The following list defines most of the terms you will come across in your real estate transactions. Individual matters should be discussed with an attorney whenever there is a legal question.

ABSTRACT OF JUDGMENT: A summary of the essential provisions of a court judgment. When recorded in the county recorder's office, an abstract of judgment, creates a general lien on all of the real property of the judgment debtor in that county in which it is recorded.

ACCELERATION CLAUSE: This clause in a note and trust deed permits the payee or beneficiary to declare the entire unpaid balance immediately due and payable when a given condition occurs. Such a condition can be the sale of the land. This clause is sometimes called an "alienation clause".

ACCOMMODATOR (INTERMEDIATE): A party to an IRC s1031 exchange transaction, who, pursuant to an Exchange Agreement, acquires relinquished property, holds money from the sale of the relinquished property, acquires replacement property, and then transfers the replacement property to the Exchanger.

ACKNOWLEDGEMENT: A formal declaration made before a duly authorized officer (usually a notary public) by a person who has executed an instrument that such execution is his or her act and deed.

ADJUSTABLE RATE MORTGAGE (ARM): A mortgage in which the interest rate is adjusted periodically according to a preselected index. The terms, adjustment schedule and index to be used can vary based on the particular lender.

AD VALOREM: Literally, "according to value." This term is usually used in reference to real property taxes that are assessed according to value, i.e., ad valorem.

AGENCY: Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the later. Agency involving real property should be in writing, such as listings, trusts, powers of attorney, etc.

ALL INCLUSIVE TRUST DEED (AITD/WRAP-AROUND MORTGAGE): A financing technique that involves the creation of a new trust deed that includes the balance due on the existing note plus any new funds advanced.

AMORTIZATION: Provision for the payment of a debt as to both principal and interest in equal installments over a period of time.

ANNUAL PERCENTAGE RATE (APR): An expression of the percentage relationship of the total finance charges to the total amount to be financed, as required under the federal Truth-in-Lending Act.

APPRAISAL: An opinion as to the fair market value of land and the improvements on it.

ASSESSED VALUE: The value placed on land and improvements as a basis for taxation. In California this is usually accomplished by the county assessor's office, and the assessed values for real estate taxes are usually one quarter of market value.

ASSESSMENTS: Special and local levies placed upon property in the immediate vicinity of an improvement. Assessments can be imposed by such entities as flood control districts, street lighting districts and air pollution control districts that serve an area.

ASSIGNEE: One to whom a transfer of interest is made. An example is the assignee of a Deed of Trust or contract.

ASSIGNMENT: The transfer, in writing, of a person's interest to another person or entity in an asset, such as an assignment of stock, a Deed of Trust or contract.

ASSIGNOR: One to who makes an assignment, for example, the assignee of a Deed of Trust or contract.

ASSUMABLE: A mortgage loan, which can be transferred to another person without a change in the terms of the loan.

ASSUMPTION: An agreement by one party to pay an obligation previously owned by another. For example, the assumption of an existing Trust Deed by a new owner may occur when property is sold.

ATTORNEY IN FACT: One who holds a power of attorney from another allowing him to act on behalf of the grantor of the power.

BALLOON PAYMENT: The unpaid principal amount of a loan due on a specific date in the future. The balloon payment is usually the amount that must be paid in a lump sum at the end of the term.

BENEFICIARY: The person who is entitled to receive funds or property under the terms and provisions of a will, trust, insurance policy or security instrument. In connection with a mortgage loan the beneficiary is the lender. In Trust Deed, the lender is designated as the beneficiary. He obtains the benefit of the security.

BENEFICIARY'S STATEMENT: A report from the lender, usually in writing, setting forth the terms and conditions of a loan already of record, such as amounts still owed, interest rate, monthly payments, etc.

BILL OF SALE: A document that attest to the transfer of ownership of personal property.

BONA FIDE PURCHASER (BFP): One who buys property in good faith, for fair value, and without notice of any adverse claim or right of third parties.

BORROWER: One who obtains a loan and owes money to a lender.

BROKER: A person licensed to act as an agent for another in negotiating the sale, purchase, of real property in return for a fee or commission.

BUYDOWN: A financing technique used to reduce the monthly payment for the home buying borrower during the initial years of ownership. Under some buydown plans, a residential developer, builder, or the seller will make subsidy payments (in the form of points) to the lender that "buydown", or lower, the effective interest rate paid by the home buyer, thus reducing monthly payments for a set period of time.

BUYER: One who purchases or acquires property.

CAP: The maximum that an adjustable rate mortgage may increase, regardless of index changes.

CC AND Rs (COVENANTS, CONDITIONS AND RESTRICTIONS): Limitations placed on the use and enjoyment of real property. These are found most often in condominiums and planned unit developments.

CHAIN OF TITLE: A chronological list of recorded instruments tracing title to land, form the original owner to the present owner.

