W

walk-through inspection A last-minute inspection of a home performed by the buyer just before close of escrow to ensure that the property is in the same condition as when the contract to buy was signed.

walk-up A two-story apartment building that does not have an elevator.

wall street mortgages Cash advances made by stock brokerage houses secured by liens on real estate equities. Wall street mortgages are junior priority liens.

WAM syn Wraparound mortgage, creative financing, seller’s financing, and all-inclusive note and deed of trust See all-inclusive note and deed of trust.

warehousing loans Grouping mortgages into large blocks for sale in the secondary mortgage market.

waste The deterioration of real property caused by abusive conduct, such as actual physical damage or excessive deferred maintenance. In a mortgage deed of trust, it is customary for the trustor (debtor) to agree not to commit waste during the life of the mortgage, so as to protect the security of the lender. Waste thus becomes a default under the mortgage, and the lender can initiate foreclosure.

weasel clause syn contingency, contingency clause, escape clause, and subject-to clause See contingency.

window lot A subdivision lot of greater value due to its location.

win-win deal A real estate deal in which all parties to the transaction receive a good deal, they”walk away happy.” Some real estate players contend that a win-win deal is not a good deal, that the other party always should “walk away unhappy.”

without recourse Without liability. When a person endorses a note in such a manner that he does not guarantee its payment, the note is “without recourse.” Also, in some real estate transactions, a borrower may sign a note as maker, “without recourse,” which forces the creditor to look solely to the collateral for repayment of the loan. Also, a creditor to a limited partnership is “without recourse” to the limited partners. All purchase-money mortgages are without recourse.

woodjatake A hypothetical question, often used by traders to test the likelihood of a suggested transaction or deal. “Woodjatake $50K?”

working capital The sum that a developer needs to begin a project, that is, to acquire the land, to obtain a construction loan, and/or to begin development on a property.

workout An agreement between a real estate lender and owner, essentially waiving strict enforcement of the financing for a period of time enabling the project to become economically feasible.

wraparound mortgage, (WAM) syn all-inclusive note and deed of trust, creative financing, and seller’s financing See all-inclusive note and deed of trust.

written interrogatories See interrogatories.

Z

zero coupon financing A form of bond financing in which principal and interest payments are deferred until the bonds mature. The lender provides the mortgage money to the borrower and issues mortgage-backed zero coupon bonds to investors who are willing to wait until maturity for both repayment of interest and principal. The project thus defers amortization of its financing until the future when rent and inflation are assumed to make repayment more feasible. The Internal Revenue Services imputes interest under such circumstances which must be included in the taxable income of the investor each year, unless the bond is in some tax free status, such as an IRA.

zero percent mortgage, (ZPM) An interest-free mortgage with a short term, such as five years. To qualify for a ZPM, a buyer must make a substantial down payment, perhaps thirty-five percent. Under tax law, the homeowner is entitled to a ten percent interest deduction, and the seller is required to include a corresponding amount as interest income, due to the rules of imputed interest.

ZPM syn zero percent mortgage See zero percent mortgage.