Navigating this site is not enough if you do not first understand some basic real estate terminology. Get familiar with real estate lingo! Below are simple definitions of some of the more common real estate terms that you will come across. These definitions are by no means exact. They have been minimized for the effect of simplicity and we have included scenarios to explain the more difficult terms.
ABSTRACTOR - A person or company whose job it is to search the land records in the county where property sits. The job of an abstractor includes providing a report that tells what liens or encumbrances are attached to the property. A title company usually hires an abstractor for the purposes of providing the report to the lender and title insurance company. The abstractor's findings are called the "Title Report," "Report of Title," or "Abstract." Anyone interested in learning about what liens or encumbrances attach to a piece of property can hire an abstractor to search the land records. Do not purchase property without having an abstract completed, you never know what has attached to property.
AMORITIZATION -
APPRAISAL -
DEED - The legal document conveying title or an interest to property/land. The seller signs the Deed over to the buyer. The buyer does not sign the Deed at settlement, but his name will appear on the Deed. Normally, a title company or lawyer will prepare the Deed. Popular Deed names are: Special Warranty Deed, General Warranty Deed and Quitclaim Deed. In Maryland, we pass title by a Special Warranty Deed, but other Deeds are also used.
- Special Warranty Deed means that the seller or person giving the Special Warranty Deed will warrant/guarantee that while he had ownership of the property, title was not defective and if it was while he had ownership, he will protect the buyer from any claims or defects in the title. Think of a Special Warranty Deed like this: I will only guarantee that title is good to my home while I was on the title and not when the property was owned by people before me. Defective title means that there is a lien, assessment, or someone else is claiming ownership to the property. See Definition of Title Insurance.
- General Warranty Deed means that the seller or person giving the General Warranty Deed will give all of his interest in the property and warrants/guarantees that if the title is defective that the grantor/buyer can demand that he be liable to clear or defend the title. Defective title means that there is a lien, assessment, or someone else claiming ownership to the property. Think of General Warranty Deed like this: I will guarantee that title is good to my home while not only I was on title, but everyone else before me. See definition of Title Insurance.
- Quitclaim Deed means that the seller or person giving the Quitclaim deed will give all of his interest in the property that he MAY or MAY NOT have and will not guarantee anything except that he MAY or MAY NOT have an interest that he will give to you. Think of Quitclaim Deed like this: I will give you all of my interest in this home that I may or may not have-I cannot guarantee you that I even have an interest, but if I do, you can buy it or have it. Quitclaim Deeds always raise a Red Flag. Why? Does it seem right to buy something that you don’t know exists? Consult a lawyer before signing or accepting one of these bad boys.
DEED OF TRUST/MORTGAGE - The Deed of Trust is the legal instrument that conveys an interest in a home to the lender until the mortgage debt is paid off. This document is used to foreclose in the event of default. This is that 40 or 50 page document that you receive at settlement. Some people call the Deed of Trust a mortgage, for our purposes we will use both terms to mean the same. But, there is a difference between a Deed of Trust and a Mortgage, however, that’s another lesson.
DEFAULT - Failure to make the mortgage payment within a specified period of time. For most mortgages, if a payment has not been made one day after the due date, the loan is considered to be in default. Most lenders do not consider a loan in default until it is 30 days past due.
EARNEST MONEY DEPOSIT - A deposit made by the potential home buyer to the seller to prove that the buyer is serious about purchasing the house. This deposit money should be kept in an escrow account either with the Real Estate Agent's brokerage or title company.
EXAMINATION OF TITLE - The report on the title of a property from the public records or an abstract of the title. This process is utilized by the title company to determine what, if any, liens are recorded against the property. Usually an abstractor (fancy word for a person that searches land records) will be hired by the title cCompany to search the land records. His findings will be submitted in a report called an "abstract of title" or "title abstract." If liens are recorded against the property, the abstractor should be able to find them. However, liens can only be found by the abstractor if the county land records office recorded them properly and timely. How does this work? Buyer contracts to buy house from seller. Before the lender agrees to give financing to buyer, lender wants to make sure the property has no liens except for the seller's mortgages. Lender tells title company to hire an abstractor. Title company hires Abstractor who then heads down to the local land records office to search through all documents that are recorded against the property. If abstractor searched on Monday, January 1, 2001 his findings are only good through that date. Why, because what if a lien is recorded on January 2, 2001. The abstractor would not have found it because he was a day late. Or, what if he searches on January 1, 2001 and the Clerk's office realizes that something was filed on another property that should have been filed against yours. (Just to let you know, if this happens, as long as a buyer purchases GAP insurance, he should be fine and the title will be cleared before it passes to him.)
EXCLUSIVE LISTING - A written contract that gives a licensed Real Estate Agent the exclusive right to sell a property for a specified length of time. The terms should be in the form of a contract. No oral agreements.
FORECLOSURE The legal process by which a borrower in default under a Deed of Trust/Mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt. See section on Foreclosures.
FIRM COMMITMENT - A lender's agreement to make a loan to a specific borrower on a specific property.
FAIR MARKET VALUE - The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.
GAP INSURANCE - Issued by a title insurance provider. A buyer must pay for it at settlement to get the coverage. This insurance covers a buyer's title to the property in the event that a lien is discovered from the time that the abstractor searched the land records to closing.
GRANTEE The person to whom an interest in real property is conveyed.
GRANTOR The person conveying an interest in real property.
NOTE A signed document from the borrower to the lender that promises to pay the borrowed amount. The note will contain: who the borrower is, the lender’s name and address, amount borrowed, time, place and date of payment, and default provisions.
TITLE COMPANY SETTLEMENT AGENT/SETTLEMENT ATTORNEY/TITLE INSURANCE - A homeowner may purchase title insurance when she buys her home. The insurance is meant to protect the homeowner’s and lender’s financial interest in a home against losses that can arise from defects in title, liens, or other claims to the property. If it is discovered that there is a defect in the title, a homeowner must file an insurance claim with her title insurance provider. The title insurance provider will work to clear the title. In the event that the title cannot be cleared, the title insurance provider may pay the homeowner the amount of the actual loss, or they may have to pay for the cost of the home if the issue is severe. This is how it works: Linda purchased her home in 2005 and purchased title insurance from Homes Secured Title Insurance Company. In 2009, she gets a call from a lawyer claiming that his client Brick Company has a lien against her property that was filed prior to her purchasing the home. She learns that the lien is for $500.00. Instead of panicking and giving the lawyer an earful and telling him what he can do with the lien, she pulls out her title insurance policy she received at settlement and told the lawyer she will have her title insurance provider contact him. She calls Homes Secured Title Insurance Company and it in turn sends her form to fill out and they take it from there. In this case, it should take less than 120 days for Homes Secured to settle the issue with Brick’s lawyers. Had Linda not purchased title insurance, she would have been on the hook for $500.00.
SERVICER-An entity that is held by the lender to collect and process mortgage payments, to send out notices about changes in loan and some have permission to foreclose on behalf of the lender. Some servicers only service sub-prime, prime, or loans in default, and others handle a combination or all types of loans.
SPECIAL SERVICER-The same as a servicer except that it manages loans that are already in default.
SECURITIZATION—the process of pooling (grouping) together thousands of loans and having those loans assigned to one common owner. The pooled loans are overseen by a trustee and bonds are issued to investors based on the type of risk the investor is looking for. Because the loans are pooled and marketed to investors, they are considered securities and the Securities and Exchange Commission has jurisdiction over this type of investment product.
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