CLEAR TITLE: Title to property, which is free from liens, defects of other encumbrances.

CLOSING: The process of completing a real estate transaction during which the seller delivers title to the buyer in exchange for payment of the purchase price. Called a "settlement" in some areas.

CLOSING COSTS: Expenses, beyond the selling price, such as loan fees, title fees, etc. Paid when documents are executed and/or recorded and the sale is complete.

CLOSING STATEMENT: A summary, in the form of a balance sheet, showing the amounts of debits and credits to which each party to a real estate transaction is entitled upon closing.

CLOUD ON TITLE: Any document, claim, unreleased lien or encumbrance, which, if valid, would affect or impair title to a property.

COLLECTION SERVICE: A service performed by a neutral third party in receiving and disbursing loan payment as instructed by the parties concerned.

COMMISSION: Compensation due a real estate broker for acting on behalf of the principal.

COMMUNITY PROPERTY: Property acquired during a marriage by either a husband or wife, or both, which is not separate property.

COMPARABLES (COMPS): An abbreviation for comparable properties used for comparative purposes in the appraisal process.

CONDEMNATION: The exercise of the power of eminent domain by which property is taken for public use upon payment of just compensation. Condemnation can also refer to the condemning of unsafe structures.

CONDOMINIUM: A multifamily or other structure in which individual units are individually owned and in which owners of individual units also own an undivided interest in common areas.

CONSIDERATION: A required element in all contracts by which something of value, including a promise is exchanged for the act or promise of another.

CONTINGENT: Dependent upon conditions or events specified but not yet accomplished. Property may be sold contingent upon the seller or buyer meeting a predetermined condition.

CONVEYANCE: A written document that transfers title to an asset from one person to another. A deed and an assignment are both conveyances, as is a bill of sale.

COUNTY ASSESSOR: One who sets value of property for taxation purposes.

DEED: A Written Document, which conveys ownership of land from one person to another.

DEED OF TRUST: A security agreement creating a lien by which title to real property is transferred to a third-party trustee as security for an obligation owed by the trustor (borrower) to the beneficiary (lender).

DEFAULT: Failure to perform a duty or to pay an obligation.

DEFICIENCY JUDGMENT: A personal judgment in a judicial foreclosure action for the remaining amount due after a sale of the security.

DEMAND/BENEFICIARY'S DEMAND: A statement from a lender showing the amount due on a loan.

DISCLOSURE: In real estate, revealing all the known facts that may affect the decision of a buyer or tenant. A broker must disclose known defects in the property for sale or lease. A builder must give to a potential buyer the facts of his new development (are there adequate school facilities?; an airport nearby?; etc.). A broker cannot charge a commission to buyer and seller unless both know (disclosure) and agree.

DOCUMENTARY TRANSFER TAX: The tax, based on sales price, less loans which are being assumed, which is charged by the city and/or county on the transfer of real property.

DUE-ON-SALE-CLAUSE: A clause in a mortgage loan, which gives the lender the right to demand payment in full when the property changes ownership. Not applicable to FHA or VA loans.

EARNEST MONEY: An amount of money given as part of the purchase price of property to bind the agreement between buyer and seller.

EASEMENT: A right or interest in the land of another, such as a right to cross over another person's property to reach yours.

EMINENT DOMAIN: A right or power of a governmental body to take property for a public purpose upon payment of just compensation.

ENCUMBRANCE: A lien affecting the land and improvements, such as a mortgage or Trust Deed.

ENDORSEMENT: A rider attached to an insurance policy to expand or limit coverage. Also spelled indorsement.

EQUITY: Market value of property, less any encumbrance or other liens on it.

ESCROW: According to section 17003 of the State of California Financial Code: "...any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by such third person to the grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter."

EXCEPTION: An interest in real property that is excluded form the conveyance and remains in the grantor or which had been excluded in a prior conveyance.

EXCHANGE: a reciprocal transfer of real property, which has certain tax advantages over a sale. Definite procedures must be followed in order to qualify the transfer as an exchange.

FAIR MARKET VALUE: An appraisal term for the price, which a property would bring in a competitive market given a willing seller, and willing buyer, each of whom has a reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy or sell. FEE SIMPLE: An estate under which the owner owns a complete interest in the property and is entitled to the unrestricted use and enjoyment of the property, including the right to dispose of the property.

FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC, FREDDIE MAC): A quasi-governmental agency that purchases conventional mortgages in the secondary mortgage market form depository institutions and Department of Housing and Urban Development (HUD) approved mortgage bankers.

FEDERAL HOUSING ADMINISTRATION (FHA): A division of the Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans by private lenders.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA, FANNIE MAE): A tax paying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by VA as well as conventional home mortgages.

FINANCE CHARGE: A total of all costs imposed directly or indirectly by the creditor and payable either directly or indirectly by the customer, as defined by the federal Truth-in-Lending laws.

FIRST MORTGAGE: A mortgage on property that is superior in right to any other mortgage.

FIRE INSURANCE: Insurance against loss or damage by fire to specific property.

FIRPTA: Under the Foreign Investment of Real Property Act, every buyer must, unless an exemption applies, deduct and withhold 10% of the gross sales price from seller's proceeds and send it to the Internal Revenue Service, if the seller is a "foreign person" under that statute.

FIXED RATE LOAN: A loan on which the same rate of interest is charged for the life of the loan.

FIXTURE: Personal property, which is permanently attached to real property, and as such, becomes part of the real property.

FORECLOSURE: A proceeding to enforce a lien by the sale of the property in order to satisfy the debt.

GRANTEE: The buyer of a deed.

GRANTOR: The seller of a deed.

HIDDEN DEFECT: An encumbrance on a title that is not apparent in the public records, for example unknown heirs, secret marriages and forged instruments.

IMPOUND ACCOUNT: An account held in trust by the lender in which the borrower is required to place monthly deposits for taxes, insurance and other purposes.

JOINT TENANCY: A means of ownership in which two or more persons own equal shares in real property. Upon the death of one tenant, his/her share passes to the remaining tenant(s) until title is vested in the last survivor.

LAND SALE CONTRACT: An agreement to sell and purchase wherein legal title is withheld from the purchaser until such time as the required payments to the seller have been completed.

LEASE OPTION (LEASE WITH OPTION TO PURCHASE): A lease containing an option giving the lessee the right to purchase the property. The price and terms of the purchase must be set forth for the option to be valid. The option may run for the length of the leases or only for a portion of the lease period.

LENDER: One who lends money to borrowers.

LESSEE: The tenant under a lease.

LESSOR: The landlord under a lease.

LEGAL DESCRIPTION: Description of real property, as used in legal documents in contrast to a street address by which the property is commonly known. Legal descriptions usually refer to recorded maps, surveys, or other public documents.

LIEN: A security interest in real or personal property that places the holder in a position prior to the rights of the general creditors of the owner. Examples include Trust Deeds, mortgages, special assessments, recorded judgments, mechanic's lien, taxes, etc.

LIS PENDENS: A notice recorded in the official records of a county to indicate that a lawsuit is pending affecting the lands described in the notice.

LOAN-TO-VALUE RATIO: The ratio of the mortgage loan's principal to the property's appraised value or its sales price, whichever is lower.

MARKETABLE TITLE: Title that is free from defects that would allow a purchaser to be released form his obligation to purchase.

MARKET VALUE: The price that real property would reasonably be expected to bring were it to be offered for sale with a reasonable sales effort over a reasonable period of time.

MECHANIC'S LIEN: A lien on real estate which secures the payment of debts due to persons who perform labor or services or furnish materials incident to the construction of buildings and improvements on real estate.

METES AND BOUNDS: A term used in describing the boundary lines of land setting forth all the boundary lines together with their terminal points and angles.

MORTGAGE: A legal document used to secure the performance of an obligation.

NOTARIZATION: The certification by a Notary Public that a person signing a document has been properly identified. Notarization does not certify the content of a document, only validity of signature.

NOTE: Written evidence of a debt by a borrower that included a promise of payment in accordance with specified terms. A valuable document that must not be lost even when paid in full. In real property transactions, a Deed of Trust usually secures a note.

NOTICE OF COMPLETION: A notice that should be recorded to indicate completion of work of improvement to real property. A valid notice of completion limits the time for filing valid mechanic's liens.

NOTICE OF DEFAULT: Recorded notice that a default has occurred under a Deed of Trust and/or note.

OFFSET STATEMENT: A statement furnished to an escrow from an owner of land subject to an encumbrance (note) as to the balance due. Not to be confused with a beneficiary's statement. A tenant regarding his rights of possession can also provide this.

OPEN END DEED OF TRUST: A Deed of Trust that secures additional notes for funds that a lender may advance to a trustor, subsequent to the execution of the original loan.

OWNER CARRY BACK: A term used to indicate that the seller is willing to take back a purchase money mortgage.

PAYEE: One who receives payments.

PAYER: One who makes payments.

PERFECTING TITLE: Process involving the elimination of any adverse claims against title.

PERSONAL PROPERTY: All property that is not land or improvements permanently affixed to land. Example: stocks, bonds, furniture, automobiles, clothing, promissory notes, etc. Items of tangible personal property are often referred to as chattels.

PITI: Refers to principal, interest, taxes and insurance, the four major components of a usual monthly mortgage payment.

PITI RATIO: The principal, interest, tax and insurance payment to income ratio. Used in mortgage lending decisions.

POINTS: A fee charged by the lender to fund a loan, in addition to and separate from other fees charged. One point equals one percent of the amount of the loan.

POWER OF ATTORNEY: A written authorization to an agent to perform specified acts on behalf of his principal. This may be granted as either a general or a limited power.

PRELIMINARY TITLE REPORT: A report from a title company of the present condition of title made prior to the issuance of a title policy.

PREPAYMENT PENALTY: An agreement to pay a penalty for the payment of a note before it actually becomes due.

PRINCIPAL: The principal is the sum of money outstanding upon which interest is payable. Also refers to one who is served by an agent.

PRIVATE MORTGAGE INSURANCE (PMI): Insurance against a loss by a lender in the event of default by a borrower (mortgagor). The insurance is similar to insurance by a governmental agency such as FHA, except that is issued by a private insurance company. The premium is paid by the borrower and is included in the mortgage payment.

PERORATIONS: The allocation of property taxed, interest, insurance premiums, rental income, etc. between buyer and seller proportionate to time of use.

QUALIFICATION: The process of reviewing a prospective borrower's credit and payment capacity prior to approving a loan.

QUALIFIED INTERMEDIARY: A party to an IRC S1031 exchange transaction who satisfies the "safe harbor" requirements of Reg.S1.1031 (k)-1g(4); A Qualified Intermediary is not the agent of the Exchanger; money actually or constructively received by a Qualified Intermediary will not be attributed to the Exchanger.

QUIT CLAIM DEED: A deed, which conveys whatever right, title, or interest, the grantor may have in property at the time of conveyance. There is no guarantee implied in a quit claim deed.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA): A federal statue requiring disclosure of certain costs in the sale of residential, improved property which is to be financed by a federally insured lender.

REAL PROPERTY: Land or improvements permanently affixed to land.

RECONVEYANCE: The document that is evidence that the Deed of Trust affecting real property has been paid in full and that the lender and the trustee no longer have any interest in the property.

RECORDATION: Filing for record in the office of the county recorder, a very necessary process in dealing with real property.

RECORD OWNER: The owner of property as shown by an examination of the public record.

REQUEST FOR NOTICE OF DEFAULT: A recorded request for notification of a recorded notice of default on a Deed of Trust.

RESERVATION: Right reserved by the grantor in conveying property, or a right that had previously been reserved.

RESTRICTIONS: This is often referred to as covenants, conditions, and restrictions (CC&R) in regard to a piece of property, setting limitations on its use.

RIGHT OF WAY: The right of another to cross over, under or through a parcel of land.

SELLER: One who sells property to another.

SHORT PAY (SHORT SALE): A short sale is the sale of real property where the fair market sale price is less than the loan balance.

STATEMENT OF INFORMATION (SI): A confidential information statement completed by the buyer, seller and borrower in every transaction where a policy or policies of title insurance are requested. Allows the title company to competently search documents affecting the property to be insured, documents which may not refer to said property. Allows title companies to differentiate between parties with similar names when searching matters such as liens and court decrees.

SUBJECT TO: Usually referred to as the condition of title that exists at the time of acquisition by the buyer, such as subject to a Deed of Trust or record.

SUBORDINATION AGREEMENT: An agreement by which a prior lien is made inferior to an otherwise junior lien.

TAX COLLECTOR: One who collects the taxes on the property.

TAX LIEN: A statutory lien imposed against real property for nonpayment of taxes.

TENANCY IN COMMON: Co-ownership in a property by two or more persons, each of who has an undivided interest in the whole property.

TITLE: Evidence of a person's right to or the extent of his interest in property.

TITLE INSURANCE: Insurance against loss or damage resulting from defects in title to a particular parcel of real property.

TRUST DEED: A Deed of Trust. (See Deed of Trust)

TRUSTEE: A person who holds title in trust for the benefit of another. In a deed of trust, the trustee is the person named to hold title in trust for the benefit of the lender until the loan is paid off.

TRUSTOR: The borrower under a Deed of Trust. One who deeds their property to a trustee as security for repayment of a loan.

UNIFORM SETTLEMENT STATEMENT: The standard HUD Form 1 required to be given to the borrower, lender and seller at, or prior to, settlement.

UNMARK ABLE TITLE: Title, which contains defects that would allow a purchaser to be released from his obligation to purchase.

VENDEE: One who is purchasing property under a land sale contract.

VENDOR: One who is selling property under a land sale contract VESTING: Denotes the manner in which title is held. Examples of common vesting are: Community Property, Joint Tenancy and Tenancy in Common.

VETERANS ADMINISTRATION (VA): VA has power and authority to guarantee or insure payment of loans made to veterans by private lending institutions. This function is similar to that of FHA. VA also makes direct loans to veterans in non-urban areas where private loan funds are not available.

ZONING: Local government regulations relating to the use of property.

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